Global Economy
The global economy refers to the increasing integration of fragmented national markets for goods and services into a single global market. In such a market, companies may source from one country, conduct research and development (R&D) in another country, take orders in a third country, and sell wherever there exists demand regardless of the customer's nationality. Kenichi Ohmae (1989), a Japanese consultant, calls this the borderless world. While nobody would argue that national borders are completely irrelevant, certain influences have caused the globe to become smaller and smaller. These include technological advances in global communication and transportation, the dilution of culture, a decrease in tariff and nontariff barriers, and a self-feeding change in the degree of global competition.
INTERNATIONAL TRADE
To comprehend the recent increase in global markets, it is important to have some under-standing of the historical development of international trade. While some form of international trade existed prior to the colonial expansion of Europe in the fifteenth and sixteenth centuries, mercantilism, or the trading of gold and silver for goods, served as the precursor for the large flows of goods, services, and information that currently exists. This philosophy of national power postulated that those countries with large amounts of specie could maintain the types of armies necessary to conquer other nations. The conquered nations then provided additional sources of revenues either through goods, slave labor, or gold and silver that could be used to support additional armies, thereby creating a "virtuous" cycle.
From the demands of war, trade theory has moved through a number of stages. Adam Smith, the Scottish economist and ...