An economy can be defined as a state of a country or a region pertaining to production and consumption of goods and services measured in monetary terms. When we talk about the world economy we are referring to all the economic activity taking place with each nation as well as between nations across the globe. These countries are interconnected and thus can affect the economy of each other in a positive or negative way. It is basically the international exchange of goods and services expressed in monetary terms.
Since ancient times, countries have relied on each other for trade; however, the emergence of new technologies such as air travel, the growth of the internet, etc., have resulted in the onset of globalization. With this, nations have become much more interconnected in terms of trade and other economic activity. Today, the economic growth of one nation can immensely influence that of the other either negatively or positively. If the economy of one country is booming, other countries may have benefited; however, a decline in its economy would adversely affect other nations.
But, this has also encouraged nations to make huge investments in other countries, which have greatly benefited both the nations. However, trade between nations is regulated by the World Trade Organization, which is the world’s largest international economic organization. The organization, which officially commenced in 1995, regulates trade in goods, services, and intellectual property.
A number of organizations were established in the 20th century and have helped the growth of the world economy. In 1944, the Bretton Woods Conference was held and was attended by representatives of 44 countries. The conference resulted in the establishment of the International Monetary Fund and the International Bank for Reconstruction and Development (known as World Bank). The General Agreement on Trade and Tariff, which was signed by 23 nations in Geneva in 1947 and came into effect on January 1, 1948, was rechristened as the World Trade Organization in 1995. The International Trade Development Association was formed in 1960.
Today, companies have spread their wings and have established branches in other nations. This has enabled people in other nations to get access to the goods and services produced by these companies. Employment opportunities have also grown as these companies have established factories and offices in other nations employing thousands of people. Thus, today the world has become a ‘Global Village’.