# Impact of Gross World Product on Economy

Question:
What is Gross World Product? How is it measured? How have changes in the level of GWP affected economies during the last decade? Refer to specific examples.

Demonstrates extensive knowledge and research to develop a logically sequenced answer that highlights a clear understanding of the global economic issue.

Uses relevant research and calculations to support a comprehensive discussion of how the global issue impacts on various aspects of the global economy.
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What is Gross World Product? How is it measured? How have changes in the level of GWP affected economies during the last decade?

# Gross World Product

The Gross World Product is the sum of gross national product of all the countries in the world. While considering the whole world the imports and exports balance out exactly because the imports by any country are exports for some countries and the exports by any country are imports for some other countries. Thus he GWP equals to the total of gross domestic products (GDP) of all the countries of the world.  Thus everything that is produced by the world as a whole in a given year totals up as the Gross World product. It is possible that everything that is produced in the given year is consumed in that year only. However if the world doesn’t consume everything that in produced the year, and the output is not deteriorated then it adds as the wealth of the world. The wealth keeps on adding every year. It is somewhat similar to the income and wealth. Like when the human beings don’t consume the entire income earned by them and save some portion it becomes their wealth, similarly if the world people don’t consume everything they produce in the year it adds to the wealth of the world (Fraynt, P. 2014).  The annual growth of wealth is not constant as it is affected by the inflation, interest rates and other aspects of the economy. The change can be significant from one year to another and could in same direction or opposite direction, enhancing or setting of the wealth created in last year.

Measurement of GWP

GWP is measured as the sum of GWP of all the nations in the world and is also calculated as the sum of GNP of the world together. The GWP is calculated for various units and in various contexts. The GWP is calculated for the world in terms of nominal value and purchasing power parity. Also the GWP is calculated per capita or per individual in nominal as well as purchasing power parity (PPP) terms. GWP is also calculated for various regions like the advanced countries and the developing countries in Asia and Euro zone. As reported by revolvy.com from The World Factbook, produced by Central Intelligence Agency (CIA) which contains all the information about the countries of the world, in its report in 2014 has stated that the total GWP of the world is US\$ 107.5 trillion as measured in Purchasing power parity (PPP) and it sis US\$ 78.28 trillion when measured in nominal terms. The report also states that the GWP per capital i.e. for an individual  in 2014 was UD\$ 16.100 in PPP terms (revolvy.com). More commonly GWP is presented as the sum of GDP of all t eh nations of the world.

The share of GWP of some major countries in the world is presented as follows:

The graph shows the changing share of GDP and hence GWP of various countries over the period of time (revolvy.com).

The per capital GDP for the top ten countries is as follows:

(Source: statisticstimes.com)

Changes in GWP and its affect on economies in last decade

The analysis of the world economic situation by the World Economic Situation and Prospects (WESP) in 2017 reports that the economy of the world at large is facing high uncertainties and risk the downside movement due to the changes in the policies in the international market. The increasing debt burden over the growing economies and the highly volatile financial flows is adding to the uncertainty. The economic slowdown that hit the world about 10 years back in 2008-2009 is still not over yet. The world economy is not yet completely out of the slow economic growth. It has been calculated that the world economy increased/expanded by just 2.2.% in 2016. The growth is expected to be slow in at least next two years. However it is estimated that the world economic growth in the next two years will be about 2.8% and is an indication of stability towards a strong and sustainable global demand (Department of Economic and Social Affairs, 2017)

The changes in the Gross World product over the last decade can be seen the following graph:

It can be seen in the graph that the GWP went through s sever downfall in 2008 which was the global economic crisis. The economy did take an upswing in 2010 however it declined again and the average growth in GWP in last decade is less than the average growth in the previous decade.

It is reported by the WESP study that the slow growth resulted in market downturn in many countries and decline in public and private investment in various economies and thus it will not be wrong to say the slow growth in economy is self-perpetuating.  The slow trade, less investments, low income growth and reduced productivity all are the reasons of slow growth and in themselves the outcome of slow economic growth, thus a self perpetuating cycle.  The slow growth cycle is depicted as under:

Source: (Department of Economic and Social Affairs, 2017)

However, the global growth was witnessed at 3.8% in 2017 which is about ½ percent faster than 2016 and is strongest since 2011; about 2/3 of the countries which form ¾ of the global world product had a faster growth in 2017 (IMF, 2018). Since the developing countries are the main drivers of the global growth they contribute to about 60% of the world gross product. In this group the east and South Asia are the most dynamic regions in the world as they have high domestic demand and supportive global economic policies. WESP warns the countries to ease their monetary policies in order to support the growth. The countries need to pay more stress on investments towards technology changes and enhancing efficiency gains in order to revive the productivity and give a push to the global growth (Department of Economic and Social Affairs, 2017).

Effect of changes in Gross World Product on economies:

## a. Economic changes Unites states:

The increase in GDP in United States of America in 2016 was reported to be 1.6 percent. The main reason behind this growth was the non-farm inventories and it is expected to support the growth in 2017. The fixed investment in business remained slow and low in the country. The fixed investments are expected to increase with the new administration changes expected to be brought by the new government. The changes refer to the trading practices, immigration rules, healthcare policies and other regulations. The major step towards increase in gross domestic product of the country is the withdrawal from the Trans-pacific Partnership (TPP) by United States.  The agreement with many countries like Australia, Canada, Japan, Malaysia etc., not just specifies trade policies but also covers the issues of investment, government procurement, e-commerce, etc.  The government is also renegotiating the North American Free Trade Agreement (NAFTA) which covers the trade relation between US, Mexico and Canada since 1994. Other policy to support the growth in the country is controlling the movements of migrants and refugees (Department of Economic and Social Affairs, 2017).  Thus though the fiscal policy of the country is not yet very clear but the administration is in the process of changing the system in awe of the changing gross world product and the global economy.

## b. Economic changes in Japan:

Japan eased its monetary and fiscal policies in order to support the short term economic prospects. The long prospects are still not clear dues to the huge debts on the government and ageing population of the country. The slow global economic growth leads to slow growth in wage and pressure on inflation in the country. In order to address the concerns the government of Japan introduces a stimulus package in 2016. The stimulus of 28.2 trillion yen is the third largest stimulus implemented by the government ever and is expected to give a boost to the investment in the country and enhance the GDP. The government investment is expected to support the private sector in the country to the extent that the housing sector has negative interest rates. The housing sector in the country has rebounded and is further expected to strengthen in the future (Department of Economic and Social Affairs, 2017, Pg 3).

## c. Economic Changes in Europe:

The economic growth in European Union is expected to be slow from 2016-2018 at the rate of 1.8 per cent. The slow growth is because of the global slowdown and the negative impact of Brexit. However the domestic demand of the region is expected to increase and support the growth.  Though the domestic consumption in various countries will give a boost to the economic growth supported by the government monetary policies, the Brexit is expected to affect the investment in several countries including some biggies like UK and other major European trading partners.  High government debt in several countries in the region is expected to put pressure on the working of the banking sectors in these countries like Greece. The EU member states had and are expected in future to have a high trajectory of growth from capital accumulation and increase in production though it will be at a slow pace.

## d. Effect on Developing Economies:

The developing economies like those of Africa faced a negative growth in 2016. It was expected to recover in 2017 and 2018. The developing countries have their economies dependent upon the outside world more and hence the low global commodity prices will affect the growth of commodity driven economies like that of Algeria, Nigeria, etc. The countries like East African countries which are more drives by domestic consumption are expected to have a more favorable economic growth.

East Asian countries which are highly driven by domestic consumption and public investment are expected to have good growth of 5.6 per cent on an average. The governments are required to take strong fiscal measures to induce the sentiments of security and promote investment in the public.

Conclusion

The global trade and global investments are correlated with each other and is applicable to individual countries as well. After the long economic weakness, the market is expected to see the upward growth with improved investments growth rates and growth in domestic demands. The large economies like Germany, UK, Japan, US has contributions in recovery with increase in exports. The higher levels worldwide are the factors hindering the growth, thus the government fiscal and monetary policies improvisations are expected to ensure a robust and sustainable growth.

The Gross World product comprises of the gross product of all the countries of the world. It is affected by the growth of individual country and in return affects the growth of the countries forming a cycle.  The increasing cycle of restricted trade practices followed by countries is also a risk to the growth of GWP, and hence need to be relaxed to allow free movement of capital.