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How will Global Warming Affect the Global Economy?
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Everyone is vastly aware of how global warming is affecting the planet: with natural disasters destroying homes, causing delays in the government such as allowing for extensions to pay taxes, poor air quality, and even toxic water contamination – but global warming does more than just affect our livelihood: it’ll also have an impact on our global economy.
How does global warming impact our global economy, what will be the consequences of climate change on our economic systems, and how could the world prevent global warming from influencing our global economy?
What is the global economy?
The global economy, also known or referred to as the worldwide economy, is the intertwining of economic activities that happen across the globe between various countries, and can either be positive or negative for the countries involved.
💡The global economy refers to everything bought or sold on the planet, and this is the type of economy we all currently live in today.
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Our global economy has contributed to several, well-known facets of our international world today, such as with the following:
- Globalization: Globalization is the reason why you’re now able to order Chinese takeout in New York City or know that potatoes are famous in Ireland – as globalization is the phenomenon that describes how trade, immigration, and mass transportation have helped to make our world more knowledgeable about other cultures and assets of the world. The global economy has helped to further develop globalization as it has allowed for more efficient trading.
- Global Investments: Companies weren’t always able to make investments internationally, but the global economy has allowed for more diverse opportunities to help businesses succeed and put their financial resources towards otherwise undiscovered projects that could help facilitate the transition to a clean economy and mitigate climate change.
- International Trade: International trade is one of the biggest impacts of globalization, as it refers to exchanging both goods and services between different countries – which allows countries to provide their specialties to other countries and be deemed valuable, earning them a spot on the global market. For example, Mexico is known for their avocados – which helps to support the economy with income from other countries (such as the U.S.) even when their own economy is struggling.
- International Finance: People are no longer confined to hold currency in a single country; the global economy has allowed for both the average person and large corporations to transfer money between two different countries faster. This demonstrates how the global economy has helped businesses to grow or for expats to live abroad.
However, if the world once functioned without a global economy – why is it pivotal in today’s society?
Why is the global economy important?
👉 The global economy is important as it helps to ensure the economy stays regulated even as the world’s population continues to skyrocket by observing economic micro and macro levels, and also as the global economy helps to predict the world’s economic growth in the future and for the long-run.
Even though the world was once perfectly functional without a global economy, there are numerous reasons why a global economy is beneficial in today’s world, and why it’s important to make sure it stays intact.
For instance, the global economy allows for free trade – which allows countries to exchange goods and services. In other words, one country may not have the money to purchase a good or service that it needs from another country – but they may have something that the other country wants in exchange for the product or service. This shows how the global economy helps developing countries to survive.
The global economy also helps with:
- Movement of Labor: Immigrants are relocating around the world simply for work opportunities, which is beneficial for companies looking to hire cheaper labor than would otherwise be possible if the company was forced to hire people from within their country. If a country is going through a phase of high unemployment, workers can look for jobs in other countries. Therefore, the global economy helps with avoiding geographical inequality.
- Better Scaled Economies: Seeing as the global economy allows countries to be specialized and desirable for certain goods, it allows for economic benefits such as lower costs for consumers.
- Better investments: The global economy makes it easier for countries to gain the interest of investors for both long-term and short-term projects, and also allows weather nations to help financially aid developing countries and their weaker economies.
How does the global economy work?
The global economy works with the help of large financial institutions, such as U.S. banks that work to improve the distribution of goods and services such as power production and oil or other finite resources. Ultimately, while governments do have power over various economies around the world, it isn’t large economies that control the global economy – but big banks and large corporations.
The global economy can refer to any goods or services being bought or sold across the globe, all the way from oil to almond milk. This type of international exchange helps to:
- Facilitate global economic growth;
- Stimulate competitive markets between various countries;
- Allow for more efficiency and productivity as countries can focus on their specialized goods to be acquired through the global economy;
- Help developing countries to import and export goods and build or further develop their own economies.
👉 It is important to remember that even if the global economy is functioning well at the moment, that the global economy can be easily influenced by factors such as the availability of natural resources, changes in infrastructure or population, labor laws, and new technology.
However, global warming may have the biggest impact on the global economy of them all.
How does global warming impact our global economy?
The impact of global warming on our global economy isn't as apparent now as it was five years ago, but as we’ve learned – a lot can happen in a short amount of time.
Circumstances like Covid-19, inflation, and the Russian-Ukraine war have put strain on the global economy. In addition to these political stressors, the impact of global warming on the global economy has also become more conspicuous.
Extreme weather has caused wildfires, complete destruction of various crop fields, and even caused power plants to explode – with industries such as beer companies suffering long-term and indefinite consequences to their business. Unbeknownst to most, weather disasters spurred by climate change have even delayed taxes across the country – as individuals and businesses have suddenly become stripped for finances following the necessary clean-up and repairs after foreshadowed natural disasters.
All of these events and implications are bound to put a damper on our global economy.
Political matters are also having an indirect impact on the global economy, as issues such as the energy crisis that happened across Europe this past winter resulted in many countries across the continent reducing their consumption of energy or skyrocketing prices. If global warming wasn’t as prevalent of an issue as it is today, energy prices wouldn’t have needed to skyrocket – showing how the global economy is somewhat contingent on a world that pays attention to the ever-changing needs in our society: such as adhering to climate change.
💡However, instances such as the recent energy crisis demonstrate how globalization and our global economy illustrate how such an interconnected economy can be impacted by global warming – as countries were not as likely to rely on other countries for pivotal resources such as oil to fuel power or electricity before.
“ Much of the discrepancy between global warming and our global economy have been highlighted by massive events such as the global pandemic, wars, and rising political tensions. ”
What are some examples of how global warming has already affected the global economy and will continue to in the future?
Besides the recent Covid-19 pandemic and rising political tensions, there have been many events that depict how global warming has a profound impact on the global economy.
For instance, global inflation has a lot to do with global warming – and inflation will continue to rise as resources become more finite and scarce in the midst of global warming. This has already been demonstrated with the recent U.K. energy crisis that happened last winter.
Speaking of energy consumption, energy costs will increase as governments make the transition to a clean energy economy. Seeing as this mass transition is necessary due to global warming, the clean energy transition further illustrates how global warming affects the global economy.
Global warming hasn’t only affected the prices of goods, services, and energy – but also massive industries such as the insurance industry. Well-known insurance companies in the U.S. such as State Farm have limited their insurance coverage as aiding in numerous natural disasters could lead the company to bankruptcy. Insurance costs across the board will only continue to rise as global warming does, and as a result – will impact the global economy.
💡The impact of global warming will depend on the region; wealthier economies will be less susceptible to the damages of global warming on their economies – but developing countries suffering from the effects of climate change will still have an effect on the global economy, as wealthier countries may still depending on resources from developing countries.
👉 Countries on continents like Africa and Asia will be most vulnerable to the effects of global warming, and subsequently will impact the global economy the most.
How can the global economy grow more resilient against climate change?
Building a global economy that is less prone to the effects of global warming isn’t an easy task, but it’s possible if each individual economy takes the proper steps to achieve this ambitious goal.
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Here are a few of the ways to cultivate a stronger global economy in the midst of climate change:
- Aim to Create More Low-Carbon Economies: One of the ways for the global economy to be less vulnerable to the impacts of climate change is to fight against it. This can be done through climate legislation or intrinsic business motivation to implement the use of renewable energy or energy efficient resources.
- Be Proactive: Working ahead of global warming is one of the best ways to avoid the global economy from being heavily affected by climate change. This can be done when companies seek to improve their infrastructure, climate-related risks, or developing a disaster preparedness program.
- Diversey Dependency: It is best for individual economies to not become overly dependent on one economy, so that no shortage of a good or service ever leaves another economic empty-handed.
- Promote the Importance of Going Green: This isn’t just the responsibility of the government, but for companies to take the initiative to seek green investments and implement more sustainable practices.
- Be Aware of Climate Risks: The problem with things like how global warming impacts the global economy is that most do not understand the risks and impacts associated with climate change. Therefore, seeking to better educate stakeholders on climate change can help to facilitate a more climate resilient global economy.
👉 Building a more resilient global economy will require attention in all three ESG factors: environment, social, and governance.
Ultimately, cultivating a more resilient global economy is contingent on a worldwide effort on behalf of businesses, governments, and individuals around the world. A more sustainable and lucrative global economy is possible, but it will require lessening the impact that global warming currently has on our interconnected, interdependent economic system.
What about Greenly?
If reading this article about how global warming will affect the global economy has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
It can be hard to keep track of all of the news happening around the world, such as how the global economy could impact the fight against change – but don’t worry, Greenly is here to keep you up to date on all of the latest climate news.
Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.
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