The impact of the global economy: developing and emerging economies and the barriers they face, the effects of globalisation on different countries, and the role of global institutions (the WTO, IMF and World Bank).

What this key area is asking

The SQA wants you to describe developing and emerging economies and the barriers they face, the uneven effects of globalisation on different countries, and the roles of the main global institutions: the World Trade Organisation (WTO), the International Monetary Fund (IMF) and the World Bank. The exam skill is to explain barriers to development clearly and to distinguish the three institutions' distinct roles.

Developing and emerging economies

The world's economies range from the poorest, least developed countries to the rich, developed economies, with the fast-growing emerging economies in between. Development is usually gauged by income per head, but also by wider measures of health, education and living standards, because growth alone does not capture wellbeing.

Barriers to development

Because these barriers reinforce one another (low income leads to low saving, to low investment, to low productivity, back to low income), escaping poverty is hard, which is the case for outside help.

The uneven effects of globalisation

Globalisation, the integration of the world's economies, affects countries unevenly:

• Benefits: it can spread growth, jobs, investment and technology, give developing countries access to larger markets, and lift millions out of poverty (as in parts of East Asia).
• Costs: it can widen inequality within and between countries, expose poorer economies to volatility in world prices and capital flows, allow powerful multinationals to exploit weak regulation, and damage industries that cannot compete.

So globalisation is not uniformly good or bad; its impact depends on a country's circumstances and on how trade and investment are governed.

The global institutions

Three institutions try to manage and stabilise the world economy:

• The World Trade Organisation (WTO) oversees the rules of international trade, works to reduce trade barriers and promote free trade, and settles trade disputes between members.
• The International Monetary Fund (IMF) promotes global financial stability: it monitors economies, gives policy advice, and lends to countries facing balance of payments or financial crises, often with conditions.
• The World Bank focuses on long-term development and reducing poverty, lending and giving grants to developing countries for projects such as infrastructure, education and health.

Worked example: helping a developing economy

Why the global economy matters

This topic pulls the global area together: trade, multinationals, the balance of payments and exchange rates all shape how the world economy affects rich and poor countries, and the global institutions try to manage it. It connects economics to development, inequality and global governance, the wider context in which every economy, including Scotland's, now operates.

Try this

Q1. State two barriers that can prevent a developing economy from growing. [2 marks]

• Cue. Any two of: lack of capital and a savings gap; poor infrastructure; low education and health (low human capital); heavy foreign debt; dependence on volatile primary commodities; rich-country protectionism; weak institutions or instability; rapid population growth.

Q2. Distinguish between the roles of the IMF and the World Bank. [2 marks]

• Cue. The IMF promotes global financial stability and lends to countries facing short-term balance of payments or financial crises; the World Bank funds long-term development projects (infrastructure, education, health) to reduce poverty in developing countries.