G LOBAL ECONOMY

Content Module 1

Global Economy (GE) as a system

1. The notion of GE: object, subject and the task

2. The main categories and notions, indicators

3. The main laws of economy

4. Curves, effects and paradoxes in economy

Main categories and notions. Each of science has specific terminology. The main categories of science of economy formed within different theories and schools, that’s why the same appellation can bring several notions. The notions are continuing to take shape, and this process is not finished.

We’re standing on most common notions, which is easy to understand.

The most common notion is economy. According to Robbinson – “Economy is the science, studying human behavior in terms of relations within its aims and limited resources, and allow its alternative usage. I’d like to offer the next notion – “Economy is the science about inputs, goods production, exchange, currency movements, interrelationships and wealth distribution”

ECOMOMICS Definition

According to Webster Dictionary, "Economics is the science of household affairs, or of domestic management."

According to investor words.com "Economics is the study of how thwe forces of supply and demand allocate scarce resources."

According to United States National Library of Medicine "Economics is the science of utilization, distribution, and consumption of services and materials." According to Alfred Marshall, a British Economist defined "Economics is the study of mankind in the ordinary business of life; it examines that part of an individual and socail action which is most closely connected to the attianment of the use of material requisites of well being. Thus it is on one side a study of wealth and on the other and more important side,a part of the study of man.

According to Lionel Robbins, a British economist said that "Economics is a science that deals with the study of human behavior as a relationship between ends and scarce means which have alternative uses."

According to Paul Samuelson "The study of how a person or society meets its unlimited needs and wants through the effective allocation of resources."

Define Global Economy

According to newspaper Economy Watch: The term Global Economy refers to an integrated world economy with unrestricted and free movement of goods, services and labour transnationally. It projects the picture of an increasingly inter-connected world with free movement of capital across countries, also. The concept of a global economy cannot be understood in isolation. For this, globalization nees to be defined first. Globalisation may be defined as the integration of production and consumption in all markets across the world. A global economy is characterized as a world economy with an unified market for all goods produced across the world. A global economy aims to rationalise prices of all products globally. While a global economy or globalization has the distinct advantage of raising world productivity and incomes and bringing about an improvement in the standards of living for all people at a global level, it has the dangerous side effect of growth with inequality. 

According to Dictionary.com: The international spread of capitalism, especially inrecent decades, across national boundaries and withminimal restrictions by governments. The globaleconomy has become hotly controversial. Critics allegethat its props, free markets and free trade, take jobsaway from well-paid workers in the wealthy nationswhile creating sweatshops in the poor ones. Itssupporters insist that the free movement of capital stimulates investment in poor nations and creates jobs in them.

In a nutshell, the global economy refers to the economy of the world, comprising of different economies of individual countries, with each economy related with the other in one way or another. A key concept in the global economy is globalization, which is the process that leads to individual economies around the world being closely interwoven such that an event in one country is bound to affect the state of other world economies. In the past century or so, the focus on globalization has intensified a lot. More and more trade has been done between different countries, and restrictions on movement and business across borders have been reduced a great deal. The resulting phenomenon is what a global economy is all about. People are now able to sell their commodities in any market across the world. Likewise, consumers also enjoy a much wider variety of goods and services since they can sample them from other places and not just their own countries alone

Law Dictionary

Intertwined economic activity of various countries considered worldwide by their impact on other countries negatively or positively.

Microeconomy is studying lawfulness of enterprises and firms functioning.

Macroeconomy is studying lawfulness of the level of the countries.

Megaeconomy is studying economic lawfulness of supranational level, which determines the movements of transnational capital, also behavior of world’s and finance markets, creation and improvements of supranational economic institutions.

Policy is the state’s and organization’s activity which aimed of some goals achievement. Accordingly, forms of its implementation: monetary, customs, external, rural, etc.

Market it is a free wealth exchange according to defined rules. It’s a most simple notion, but it gives answers for most of questions. If there was market in social type of economy?, Is it possible get along market? (The key word is free that functioning without external pressure. If exchange it’s clearly, society and states can’t exist without it. The market appeared it time of labor division and process of different activity products exchange started. Nowadays, market constantly differentiating and markets of goods, services, land, capital and debt are selecting.

The main method of market researching is marketing.

The State is apparatus of power, managing of society acting. There’re three branches of state power – legislative, executive, court. The conditions of state economy is characterized by several interconnected indicators

GDP is cumulative market cost of goods and services produced in country for some period. Basing on GDP, counting-up GNP – GPD “-“ exported profit and “+” profit got abroad the country using production factors which belongs this country.

Cleared NP is GDP “-“ depreciations. Depreciations counted according to regulations from basic production assets value. They’re proportional to it’s wear and tear.

National income is Cleared NP “-“ indirect taxes.

The real condition of country’s economy, as a rule, showed by GDP per capita.

On this stage we know how to estimate the country’s economy condition, and the economy is the production and etc. Now let’s determine which productions depend on.

There’re 4 factors: land; capital in the form of buildings, equipment; labor resources and knowledge, materialized in form of technology. Each enterprise needs to invest these factors in aim of production supporting. Investment is the capital assets in organizations and enterprises of different branches of economy. There’re two kind of investments: direct and portfolio investments.

Portfolio investments when investor buy enterprise’s shares for its forwarding resale and getting profit. If You’d buy shares for influence on enterprise’s activity – this type called direct investments. In this case, portfolio investments has short-term character, nor direct – is always has long-term.

Recently, informatization became very popular phenomenon in GE. Informatization technologies lead to information acceptance, saving, transferring and its processing. Informatics – the science about information, informatization and information technologies.

Also the next notions of GE can be evolved: currency, exchange rate, inflation, money, securities etc. If it is possible to learn this notion, it this case there weren’t problems with GE studying.

Indexes (Indicators)

World Price Index

The World Economics World Price Index is designed to provide a timely and practical solution to the problems posed by international comparisons. It is intended for companies that transact across countries and currencies, for governments and for international non-governmental institutions. 

The key difference between the World Price Index and other international PPP comparisons is the timeliness of the data. WPI figures are released the same month they are collected. This means WPI data is the most up-to-date exchange rate adjustment mechanism available. 

The World Price Index (WPI) measures the value of an urban selection of goods and services at purchasing power parity (PPP), reflecting the real purchasing power of different nations, allowing for rapid and accurate international price comparisons.  Under/Over valuation data is based on the difference between the exchange rate value of a currency and that of the US Dollar in relation to the World Price Index calculated exchange rate. Based on WPI global data the degree of currency under or over valuation in PPP terms by country is provided in the table and chart below. 

Durable Goods Price Index The World Economics Durable Goods Price Index (DPI) is based on average end-use prices for a typical collection of durable items in national currencies 

Global Marketing Index

The World Economics Global Marketing Index (GMI) provides a unique monthly indicator of the state of the global marketing industry, by tracking current conditions among marketers.

The Global Marketing Index results are calculated by taking the percentage of respondents that report that the activity has risen (“Increasing") and adding it to one-half of the percentage that report the activity has not changed (“Unchanged"). Using half of the “Unchanged" percentage effectively measures the bias toward a positive (above 50 points) or negative (below 50 points) index. As an example of calculating a diffusion index, if the response is 40% “Increasing," 40% “Unchanged," and 20% “Reducing," the Diffusion Index would be 60 points (40% + [0.50 x 40%]). A value of 50 indicates "no change" from the previous month.  The more distant the index is from the amount that would indicate "no change" (50 points), the greater the rate of change indicated. Therefore, an index value of 58 indicates a faster rate of increase than an index value of 53, and an index value of 40 indicates a faster rate of decrease than an index value of 45. A value of 100 indicates all respondents are reporting increased activity while 0 indicates that all respondents report decreased activity. 

Index of Economic Freedom

The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world's nations. The creators of the index took an approach similar to Adam Smith's in The Wealth of Nations, that "basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society"

Total debt service (% of exports of goods, services and primary income)

Total debt service is the sum of principal repayments and interest actually paid in currency, goods, or services on long-term debt, interest paid on short-term debt, and repayments (repurchases and charges) to the International Monetary Fund.

GE is developing according to definite economic laws. The laws of economy are differ than in other sciences (physics, chemistry). Most of them equitable in definited circumstances. Some of the economic laws are the result of statistics observations during the time in history. Many of the laws are recognized some of the science schools, but another are deny them. Part of the economic laws have only historical interest, because historical circumstances have changed. They became outdate, but had influence on economic science development.

Let’s examine the next historical laws:

The Law of Greshem (or Greshem-Kopernic). Worse money displace better during exchange. Law was outputs, when in money exchange was gold and silver coins. Silver (more cheaper) displaced gold, which were using for savings.

There’re whole group of one-type-laws.

The law of Ultimate Utility Reducing – with growing of wealth consumption, total utility is growing, but in case of additional utility of additional wealth, unity consumption is reducing. (Another words, if we have a lot of some wealth, additional portion it gives us less of pleasure). Two similar laws were formed by Gossen in 1854.

The Reduce kickback law – with the increasing of production factor (in case of stability others) the point in which additional usage of this factor leads to reducing comparative and absolute of output process will be reached.

In XIX century Clark formulated basic laws of productivity of labor and capital reducing. The first one is in to constant unit of workforce add new employees, in this case each additional employee will produce less good’s quantity. The second is with constant workforce, productivity of invested capital will run low. (This lawfulness was detected in most of types of activity, but until then technologies will be changed. After this phenomenon the new unity of these factors will appear and all processes starts from the beginning. Than resource investment become very effective and profitable again. In this law is related another interesting –

Law 20/80 is in any activity 20% of initial resource investment gives 80% of effect. This law has a lot of interesting, statistical approved outcomes. For example: 20% of ants doing 80% of anthill work, 20% of men consume 80% of beer. This law shows us, that it is very useful to switch into another activity, new – not used before, cause in every 20% of effort You’ll get 80% of effects on the first stages. Another ways of effectiveness increasing is technological spurt and innovations.

Libich Law is the activity effectiveness, which belongs to several constant factors, determined that factor, which lies in minimum (For example, for plants growing the nitrogen is needed. The nitrogen is determine crop capacity)

It is possible to select laws, which describing compliance of incomes and consumption into separate group.

Cayne’s Law – with incomes growing, the inhabitants addiction to consumption is reducing, but addiction to savings is increase.

Engel Law – could be shown as specification of previous: with family incomes increasing, part of its outgoing for provision is mostly the same, but outgoing for services is growing.

In International Economy main role tooked for Richardo and Heksher-Ollyn’s Law.

The Richardo Law – the import is profitable if abroad good produced with totally greater costs, but inside of importing country it is spend more work time as for another good for export as example.

The Heksher-Ollyn Law – countries, which has surpluses some of the factors (natural resources, workforce), will have comparative advantages in export of this kind of goods and services, production of which based on this factor usage.

Heckscher–Ohlin theorem

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."

The critical assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same. The relative abundance in capital will cause the capital-abundant country to produce the capital-intensive good cheaper than the labor-abundant country and vice versa.

Initially, when the countries are not trading:

1. the price of the capital-intensive good in the capital-abundant country will be bid down relative to the price of the good in the other country,

2. the price of the labor-intensive good in the labor-abundant country will be bid down relative to the price of the good in the other country.

Once trade is allowed, profit-seeking firms will move their products to the markets that have (temporary) higher price. As a result:

1. the capital-abundant country will export the capital-intensive good,

2. the labor-abundant country will export the labor-intensive good.

Stolper–Samuelson theorem

The Stolper–Samuelson theorem is a basic theorem in Heckscher–Ohlin trade theory. It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.

The theorem states that—under specific economic assumptions (constant returns, perfect competition, equality of the number of factors to the number of products)—a rise in the relative price of a good will lead to a rise in the return to that factor which is used most intensively in the production of the good, and conversely, to a fall in the return to the other factor.

History

It was derived in 1941 from within the framework of the Heckscher–Ohlin model by Wolfgang Stolper and Paul Samuelson, but has subsequently been derived in less restricted models. As a term, it is applied to all cases where the effect is seen. Ronald W. Jones and José Scheinkman (1977) show that under very general conditions the factor returns change with output prices as predicted by the theorem. If considering the change in real returns under increased international trade a robust finding of the theorem is that returns to the scarce factor will go down, ceteris paribus. An additional robust corollary of the theorem is that a compensation to the scarce factor exists which will overcome this effect and make increased trade Pareto optimal. The original Heckscher–Ohlin model was a two-factor model with a labour market specified by a single number. Therefore, the early versions of the theorem could make no predictions about the effect on the unskilled labour force in a high-income country under trade liberalization. However, more sophisticated models with multiple classes of worker productivity have been shown to produce the Stolper–Samuelson effect within each class of labour: Unskilled workers producing traded goods in a high-skill country will be worse off as international trade increases, because, relative to the world market in the good they produce, an unskilled first world production-line worker is a less abundant factor of production than capital.

The Stolper–Samuelson theorem is closely linked to the factor price equalization theorem, which states that, regardless of international factor mobility, factor prices will tend to equalize across countries that do not differ in technology.

Derivation

Considering a two-good economy that produces only wheat and cloth, with labour and land being the only factors of production, wheat a land-intensive industry and cloth a labour-intensive one, and assuming that the price of each product equals its marginal cost, the theorem can be derived.

The price of cloth should be:

(1)

with P(C) standing for the price of cloth, r standing for rent paid to landowners, w for wage levels and a and b respectively standing for the amount of land and labour used.

Similarly, the price of wheat would be:

(2)

with P(W) standing for the price of wheat, r and w for rent and wages, and c and d for the respective amount of land and labour used.

If, then, cloth experiences a rise in its price, at least one of its factors must also become more expensive, for equation 1 to hold true, since the relative amounts of labour and land are not affected by changing prices. It can be assumed that it would be labour—the factor that is intensively used in the production of cloth—that would rise.

When wages rise, rent must fall, in order for equation 2 to hold true. But a fall in rent also affects equation 1. For it to still hold true, then, the rise in wages must be more than proportional to the rise in cloth prices.

A rise in the price of a product, then, will more than proportionally raise the return to the most intensively used factor, and a fall on the return to the less intensively used factor.

Criticism

The validity of the Heckscher–Ohlin model has been questioned since the classical Leontief paradox. Indeed, Feenstra (2004) called the Heckscher–Ohlin model "hopelessly inadequate as an explanation for historical and modern trade patterns". As for the Stolper–Samuelson theorem itself, Davis and Mishra (2006) recently stated, "It is time to declare Stolper–Samuelson dead". They argue that the Stolper–Samuelson theorem is "dead" because following trade liberalization in some developing countries (particularly in Latin America), wage inequality rose, and, under the assumption that these countries are labor-abundant, the SS theorem predicts that wage inequality should have fallen. Aside from the declining trend in wage inequality in Latin America that has followed trade liberalization in the longer run (see Lopez-Calva and Lustig (2010)), an alternative view would be to recognize that technically the SS theorem predicts a relationship between output prices and relative wages.

Interestingly, the papers that actually compare output prices with changes in relative wages find moderate-to-strong support for the Stolper–Samuelson theorem, such as Beyer et al. (1999) for Chile, Robertson (2004) for Mexico, and Gonzaga et al. (2006) for Brazil.

Rybczynski theorem

The Rybczynski theorem was developed in 1955 by the Polish-born English economist Tadeusz Rybczynski (1923–1998). It states that at constant relative goods prices, a rise in the endowment of one factor will lead to a more than proportional expansion of the output in the sector which uses that factor intensively, and an absolute decline of the output of the other good.

In the context of the Heckscher–Ohlin model of international trade, open trade between two regions often leads to changes in relative factor supplies between the regions. This can lead to an adjustment in the quantities and types of outputs between the two regions. The Rybczynski theorem explains the outcome from an increase in one of these factor's supply as well as the effect on the output of a good which depends on an opposing factor.

Eventually, across both countries, market forces would return the system toward equality of production in regard to input prices such as wages (the state of factor price equalization).

Relationship between endowments and outputs

The Rybczynski theorem displays how changes in an endowment affects the outputs of the goods when full employment is sustained. The theorem is useful in analyzing the effects of capital investment, immigration and emigration within the context of a Heckscher-Ohlin model. Consider the diagram below, depicting a labour constraint in red and a capital constraint in blue. Suppose production occurs initially on the production possibility frontier (PPF) at point A.

Suppose there is an increase in the labour endowment. This will cause an outward shift in the labour constraint. The PPF and thus production will shift to point B. Production of clothing, the labour-intensive good, will rise from C₁ to C₂. Production of cars, the capital-intensive good, will fall from S₁ to S₂.

If the endowment of capital rose the capital constraint would shift out causing an increase in car production and a decrease in clothing production. Since the labour constraint is steeper than the capital constraint, cars are capital-intensive and clothing is labor-intensive.

In general, an increase in a country's endowment of a factor will cause an increase in output of the good which uses that factor intensively, and a decrease in the output of the other good.

Nowadays, economy is enriching by laws, proposed by other sciences, in particular system laws and laws of management theories are such kind of them. Such kinds of laws are: The law of similarity of the part and the whole (biologographical); The law of optimality which means each system is functioning with most effectiveness in some space and time characteristics, typical only for it; system-henetical where the system elements in individual development repeats way of whole system development in abbreviated form. For understanding and forecasting of probable upheaval in balanced economic systems, the Law of Le Shatelie is useful to use especially in situation of external influence, which takes balanced system out, balance is shifting into direction of external influence effect reducing.

The complexity of management system must growth faster than object’s complexity in theory of management. Form necessity of outlays for management increasing, the Wagner Law issuing that the economic development accompanied by increasing of state outlays in country’s GDP.

Except laws, which has mostly overall character, there are many statistic dependence, approved by practice and are well known in economy. As usual, they called as rules, and according to graphical description – curves.

The Fillip’s curve is shows dependence within inflation and unemployment: with increasing inflation rate, the indicator of unemployment is getting down. This curve was introduced basing on English statistical data for 1861-1957. During historical checking, were studied, that this dependence not always held. The cases of one-time increasing are possible. This curve is still subject of debates within scientists.

Luffer’s curve – shows dependence of taxes value from tax rate income. The curve shows, to some level the taxes value is increasing with tax rate, but after critical rate reaching – the taxes are reducing.

Ejuort’s curve – building in coordinate system, on the its axis putting quantity of alternative goods Y and X. Coordinates of the curve’s points meets two goods sets, which have the same consumer usefulness.

Marshal’s Cross – consist of two curves: demand – which is reducing accordingly price increasing and curve of offers, which is increasing with prices. Crossing of these curves equilibrium price of good is determined.

Except curves, effects and paradoxes are very interesting in economy, which shows unusual manifestation of economic laws. As a rule it is using for different theories, hypothesis and ideas illustration. That’s why it very useful to study them.

The Value paradox (formed by A. Smith) means water is coast less than diamonds for humanity. This paradox leaded to notion of wealth usefulness and infrequent introducing into economic science.

The Frugal paradox – savings are increasing without appropriative investment level and production lead to real level of national incomes and savings reducing. This effect is can be observed in Japan, where measures for huge inhabitance savings into economic turnover are implementing.

The Griffin’s paradox – increasing price for goods lead to demand growing. This paradox was observed in XIX century in Ireland. Price grew for potatoes caused demand increased on it. Because of consumption of expensive good reduced.

The Weblen’s paradox –for some goods price is reducing accompanied with demand reducing. In this case consumers think, that with price reducing, the quality of the goods reduced too.

Leontiev paradox – based on studying the U.S. after war export, which were more labor-intensive and capital-intensive compare with import. Paradox leaded to necessity of qualified labor force and knowledge-intensive selection usage.

Leontief paradox

Leontief's paradox in economics is that the country with the world's highest capital-per worker has a lower capital/labor ratio in exports than in imports.

This econometric find was the result of Wassily W. Leontief's attempt to test the Heckscher–Ohlin theory empirically. In 1954, Leontief found that the United States—the most capital-abundant country in the world—exported labor-intensive commodities and imported capital-intensive commodities, in contradiction with Heckscher–Ohlin theory ("H–O theory").

Measurements

1. In 1971 Robert Baldwin showed that U.S. imports were 27% more capital-intensive than U.S. exports in the 1962 trade data, using a measure similar to Leontief's.

2. In 1980 Edward Leamer questioned Leontief's original methodology on real exchange rate grounds, but acknowledged that the U.S. paradox still appears in the data (for years other than 1947).

3. A 1999 survey of the econometric literature by Elhanan Helpman concluded that the paradox persists, but some studies in non-US trade were instead consistent with the H–O theory.

4. In 2005 Kwok & Yu used an updated methodology to argue for a lower or zero paradox in U.S. trade statistics, though the paradox is still derived in other developed nations.

Responses to the paradox

For many economists, Leontief's paradox undermined the validity of the Heckscher–Ohlin theorem (H–O) theory, which predicted that trade patterns would be based on countries' comparative advantage in certain factors of production (such as capital and labor). Many economists have dismissed the H-O theory in favor of a more Ricardian model where technological differences determine comparative advantage. These economists argue that the United States has an advantage in highly skilled labor more so than capital. This can be seen as viewing "capital" more broadly, to include human capital. Using this definition, the exports of the United States are very (human) capital-intensive, and not particularly intensive in (unskilled) labor.

Some explanations for the paradox dismiss the importance of comparative advantage as a determinant of trade. For instance, the Linder hypothesis states that demand plays a more important role than comparative advantage as a determinant of trade—with the hypothesis that countries which share similar demands will be more likely to trade. For instance, both the United States and Germany are developed countries with a significant demand for cars, so both have large automotive industries. Rather than one country dominating the industry with a comparative advantage, both countries trade different brands of cars between them. Similarly, New Trade Theory argues that comparative advantages can develop separately from factor endowment variation (e.g., in industrial increasing returns to scale).

Multiplicative effect is outlays and investments in some sphere stimulate production and employment in other branches. These effects, achieved by Keynes, firstly were used by the U.S. President Roosevelt during crisis overcoming in 30^th of XX century. New Roosevelt’s course based on organization of state works system, mostly in routes buildings. Employees in this branch were newly unemployment, started bought goods, which stimulated production increasing in food industry than in heavy industry. The production grew was leaded to employment and incomes increased which gave impulse for demand increasing again.

In GE it is necessary to study economic theories, but we have studied only GE theories, explaining GE development.

The genesis of GE

1. GE theories

2. The cycling development of GE

3. GE evolution, evolutionary types of economies and their features

1. The GE theories vary for such kinds:

• by driving force, which lies in GE development basis;

• by qualitative characteristics, which determine stages and periods of their development

It is possible to select techno-factor theories into separate group. The authors of these theories singularized some technological or natural element of development, as a rule, which they propose to accept it for universal driving force of economic development (But it isn’t so, every of this theory puts its own usefulness for common image of development creation)

In the science work of Morgan – “The Ancient Society” one of the first technological theories was presented. Each described stage of evolution, which was related to some technological innovation – mastery of fire, the bow invention, etc.

Energy theories became continuation of the technological approach, which related economic development with new types of energy, such as: fire, fume, electricity, thermo nuclear energy. Nowadays these theories is modifying and regarding limitation of energy sources and environmental side of their usage.

There’re natural factors theories in several modifications. In this case, technological and cultural development of the nations places due to geographical position, climate, relief, availability of seashore. For example, technological successes and economic power of England as its former colonies explaining by complex seashore, longer than U.S. Rich Italian culture was determined by fine mountains and sea landscapes, the authors of this theory is considers.

By using demographic factors, many authors tried to explain economic development (Maltus). For example, England was able to collar half of the world only for short period of its demographic explosion in XVI – XVII centuries.

To demographic theory acceded theories, explaining development thorough agrarian technologies improvement and provision enhancement. The demographic changes are explained by this situation. Actually, “green revolution” in XX century promoted population growth (But there were improvements in health care and growing living standards during this period)

There’re a lot of theories considering information-communicative factors as basis. One of the scientists (Mechnikov) proposed water communication ways as a main factor. He thought, accordingly to one or another water communication ways usage, history of mankind was divided into: river period (ancient world), sea period (middle ages), ocean period (newly and modern ages).

Gradually, factor primacy became proceeded from transport to technological relations. It can be seen chain of transport-technological connections: roads, railway transport, post, plains, telegraph, teletype, fax, electric network. Well-known fact, that this chain is attended to economic development, but if it were as a basis? At the end of XX century the information factor started to prevail. For example, Canadian scientist Mc Luen explained society development due to information technology improvements – from language thorough printing press to computers and internet. Actually, information technologies have an influence to GE, but it isn’t a single.

Today, finance theories are very popular (the sense in GE development is in finance technology changes) For example, American scientists Ch. Adams explained that all main human’s history events such as Roman Empire decay, Spain fall, War for Independence in U.S. the French Revolution – were resulted by people’s disagree with existing tax systems and requiring changes in it.

The interest theory was put forward by Buher – marketing theory. The path duration from producer to consumer was put as the basis. He selected three stages: closed household (producing all needed only for itself), urban economy (the producer working for orders) and national economy with production for unknown markets.

Another interested theory – fractional theory of Weber – chain progress with religion system. For example, capitalism development is related with Protestantism.

Complex theories of GE research full system of factors and determine stages of development due to changes in their connections.

Studying this group more close to our development war Marxist’s theory in which humanity step by step passes way of development from one economic formation to another: primitive communal system, slave system, feudalism, capitalism, and communism. Driving force of these movements is fighting of the classes, which were divided by humanity according to relation of means of production. The historical process is explained in the next way: under influence of technological improvements, driving forces are growing (quantitative factor), gradually, it becomes intimately in following development; class, interested in forwarding development, capture state power (better at once – by revolutionary way); system transform into new formation (transition quantitate into quality) and so on, spiraling up (denial of abnegation)

Theory of modifications (as a Marxist’s) exist from bipolar system all existing human societies in history. But in these poles are not classes allocated, but conservative or modern groups of individuals, managing the society. And constant incentives of economic development are situated in fighting of both opposites. Countries with bicameral system are an example, approving this theory. One of them is reformative, another – conservative.

Ethnic theory by Gumiliov is explaining that, ethnos is living its own life, passing phases as inherent to human organism: birth, growth, obsoleting and death. The driving force of ethnos is passionarians – person, which have increased desire for power. In ethnos they are opposed by groups, gravitate to most calm life. The level of passionarity is determined by stage of ethnos development, age of which Gumiliov estimated in 1000 years. Dying ethnos can provoke appearance of another one. Ethos can create super-ethnos, which interaction generate historical process.

Theory of economic orders by Oiken. He considered, there were two types of “cleared” economic systems – centralized and market. There’re 6 basis parameters in it demands, nature, labor, technical knowledge, wealth, social and legislative economic organization. If some of these parameters are combined we get huge quantities of economic orders.

Theory of civilizations, which is determined as totality of related processes, joined by unity of culture, history, economic and socio-political relations. This theory was put forward by Danilevskii (1869), developed by Shpengler (1918) and in detail described by Toinbi, which described 21 civilizations of three generations. There were 30 civilizations, majority of them were disappeared. First local civilizations appeared in III – I century BC in Mediterranean, India and China. Than they were spread in whole populated world. In II century A.D. West civilizations got leadership. To the end of XX century there were only 5 civilization of third generation: west, orthodox-Christian, Muslims, Hindu, Asian. Hantington as follower of this theory selected 8 modern civilizations: west, Latin American, Muslims, Chinese, Hindu, Orthodox, Buddhist, Japanese.

The theory of historical circle was offered by Italian Viko. The history of mankind – is the system of closed cycles or historical circles. For example – Medieval has different elements of feudalism and capitalists theory, free and hired labor.

Therefore, there’re a lot of theories, but what is right? All of them are explaining development by evolutionary way of economic development. The process of economic development is predetermined by 4 parallel processes:

• evolution among the people

• evolution of technology

• evolution in sphere of organizations – institutions

• evolution among different civilizations.

If it possible to consider all of them, it can make conclusion, GE is evaluating, has progressive development, but has falls and growth. That’s why development is discussed in wave of different length. Short are conditioned by demand and supplies, than they are changed by long civilizational wave.

2. After WWII, before 1970^th high temps of economic development have been marked in western economies. But development wasn’t equable: stages of high temp growth have changed with stagnation. Especially most favorable period wad during 1965-1975 years: characterized with high and stable temps as in Western and in Eastern countries. High temps of development of international trade and economic cooperation accompanied by high temps of economic development in other countries of the world, and international trade which reached record level. But in 1970^th situation in market economies have changes: inflation rates increased, fixed currency rate was declined too. Oil prices jumped – the main factor of recession, accompanied with budget deficit grew, unemployment and inflation rate increased. Further oil price growing interrupted process of economic recovery and caused recession. This recession was intensified by that fact, that most countries paid attention to inflation overcoming and budget cuts. An unemployment in Europe raised dramatically. The fluctuation of currency rate have increased, whereby at the beginning of the 1980^th dollar rate have increased too. Real prices for resources, which raised in 1970^th, have fallen in value again. Most considerable problems became with debt growing in countries. In 1985 the U.S. dollar depreciation started. These trends had intensify in 1986. All of these changes broke the process of most stable economic trends development after WWII. The end of XX century was admitted by strong structural upheavals and undetermined world’s economy conditions, which would lead to new deep structural upheavals (for developed countries.

In USSR former countries, economic trends also got negative development, although some later. Oil prices grew, having matched with oil production in West Siberia, for the first time stimulated growth of USSR economy. Although oil prices growing had negative influence on other countries of Eastern Europe, they saved national income growing rates, which at the end of 70^th – at the beginnings of 80^th had slowed down in several countries of this region. This forced countries to stand on the way of intensive development, also it was related with that fact, that labor force income has substantially reduced, and oil production holding on the same level needs constant investment increased.

In 90^th GE outlived period of uneven and flabby development. Dollar prices for raw material have reduced in whole commodity group of international trade, except of non-fuel groups. Prices for turn-off goods have stabilized. The dynamic of export during this period was in developing countries, unlike Central and Eastern Europe countries where it reduced on 15%, import on 20%. This situation represents difficult situations in countries.

Practically, for last years the physical volume of export has reduced in biggest industrial developed countries. However, in the U.S. this indicator remained at the high level: more than 6% or approximately in twice of average in all over the world. U.S. export had exceeded 4000 mln dollars, hence the U.S. is the biggest exporter nowadays. On the other hand, physical volume of import reduced due to internal demand reduction, but payment balance was improved though this processes.

Therefore, there were boom and bust periods in GE. They didn’t have place at one time: some countries have developed accelerated pace, that felt behind and conversely. There’s a question: is it possible to imagine GE as the series of gradual cycles? Well known, earlier, the Marxist’s theory about crisis of capitalist’s production was very popular, wherefrom necessity of revolutionary rebuilding of the world appeared. Now, at time when this theory showed it’s deviance, the question appeared about new explanations and finding objective lawfulness of GE development searching. One of the theories, which try to explain changing of development trends is the theory of big waves by Kondratiev-Shumpeter. It is based on idea of dynamic competition as the mover of Scientific and Technological Progress (STP). This theory gives the question about decisive role of entirely new wealth and reveal mechanism of innovation implementation. Of cause, all factors (commodity, workforce) have an influence on economic situation, but it isn’t decisive factor. The main is that the readiness of production and whole society to adapt to structural changes. In this case, nor production (as was before), nor convenience of economic-geography position or resource availability specificate, but factor groups, related to changes and demand expansions. Than STP enters into action – the new goods appear, as a new services and new method of production, This in turn, accordingly to feedback law, causes additional demand for new goods and services, opens new markets, forms new branches.

Back into theory of big waves, Kondratiev and Shumpeter at basic progressive development, 4 waves with periods in 50-60 years were selected. Their peaks were in 1800, 1850, 1900 and 1960. Each of these waves conditioned by industrial revolution: the first – based on invention and implementation of vapor machine and development of textile production. Main innovation impulses were in Great Britain (Manchester). The second wave was characterized by railway progress, international shipping and siderurgy; centers of the second wave were Great Britain, Germany and the U.S. The third wave, which peak was at the beginnings of XX century, was related with automobilization and electricity usage, chemical industry development, leaded to appearance of new materials. Main centers were moved to the U.S. and Germany, they also were in Great Britain. The fourth wave, took place in the II part of XX century, it was related with electronics development, widespread adoption of computers, PC’s and petrochemistry development. During this period innovation centers of the U.S. (new of them were in California, Texas) saved their primacy, but appeared a new one – Japan, pushed Germany to the third place. Interesting, within internal borders of Germany changes of innovation activity were. The occurred from the North to South: from Ruhr to Baden-Wurttemberg and to Bavaria with center in Munich. Nowadays as expected, new – fifth wave will base on new technologies in sphere of microelectronics, biotechnologies, genetic engineering. As expecting, leadership Japan and several countries of Asia-Pacific region will take.