Describe the shifts in the world economy over the last 30 years

8 August 2016

Describe the shifts in the world economy over the last 30 years. What are the implications of these shifts for international businesses based in Britain, North America, and Hong Kong? Although the question is talking the shifts of the world economy over the past 30 years, however, since the end of World War II, global trade has grown faster than global income. Globalization is the trend in these 30 more years because of the technological change. According to the textbook, globalization is defined as the shift toward a more integrated and interdependent world economy.

Telecommunication, transportation technology and information transition (including World Wide Web) has been developed rapidly in the past years. These upgrades have made many firms to go globalization. We can see the Evolution of world trade and global gross domestic product in 1981 and in 2010 in the following two diagrams. In 1981, United States (U. S. ) was in dominance in the world trade. She exported products of 12. 3% of the total exports while China exported 1%. However it was changed sharply in 2010. U. S. ’s export decreased from 12.

Describe the shifts in the world economy over the last 30 years Essay Example

3% to around 10% while China’s total export was dramatically increased from 1% to nearly 10%. Also, we can find some figures from the textbook Table 1. 2 which showed the demographical change of world Gross domestic product (GDP) and trade. Both of them indicated that U. S. is still in the leadership of export in the world. However, some emerging countries like China, India, and Brazil are continuous growing their economic power. It is optimistically believe China will become the leader of the world’s largest exporter in the future. Another reason for the change is the changing foreign direct investment picture.

U. S. firms were the dominance of the foreign direct investment in the 1960s. British firms were the second. It was changed afterwards as the barriers of the free trade of goods, services and capital decreased. Many firms changed their manufacturing and assembling processes to the cheaper cost nations. As a result, the foreign direct investment moves to the developing countries and make their economies grow. Third, there is the changing nature of the multinational enterprises. In the 1960s, U. S. enterprises were the major players of the economy and U. K. firms were the second.

However, many enterprises from other nations started to do multination in the following decades. Many of them were come from the developing countries. The rise of medium-size and small-size multinational enterprises was lower down the percentage of U. S. firms’ dominance. The last trend was the changing from Communist world to democratic world in between 1989 and 1991. Many former Communist countries of Europe and Asia were allowed to free trade. Democratic policies made these countries’ economy grow much faster than before. From the data above and in the textbook, U.

S. remains the most multinational enterprise now. This implication is similar to the North America and Britain. Britain’s economy remained strong when it was in the 1960s, but towards the end of the decade this growth began to slow. In the late 1970s, a different economic policy made British companies reverse. It was including changes of tax, company’s ownership, regulation, and industrial relations. Free trade allows goods transaction within the European Union area which benefits the competition of local firms and increases its efficiency and effectiveness later on.

As they are developed countries and now the continuous rise of economy growth in the developing countries threaten the U. S. and British firms. Hong Kong is one of the developing nations which has good location for exports, skilled labors and financial services nowadays. But in the 1960s or 1970s, Hong Kong was just a fish port. Manufacturing and textile industries were prosperous at that time. Telecommunication was not so developed and popular. When Hong Kong government gave nine years free education, the overall education level of Hong Kong people was increased.

Also, the opening of China markets and the rises of payrolls made the manufacturing and textile industries move out of Hong Kong in the 1970s. From the technologies and financial services rise, Hong Kong becomes an international financial center. It attracts foreign capital investment to invest in Hong Kong and make it to enter one of the l00 largest multinational enterprises. 2 What is the relationship between corruption in a country (i. e. , bribe-taking by government officials) and economic growth? Is corruption always bad?

Q2: Corruption is all around the world. In most developed countries, corruption is low level because there are strict laws and corruption is treated as illegal. But in many developing countries, corruption is like a kind of culture. There are several reasons for corruption, e. g. trade restriction, bad regulations, government subsidies, price controls by the government, multiple exchange rate, low salaries of civil servants, natural resource factors and sociological factors. Many of them are happened in the third world.

At a result, many firms would like to bribe government officials to let their businesses smooth. In the short run, this kind of action can increase the economy growth. When the firms grow, lesser corruption occurs. From many studies by Economists in the world throughout the past decades, they always say that corruption and the economy growth is not linear relationship and hardly measure. Heckelman & Powell (2008) quoted by Giorgi Mekerishvili, if the government is big enough and has good control on regulation and bureaucratic burdens, the corruption has a good effect on economic growth.

By practical experience, corruption can improve growth by allowing firms to pay money to prevent inefficient regulations and bureaucratic put off. It also can shorten the time for processing. In the working environment, time means money. Therefore, many firms would like to use money for shorten the processing time and conflict. As a result, the whole transaction will be more efficient and competitive. Corruption in an international level is also giving a help. For example, a company needs to transport goods from one country to another country.

If the company pays bribes, the transportation time will be shortened a lot and can meet the tight schedule. It is very important for a company to deliver goods to his customers on time. In the short run, we can say that a bit of corruption is not harm to the economic growth. However, one of the Economists, Paolo Mauro (1995 and 1997) who thinks that corruption affects investment and economic growth. There is new evidence on the relationship between corruption and the components of government expenditure.

On his findings, a significant occurrence is management of a firm treats corruption is a must when they want to start a business. Then the total cost of operating a business increases. The attractiveness of investment will then be a concern and may be lesser investment occurs. Even reduce the attractiveness of foreign direct investment. In the long term, the corruption affects the general economic growth. In addition, bribes through some large infrastructure and public services will lower the quality. Corruption is difficult to stop as governments need to figure out effective ways to combat it.

According to the findings of Mauro, if government of the country has anti-corruption campaign can benefit the economic growth: “…A country that improves its standing on the corruption index, say, 6 to 8, (0 being the most corrupt, 10 the least) will experience a 4 percentage point increase in its investment rate and a 0,5 percentage point increase in its annual GDP growth rate. ” (Mauro, 1998). On the other hand, many economic researchers found that the more corruption occurs, the less foreign direct investment. And therefore, economic growth reduces.

In the textbook, the author gave an example – Corruption in the Philippines. In the example, The United Nations Development Programme estimates that over 10% of the Philippines’ annual budget is lost because of corruption. Many foreign investors are not willing to invest in the serious corrupted country. The issue affects the whole investment and reduces the Gross Domestic Product (GDF) growth. In conclusion, corruption is not encouraged but for some special reasons, corruption is unavoidable and it is a good help for urgent case.

3 The world’s poorest countries are at a competitive disadvantage in every sector of their economies. They have little to export. They have no capital; their land is of poor quality; they often have too many people given available work opportunities; and they are poorly educated. Free trade cannot possibly be in the interests of such nations! Discuss. Q3: From the Trade liberalization statistics from WTO, it said, “Trade liberalization is negatively correlated with income growth among the poorest 40 per cent of the population, but positively correlated with income growth among higher income groups.

In other words, it helps the rich get richer and the poor get poorer. (Lundberg and Squire, Inequality and Growth; Lessons for Policy, World Bank 1999, Chapter 3. )” Is it really free trade not helping the poorest countries? We will try to find out in the following analysis from different researchers. Firstly, government should focus on infrastructure, industry segmentation and technology competence, regulations and education. New jobs will be created when the government builds roads, factories and buildings. These constructions need many labors. Employment rate will then be increased.

If citizens do not believe their government, it is no use for the improvement. The political issue is also another factor to affect the growth of the economy in a poor country. Those cities or countries are always in rebellion and no investors would like to invest in these cities or countries. The economies must be poor. Also, many children do not have a change to study and they work outside so early that they do not have knowledge on high technology, skilled technique. Low level of education makes the countries lack of comparative and affect the whole economy growth.

Government intervention is a way to help the local firms when free trade opens. Government may use tariffs and subsidies to protect the domestic firms to compete with foreign companies. Tariffs and import quotas are normally applied and it reduces many foreign firms to do business and local firms can increase their dominance in a specific industry. After some years when the local firms are big enough and can increase their efficiencies and productivities, government could then reduce tariff barriers and subsidies. These firms may expand their exports to other markets and go globalization.

As a result, free trade helps those strong firms to depart from poverty. At reverse, weak firms will be bankrupted. Also, WTO or EU helps the developing countries by reducing export tariffs or even duty free to other member countries. The firms can have a better profit by exporting various products and then increase their market shares. When tariffs decrease, more firms can also be benefited by importing various cheap raw materials or products to produce new types of goods. These goods will then be able to export to other countries and increase the market share and revenues.

Eventually the growth of the economy increases the percentage of employment and earnings opportunities. There was a statistic showing that the economic growth and capital income were increased by free trade in the developing countries from 1970s to 2010s because foreign firms can use cheaper cost to access the developing countries. Researcher gives an example of Vietnam and Mexico. Both countries can increase exports to developed countries like United State. However, researcher points out that not everyone can benefit from free trade.

It is varied depends on geography, nature of trade change. Researcher also points out that firms go globalization creates global standardization. We all know is called ISO. The firms in developing countries may not be able to fulfill that standard. The reasons are lack of human and technological ability. On the other hand, researcher thinks that the high standard can push those firms to improve their productivities, technologies, quality of goods and services as well as environmental standards. Others who cannot do it will downsize or even bankrupt.

4 Given the arguments relating to the new trade theory and strategic trade policy, what kind of trade policy should business be pressuring government to adopt? Q4. From the textbook, New Trade Theory has two main concepts which are economies of scale and first-mover advantages. As if domestic demand and the market of a country are small, firms may not produce a large volume of products to consumers to choose. And the price will be high since the cost of production is high. If more countries trade with each other, the demand will increase and may be large enough for producers to produce more products and thus attain economies of scale.

Economies of scale mean a firm uses the same resources to produce a large number of products and reduce the cost. Government should negotiate or ally with other neighbor countries to free trade. After increasing the trade among countries, the variety of products would then be increased as well. The average cost of each product is thus lower and eventually increases the revenues of income. In addition, when the government helps the local firms to compete the economic scale, there should have enough related and support industries as well. This is a simple relationship.

If local firms would like to increase their production, they have to buy more raw materials or semi-products for production. After finishing the products, they have to move to the sales place. The transportation network is very important for firms to transfer to its customers efficiently. The second point in the New Trade Theory is the first-mover advantage. Since the firms in the domestic industry treat economies of scale as a major factor, the firms need to get it by increasing the demands for production and exporting the products to other markets.

The firms have to understand the customers’ expectation first. They have to consider whether the customers are well educated or living in high standards. In order to gain the pool of a larger market, the firms need to create competitive advantage on their products which are innovative and good quality. When the firms export them to other markets, these will expand the whole markets to a single market. If there is no other firms have the same features, the firms can get the first-mover advantage. Mostly the successful firms are lucky and their products are innovative in the new market.

Many economists argue that the new trade theory create government intervention. From the textbook, some local firms in the developing countries are not large enough to operate by themselves. They need government’s help to maintain their comparative advantage and maintain their place in the industry. In this connection, government should help small firms by adapting control import quotas, tariffs, giving subsidies on especially technology as it is difficult for competitors to copy or prevent new entrants.

There are several types of import quota to be used by the government. First, government controls on exactly how much of quotas to be imported. Fewer quotas of imports have fewer choices for consumers to choose. Consumers can only buy the local firms’ products and lastly increase their revenues. Second, government does voluntary not export so much to other countries. This also led the consumers to buy more local products than foreign products. Government may ask local firms to join together to do R&D.

When these firms successfully create new, innovate high technology products, they can get more market share. Some governments would use administration policies like anti-dumping policy to restrict the firms to sell products too cheap. These policies help domestic firms gain comparative advantage to foreign firms. In conclusion, when the small firms grow enough to get the first mover advantage and enter into the world market, the government can reduce its support and let the firms to overcome the short-term loss. Eventually, the economic growth will be increased.

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