Characteristics of the International Economy - Coursework Example

International Economy Name: Institutional Affiliation: International Economy Introduction The international economy refers to the world’s economy and comprises of different economies of each of the country of the world. It is important to understand that economies are related to one another. In the present day, no country can be able to survive as an island and thus each country depends on one another for one reason or another [Uni15]. One of the key concept of the international economy is globalization. Globalization plays a key role in the growth of the international economy and is the process that facilitates individual economies to interconnect in such a way that the activities of one country is likely to affect the activities of the other country or even a number of country [Wha15]. Greater trade has been carried out between countries, restriction on the movement of people and goods across the borders have also been significantly reduced [Ric12]. The international economy is the result of such initiatives. The international economy has not only been advantageous to countries but it has also been beneficial to the individuals in those countries. This is because the citizens of these countries are now able sell and receive goods and services, from the various continents of the world [Pac12]. There are several factors that have facilitated the growth and expansion of the Global economy during the past years, new technologies, significant reduction on transport costs, formation of trade blocs such as NAFTA which is the North American Free Trade, among other reforms that have been implemented in the late 1900s [Pac12]. Characteristics of the International Economy There are certain Characteristics that are unique to an international economy. However one of the greatest characteristics of the international economy are; Interdependence The concept of economic globalization links places and countries across the world through activities such as consumption, trade and production. As the various economies have significantly become integrated through the global trade, the economic growth of any country has become increasingly dependent on the economic growth of the other nations that are in the trade bloc [Fra14]. Another factor is that the globalization. This is easily achieved since the international economy aims at rationalize the main prices of all the products across the world. As a result, a computer, is likely to cost the same amount both in the United States and in India, if the same size of units were to be purchased. The reduction of the level of quotas and tariffs by the World Trade Organization, has enhanced the free flow of goods between the developing and the developed nations of the world [Naf84]. The other contributing factor is the emergence and growth the Trans National Companies who have aimed to establish their units across the different countries across the world. A good example is the Coca Cola Company. Interdependence has significantly boosted the capacity and productivity of the companies to astronomical highs due to the stiff competition that exists at international level. Significant improvements in education, especially in the developed countries such as United States of America and the like of China and Japan has in turn been spread to the less developed countries [TheND]. This has enabled the population in the developing nations to acquire the needed knowledge and technical skills for operating the complex equipment’s. International Division of Labor As stated above, the international economy comes with significant benefits and thus competition tends to arise among the countries that have the different standards of labor regulations, health insurance and worker pay [Wha15]. The big corporations are able to benefit from cheap labor especially from the developing countries and this can be attributed to the Free Trade Agreements and also the international division of labor. This significantly disadvantageous especially to a worker in high wage country since they are likely to face competition from the worker from the low wage countries [TheND]. The entire employment sector in most of the advanced countries are presently facing significant international competition and as a result, unemployment has now crippled many localities. One of the sectors that has been greatly affected is the manufacturing sector since it is increasingly being contracted to the lower-cost regions which is mainly the developing nations [Ric12]. This is because in most of the developing countries there are less strict labor laws thus there is no minimum wage and the environmental regulations. One of the best example of the international division of labor can be identified in the clothing industry. It is important to understand that the clothing industry was once one of the main industries in most developed countries. However, as time passed, most of the cloth industries have now shifted to the developing regions such as North Africa, Eastern Europe, Asia, Eastern Europe and Central America [Ura06]. This situation thus raises the question as to whether the development of the international economy may result into setting the pace for developing countries to be more advanced economies that will require higher wages in the near future just like the present developed nations. Spread of Culture One of the most important feature of the international economy is the growth and spread of culture as people of the various culture will interact more often. The concept of cultural globalization is likely to take many forms [Uni15]. A good example is McDonald’s which has spread across the world, thus bringing the American foods to all the various countries of the world. On the other hand, McDonald also adapts to the culture of the countries in which it has relocated to. This ranges from serving no beef in India and even selling cheese free burgers in countries like Israel. Exploitation of Labor As highlighted above, the growth of international economy, has the effect of division of labor across countries. However, there are factors that influence the division labor. Over the years it has been identified that most of these multinational have ended up exploiting the citizens of the less developed nations taking advantage of their weak labor laws [Bai86]. The fact that the companies are able to shift their productions to the less developed nations and reduce their labor cost by half is unfair exploitation to the citizens of the less developed nations [Pac12]. As much as there are benefits of the international economy, it is important to also highlight some of the disadvantages that come with it. It is therefore important the proper checks and balance are put in place so as to ensure that the international economy works effectively. Growth of Inequality It has already been highlighted that the growth of international economy comes with greater opportunities across the borders however, if effective measures are not put in place, then there is a greater risk of this resulting to significantly high economic growth and a lot of inequality among countries [TheND]. This caused by the fact that the wealthy countries of the world are always in a better position to be able to take advantage of the opportunities and thus be able to grow wealthier and leaving the poor countries with totally nothing [Fra14]. Factors that led to the growth of International Economy in the 19th Century Introduction So as to effectively understand the factors that shape the future of the world’s economy, it is important to understand that historical forces that played a key role in establishment of the present day global trade system that we have in the 21st century [WTO13]. The growth of the international economy like the other features of the world, began with industrial revolution across the globe. Industrial revolution led to huge technological advancement in the communication and the transportation sector and this ranged from steamship telegraphs, rail road, aero planes, automobile and the internet at large [WTO13]. Which in turn reduced the cost of moving capital, good, technology and people around the world. The rise of the economy of the world, spread of both technology and investment, formation of new economic powers and huge growth of the population would not be possible if it were not for the massive growth and expansion if the world trade over the past two centuries. The spread of the industrial revolution, from Europe, to Americas, Asia and finally o Africa were fuelled by the expansion of economic integration and international trade [WTO13]. From the mid-19th century, the world’s population has grown by about sixty-fold and the world trade on the other hand has grown by about one hundred and forty fold. This circle of the deepening expansion and integration is what has been referred to as an international economy. Whereas the underlying structural and technological factors were the main drivers behind the formation of an international economy, the political forces also played a key role and at time facilitating and also cushioning the growth of a globally connected market, and other times reversing or resisting it [WTO13]. It is hard to imagine the rise of an international economy in the nineteenth century without putting into consideration, the gold standards and the deep web of the bilateral trade agreement and the economic dominance of the Great Britain. It is true to state that the growth of the international economy, over the past two centuries, has been accompanied by the expansion of government of both at the international and national level [WTO13]. Transport and Communication The nineteenth century, significantly marked a major turning point for the world trade, however keeping in mind that that the outline of the World’s economy were very evident by the seventeenth and the eighteenth centuries as the advance of navigation and ship design, led to the discovery of the Americas [WTO13]. Thus opening new routes to other parts of the world such as Africa and Asia. It was the growth of industrial revolution in the 1800s that significantly triggered the significant expansion of trade technology and capital flows, explosion of communication and migration and the shrinking of the economy of the world which is presently referred to as the first age of the international economy [Fra14]. To be more specific, the breakthrough in transport technologies played a big role in opening up the national economies to various trade and investments which differed significantly from what the previous historians such as Geoffrey Blainey had reffered to as “the tyranny of distance” [WTO13]. The discovery of steam power was among the first revolutionary technology in the transportation sector and thus led to construction of a steam ship. Despite the first vessels being limited to the inland rivers and canals, the late 1830s were better and thus facilitated the regular crossing of the Atlantic. This never stopped there and by the 1850s, services to the south and western Africa began by the steamships [Fra14]. In the beginning the steamships only carried the valued commodities such as the mails and series of the improved technological equipment’s but decades later this changed as a result of improvement in engineering led to the creation of improved design such as compound and turbine engines, efficient ports, improved hull design thus leading to bigger, faster and fuel efficient steamship. This had the effect of reducing transport cost and at the same time opening up the trans-oceanic steamships, trade in bulk commodities and also luxury goods [Ric12]. This did not stop at that and as a result, the opening of the Suez Canal in the year 1869 marked a breakthrough in the trans-oceanic shipping. Before that, the steamships were unable to carry, enough coal that could enable them circumnavigate the Africa thus left sailing ships as the dominant means of transport on the Far Eastern trade routes [WTO13]. By creating a short cut to the Asian Continent from Europe, the Suez Canal thus made steam ships a viable option and the most efficient one for these routes. This enabled the explorers to be able to complete their conquest by the end of the 19th century. Railways was also the other main steam-related means of transport in the industrial revolution. The inland transportation costs on the other hand started to fall in the late eighteenth century due to the road and canal construction. Britain quadrupled its navigable waterways between the years 1750 and the 1820, France Cana construction was already successful and the United States had had its Evie Canal which was constructed from 1817 to 1825 [WTO13]. The United States’ canal had reduced the cost of transportation by 85% and reduced the tome of the journey from a whole 21 days to 8 about days [WTO13]. The Importance of the Inland water system was later shadowed by the construction of the railway. In 1825, the world’s first rail line which ran from Stockton to Darlington was opened. This was later copied by Britain, France, Belgium, Germany and the rest of the Western Europe. The explosion of the railway especially in the United States, during the mid-19th century would play a critical role, not only in the settlement of the west and facilitating the national economy but also linking the big American hinterland to the other global markets of the globe [TheND]. A transcontinental line was constructed so as to be able to link the west and east coast of the United States by the year 1869. On the other side, the Canadian-pacific railway route was complete by 1885 and in 1903 the trans-Siberian railway line was completed. The discovery of the electronic telegraph around the 1840, was one of the most important transformative event which ushered the new era of the near immediate communication. The first successful trans-Atlantic was sent in the year 1858 which significantly reduced the communication time between North America and Europe from 10 days to minutes [WTO13]. By the end of the nineteenth century, the British, to French, to German ad finally United States’ owned cables linked North America and Europe in a complex web of the telegraphic communications. Trade The huge expansion of international trade in the nineteenth century enabled most countries to specialize in the products in which they were most efficient to produce which enabled them to reinforce and also accelerate the division of labor across the globe [Pac12]. However, although trade helped in diffusing new products and technologies, and to reduce the handicap that other nations with limited resources had endured, it is important to note that the industrial revolution developed unevenly with the United Kingdom having and early lead. Followed by others such as Western Europe, the North America and then Japan [Fra14]. On the other hand, the fall in cost of transport not increased the volume of trade among the continents but also lead to the significant diversification of trade. Before the industrial revolution, majority of the raw materials and the goods were very expensive to transport over longer distances considering that they charged higher prices for heavier goods [WTO13]. However, the steamships in turn replaced the wooden vessels and railways replaced the transport services offered by the horses and as a result a greater variety of goods were now able to be transported across the different trade centers of the world. The 19th century also witnessed the significant growth of the trans-oceanic trade in goods such as metals grains, textiles among other bulk commodities [WTO13]. The second half of the 19th century saw Europe facing stiff competition from the farmers of Russia and Americas. This continued significantly and the trade among nations continued to become more enormous and efficient and led to the formation of an international economy [WTO13]. Global Economic Integration and Cooperation The huge growth in the international economic integration in the nineteenth century laid on simple but also fragile international political foundations. The Gold standard was the main pillar in the 19th century’s global economy. This was adopted by the main countries in the 19th century and this included, Britain, Germany, Denmark, Sweden, Norway, Belgium and the United States. This is what led to the formation of the world’s financial system at that time considering that each country had fixed value of its national currency based on gold [WTO13]. The establishment of a global financial system was good news to trade and this made trade significantly simple among countries. This significantly helped and enhanced economic cooperation and integration among the various continents that participated in Trade and strengthened the relation and hence played a key role in the establishment of todays’ international economy [Fra14]. References Uni15: , (University of Craiova, 2015), Wha15: , (What is Economics, 2015), Ric12: , (Richard, 2012), Pac12: , (Pacek, 2012), Fra14: , (Frank & Denemark, 2014), Naf84: , (Nafzige, 1984), TheND: , (The Saylor Foundation, N.D), Ura06: , (Urata, 2006), Bai86: , (Bairoch & Goertz, 1986), WTO13: , (WTO, 2013), Read More