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Global economic shift – three significant factors



In today’s world, we often talk and think about an economic shift. But what does that really mean?

It mainly means that the economic power is passing from western countries to eastern countries. Managers have started to invest in countries like China and India. Investors are moving their central offices to countries in the East. The economic momentum lies in the hands of developing countries now. While the financial crisis raised questions regarding the general power of the USA and the EU, eastern countries have continuously developed.

  1. Urbanization

According to the Eiilm University’s Urban sociology course, urbanization is one of the biggest factors causing the global economic shift and one of the main reasons to why China and India have so much economic power. Urbanization refers to the physical growth of urban areas. Basically, it means people relocate from rural areas to cities. Urbanization occurs as a result of modernization, industrialization and the sociological process of rationalization.

For the first time in history, in 2009, there were more people living in urban areas than people living in rural areas. People are moving from villages to cities because they are constantly seeking for more opportunities and the urban life has always been more attractive.

Urbanization has a major influence on the economic power shift. In rural areas, people’s main occupation is in the agricultural sector. However, this does not affect the growth of the economies considerably. But when these people move to the cities, they begin producing services and products as their main occupation. As a result, we can see improvements in productivity. This ultimately leads to the growth of the economies.

Urbanization is very important especially in the eastern part of the world. The largest populations are located in eastern countries. Currently, China has the second largest economy in the world and India is rapidly catching up. Other populations of emerging eastern markets are also bigger than they are in most of the western countries. Thus, urbanization is the leading element of improvement in productivity and growth in the eastern world.

  1. Shift from a Manufacturing Source to a Consumption Area

One of the biggest problems of western economies is that they consume more than they produce. Since companies are moving their production facilities to eastern countries, output in western economies is declining. On the one hand, however, consumption remains very high in these countries while, on the other hand, the opposite situation can be observed in eastern countries. Households in these countries choose to save rather than to consume.

According to Alan J. Krupnick and David McLaughlin, around 75% of the GDP in western economies is represented by the consumption rate whereas, in eastern economies, GDP is around 35-37%. Consumption levels are at their highest point in the western world but, as far as eastern countries are concerned, there is still more room to grow in this perspective. The Chinese government encourages consumption levels by implementing programs such as tax reductions. As a direct result, both consumption and, intrinsically, GPD, increases. An indirect result of such measures is that the country is becoming more economically powerful and, as follows, it will push the economic power shift in its favor.

  1. Education

As stated by the authors of Education, globalization and the knowledge economy, education is one of the major contributors to national wealth and economic development. Governments are increasing their attention towards this sector. The increasingly competitive external environment requires continuous improvement of quality standards and international criteria for national education systems. Governments all over the world focus on having a high value economy and, naturally, on having a well-educated workforce.

In order to maintain global relevance, internationalization of both teaching and research has become critical objectives for most tertiary institutions. Eastern countries, especially India, China and Singapore created an infrastructure in order to reach their current position. The governments regularly implement incentives as part of their national industrial policy: tax reductions, highways, ports, airports, hospitals, schools, welfare centers, all of which create a competitive edge.

The Asian culture is highly focused on education. In India, students are in general very good at subjects like mathematics, physics or engineering. The IT industry is in constantly increasing in these countries and creates worldwide successful technologies in computer industry.

As a result of these developments, big multinational companies invested in East Asia and continue to invest in many of these Asian countries. They move their R&D facilities and technology departments to these countries because of the cheap labor, large market size, ease in trade, government help and many other factors that ultimately lead to increased profitability.

Several outcomes of governments giving more importance to education development are: the human capital is developing and gaining more innovative skills, higher efficiency and effectiveness and increased productivity. All these lead to growth in terms of economic development.

These factors, among others, continue to influence the economic development of eastern countries and continue to shift economic activities eastward. Within a decade’s time, the global economic landscape will be different from the one today. To prepare for tomorrow, companies from today need to identify the future countries which hold the greatest market growth potential.


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  • The KPI Institute (2014)
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