Applied Economics in Globalised Economies

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Overview

• Provides an accessible and comprehensive introduction to key issues in the global economy

• Introduces a range of modelling techniques and analytical approaches to applying economic theory in real-world scenarios

• Illuminates global and national contexts for a thorough understanding of applied economics

About this Book

Globalisation, the increasing integration of markets and ideas across borders throughout the world, has redefined how economies function, how societies interact, and how nations confront shared challenges. Recognising these profound transformations, this book attempts to bridge the divide between economics and economies as well as the gap between theories and policies. Complete with case studies, lecture slides, test questions, and sample data/codes, the book is an engaging resource for upper undergraduates and postgraduate economics students alike.

Preface

On 5th November 2008, Queen Elizabeth II visited the London School of Economics to inaugurate a new building. During her visit, she posed a simple but embarrassing question to some of the world’s most esteemed economists about the origins of the unfolding Global Financial Crisis: “Why did nobody notice it?” Her inquiry starkly exposed the disconnection between academic economics and real-world economies. Nowadays, it is not uncommon to encounter graduates, even lecturers, who are skilful at solving sophisticated economic models yet lacking a basic understanding of economic realities.

Globalisation is one such ubiquitous reality which has redefined how economies function, how societies interact, and how nations confront shared challenges. Recognising these profound transformations, this book attempts to bridge the divide between economics and economies as well as the gap between theories and policies. This book has three key novelties compared to existing textbooks in applied economics.

Dual Focus: Economies vs. Economics

Whether evidenced in global supply chains (Chapter 1), international labour markets (Chapter 2), or cross-border capital flows (Chapter 3), the processes of globalisation profoundly shape national economies. Each chapter of the book starts with how a specific aspect of globalised economies operates, which is largely omitted from most economic textbooks. We provide a variety of practical examples from all over the world, in both developed economies (e.g., US, UK, EU, and Japan) and developing economies (e.g., Brazil, Russia, India, China, and South Africa). Some chapters include evolving histories of economies over short-run business cycles (Chapter 4) and long-run economic growth (Chapter 5), complemented with various theories to explain these realities. In addition, the information on the modern structures of education markets (Chapter 8), healthcare markets (Chapter 9), and housing markets (Chapter 10) also contain occupational information useful for career planning.

Dual Perspective: Descriptive vs. Prescriptive 

The analysis of globalised economies is incomplete without addressing both what is (descriptive or positive analysis) and what ought to be (prescriptive or normative analysis). To that end, this book is structured to address causality-type of questions such as causes and effects of various challenges, alongside policy-type of questions such as how governments, firms, and individuals can deal with these challenges. Policies are pertinent for all economic challenges, but especially paramount for disruptive ones, including both entrepreneurial innovations which are legal (Chapter 6) and criminal activities which are illegal (Chapter 7). Moreover, we discuss three grand challenges facing globalised economies of our times, migration (Chapter 11), digitalisation (Chapter 12), and the environment (Chapter 13).

Dual Level: Basic vs. Advanced

The pedagogic design of this book adopts a nonlinear approach. Unlike the linear progression of content in most textbooks (e.g., concept  assumption  derivation  conclusion  implication), our nonlinear pedagogy respects the nonlinear nature of learning by setting different learning objectives for different rounds of reading (Zhou, 2024). The first part of each chapter presents accessible examples and intuitive explanations that invite readers to engage with the material without being overwhelmed by technicalities. The purpose is to form a general picture before diving into the details. More advanced materials, including concepts, models, and econometrics, are provided in the second part to elaborate on the assumed knowledge in the first part. In addition, this dual-level design also enables the book to cater to students at different levels. Each chapter outlines a set of basic learning outcomes suitable for non-academic readers and introductory undergraduate students. Advanced learning outcomes and advanced materials are appropriate for senior undergraduate and postgraduate students.

With the three novel dualities, our book can probably address the late Queen’s inquiry, as well as the increasingly awkward position of economics textbook amidst the burgeoning rise of generative AI.

[A Reply to the Queen] So, after all, “Why did nobody notice it?” This is largely due to the economist’s powerful but restrictive methodology—models. Economists are obsessed with models, despite their reliance on unrealistic assumptions, because models serve as simplified representations of complex economic phenomena. Developing a model is like drawing a map. A map must ignore trivial details like a tree or a stone while focusing on important landmarks like rivers and roads. A 1:1 map is correct but useless. In this sense, all models are wrong, but some are useful. Simplification allows economists to theoretically isolate key mechanisms and empirically test derived hypotheses on causality. As a result, simplification often starts with the most extreme assumption of idealised conditions. Neoclassical theory serves as one such baseline model, assuming rational decision-makers and competitive markets. More advanced models typically build on neoclassical frameworks by relaxing these idealised assumptions and incorporating more realistic elements (irrational behaviour, asymmetric information, and externalities) to better approximate real-world conditions. 

However, the habit of starting with far-from-reality assumptions sometimes make economists forget why they start the journey in the first place. Much effort in economic research and economic education has been vested in manipulating models, which become toys rather than tools. This book, instead of going from models to economies, chooses to reverse the journey and go from economies to models. We describe examples and histories of economies before models and theories. We hope our endeavour can bring economics and economists closer to economies to avoiding similar mistakes in future crises.

[A Response to Generative AI] As this book was written, a disruptive technology was reshaping the world. Generative AI technologies now can produce economic analyses and arguments within seconds. This raises a fundamental question: if students can access information from AI on demand, what role remains for a textbook? While generative AI is undoubtedly a valuable tool due to its flexibility, accessibility, and interactivity, we argue that it should complement, rather than replace, textbooks. Nonetheless, its emergence necessitates a rethinking of how textbooks should be written, ensuring they are offering what generative AI cannot.

The quality of responses of generative AI relies on the accuracy of prompts. If the prompts are clear, then generative AI can efficiently give good answers. However, if the prompts are vague, then generative AI often provides fragmented or context-independent answers, making it hard for students to see the bigger picture. Our book, in contrast, offers a coherent and well-structured pathway through economies and economics. It gives students foundational concepts and frameworks in a logical sequence. The big picture, like a map, can navigate them from a state of “I don’t know what I don’t know” to a state of “I know what I don’t know”. Then, students can use generative AI and the internet for further learning.

Moreover, while generative AI can aggregate vast amounts of information, it is prone to inaccuracies or misinformation, particularly in mathematical derivations and quantitative analysis. This limitation arises because generative AI relies on pattern recognition rather than true comprehension. It predicts the most statistically probable next word based on its training data, rather than applying logical reasoning. In contrast, our book offers expert-reviewed content grounded in reliable, high-quality academic sources. Drawing on decades of professional experience as economists, we ensure that every derivation, proof, and example adheres to established academic standards, delivering accurate and consistent explanations. 

How to Use the Book

The primary target users of this book are advanced undergraduate economics students, who have some basic understanding of microeconomics and macroeconomics. Some or all chapters of the book can be used for modules such as:

• Applied Economics (all chapters)

• Applied Microeconomics (Chapter 1-2, Chapter 6-10)

• Applied Macroeconomics (Chapter 1, Chapter 4-5, Chapter 11-13)

The basic materials of each chapter can also be used separately for first-year undergraduate modules in both economics and business-related programmes.

• Introduction to Economics (all chapters)

• Contemporary Issues in Economics (all chapters)

• Global Economies (all chapters)

Many chapters can be used as supplementary references for modules like International Economics (Chapter 1), Labour Economics (Chapter 2), Financial Economics (Chapter 3), Business Cycles (Chapter 4), Economic Growth (Chapter 5), Innovation Economics (Chapter 6), Criminal Economics (Chapter 7), Education Economics (Chapter 8), Health Economics (Chapter 9), Housing Economics (Chapter 10), Migration Economics (Chapter 11), Digital Economy (Chapter 12), and Environmental Economics (Chapter 13). Additionally, the comprehensive coverage of topics makes it a useful reference and guidance for both undergraduate and postgraduate degree dissertations.

In addition to the book’s text, we also provide access to a test bank (including multiple choice questions, true-or-false questions, essay questions, and technical questions), lecture slides, data, and computer codes underlying the figures in an online database. This allows instructors and students to engage actively with the material—not just by reading but by doing hands-on economic analysis. Each chapter includes a set of multiple-choice questions, essay questions, and calculation exercises, designed to help users review and apply their knowledge. We hope these features enhance the experience of learning and teaching.

Endorsements