EU-ASEAN - Facing Economic Globalization by Paul Welfens - Book Report/Review Example

EU-ASEAN: Facing Economic Globalization Introduction The European Union-ASEAN association refers to a joint foreign link between two groups, the Association of Southeast Asian Nations (ASEAN) and the European Union (EU) (Welfens 2). This paper will discuss Paul Welfens’ book, EU-ASEAN: Facing Economic Globalization. It will explain what Welfens argues in his writing, give a clear analysis of the book and state its conclusion. The book talks about the effects of Foreign Direct Investment (FDI) outflows and FDI inflows. It proves that the existence of cumulated foreign direct investment (FDI) needs higher import elasticity in better terms than the ones stated in the EU-ASEAN: Facing Economic Globalization. An individual may develop an assortment for the elasticity of the ratio of imports to exports according to the actual exchange rate. The sum of the total import elasticity abroad and at home must go beyond unity plus with an extra parameter. For exceptional cases the sum of both elasticities ought to surpass 2 if actual depreciation is to develop the real and present account (Welfens 34). The book allows an individual to determine the economic, political and business development of a world with economic globalization. It also lets the reader acquire fresh insights from the wide macroeconomic view discussed in the book. The insights gained are vastly appropriate for the debate concerning soaring deficits of the United States and high surplus positions of states such as Germany, Japan and China. The significance of real income outcomes for current account adjustment is stressed here in a precise manner. There is a direct real income outcome of modifications of the real exchange rate (Welfens 45). The Author’s Argument Economic globalization is a lasting international procedure in which the functions of the ASEAN, EU, China, Japan and Korea are of growing significance. Foreign investment, trade dynamics, as well as regional policy cooperation in Asia and Europe, are talked about in the book along with past developments. The book underlines relations between World Trade Organization (WTO) regulations and the European Community Law (ECL). The main challenges created by Chinas economic development are components of the author’s arguments; precise issues regarding international off-shoring and outsourcing. It also covers regional economic incorporation in the time of financial globalization. With a relation, to historical dynamics, global shifts, hypothetical analysis and policy answers for Asia, Europe and the world economy can be understood. The author talks about clear policy alternatives and also exposes critical issues in relation to the welfare study of regional integration (Welfens 84). The author says that high and recent account deficits have set a serious challenge for the United States policy makers as from the 90s. Many other states have also occasionally encountered troubles with the recent account deficit (Welfens 92). Such shortages frequently bring about protectionism. He says that it is vital to recognize which policy decisions exist for rectifying a trade balance shortage or a current account shortage. The author says that Obstfeld and Rogoff, two eminent public policy professors, created a crisis that made a considerable change of the real exchange rate to be insufficient to handle the high current account shortage. The internal relative price, the ratio of non-tradable to tradable prices, would as well need to be adjusted in a manner which arouses net exports of goods plus services. The author also highlights that the asymmetric arrangement of the capital account is vital (Welfens 156). United States’ investment in foreign countries is in the form of foreign direct investment and fairness investment. The share of foreign dealings in the United States is controlled by investment in bonds and other resources, which are less risky than equities and hence have quite a small yield. The rate of returns from the United States foreign dealings are greater than the standard returns that the foreign shareholders in the US have gained. Foreign direct investment (FDI) has turned out to be a common fact of economic realism where economists have not fully discovered the repercussions. One crucial effect regards international profit transfers from auxiliaries to the main company. An individual may profit more than several states in Latin America, Europe and Asia. This is because of the high cumulated profits that FDI gives to a significant disparity between gross domestic product (GDP) and gross national income (GNI). Ireland, for instance, transfers more than a tenth of its GDP in the form of proceeds to main companies of foreign Multinational Corporation (MNC) auxiliaries (Welfens 157). The author also shows that cumulated foreign direct ventures influence the response of the current account balance plus the trade balance. Recent globalization, distinguished by high foreign direct investment (FDI) flows and rising actions of multinational companies, influences the outcomes that exchange rates have on the external balance. While economic globalization and foreign direct investment (FDI) have turned out to be a widespread mannerism of the world economy, economic modeling seriously disregards the distinction between GNI and GDP. This is not only expected to lead to conflicting multiplier outcomes, but it also entails a bias in a lot of empirical analysis of import duties, whole macro systems and export duties. For instance, Germany’s export duty can be predicted with average approaches in an acceptable manner, though, in years past, it is noted that approximating Germany’s import function yields poor effects. It is clear-cut to show that the author’s argument brings conflicting results for a world economy distinguished by economic globalization. An individual should not forget that, in a wider macroeconomic approach, both the real income and real exchange rate will influence the current account. Analysis In the present world economy, an individual should, however, not neglect that both multinational companies and foreign direct investment (FDI) flows can alter the face of economic globalization. This is because a pragmatic approach will have to consider that savings are in proportion to GNI and not to GDP. People reason that imports of products are proportionate to GNI and not to GDP, gross domestic product being the average assumption in models lacking FDI hence saving their funds. The normal literature puts emphasis on the gross domestic product (GDP). It suffices to indicate that the International Monetary Fund (IMF) tactic used for determining equilibrium real exchange rates clearly affirms that people consider the balance savings-investment equilibrium. It also states that people also consider the current account equilibrium as a share of GDP and hence totally disregard the difference between GNI and GDP. People should consider the difference between GNI and GDP. This is because of the increasing of foreign direct dealings inflows powerfully in relation to GDP in several recently industrialized nations and Organizations for Economic Co-operation and Development (OECD) nations since the 80s. Several OECD nations are a vital source of foreign direct dealings and host nations of FDI at the same time. It can be said that economic globalization might or might not be an irremediable trend. There are numerous and significant outcomes of economic globalization. There is statistical proof for positive financial outcomes and suggestions that there exists a power disparity between developed and developing nations in the global economy. The positive impacts of economic globalization are discussed below. Per capita GDP increase in the post 80s rose from 1.4% per annum in the 60s to 2.9% per annum in the 70s. It rose to 3.5% in the 80s and to 5.0% per annum in the 90s. This speeding up of the growth is even more outstanding given that the well-off nations saw steady drops in growth from a high of 4.7% per annum in the 60s to 2.2% per annum in the 90s. The non-globalizing growing countries did much worse than those globalized, with the formers annual growth rates dropping from highs of 3.3% per annum in the 70s to only 1.4% per annum in the 90s. This fast development among global states is not because of the strong performances of India and China in the 80s and 90s; as 18 out of the 24, states experienced increases in growth, several of them relatively significant. In spite of several analysts concerns regarding the disparity gap between developing and developed states, there is no proof to suggest that the disparity goes up as international trade develops. A development benefit of economic globalization is rather broadly shared. While numerous international states have witnessed an increase in the disparity, remarkably China, this raise in disparity is because of the restrictions on internal migration, domestic liberalization, and agricultural policies, instead of international trade. Economic globalization also has assisted to decrease poverty all across the globe. Poverty has been eased as proved by a 5.4% annual increase in income for the poorest population of Malaysia. Still in China, where disparity continues to be a crisis, the poorest population witnessed a 3.8% annual increase in income. In numerous nations, those living less than a dollar per day poverty threshold dropped. In China, the rate dropped to 15% from 20% and in Bangladesh the rate dropped to 36% from 43%. So as to set better economic relations internationally, international lending organizations should partner with developing nations to revolutionize where and how credit is concentrated. They should work towards speeding up financial development in developing states. There is a requirement for social respect for everyone globally. The Economic Commission of Latin America and the Caribbean puts out that, in an attempt to make sure such social respect, the UN must enlarge its program to work thoroughly with international lending organizations. Regardless of their name, international lending organizations seem to be country-based. The ECLAC proposes that international lending organizations should enlarge to be comprehensive of all countries, and it suggests that there is a need for worldwide competitiveness. A main factor of attaining worldwide competition is the widening of skills in the country through training, education and technological improvement. Economists have also proposed that programs to assist developing nations adapt to the global economy would be useful for international economic associations (Welfens 200). Conclusion Understanding EU-ASEAN: Facing Economic Globalization takes into consideration mastering what the foreign direct investment (FDI) and function of multinational companies entails (Welfens 264). An individual might state its general understanding that the amount of the absolute elasticity should go beyond unity by an extra term. This is with comparisons to the EU-ASEAN: Facing Economic Globalization. This is an attractive insight. It ought not to be taken as a general effect that actual exchange rate groups will be less influential in a world of globalization than in a world lacking factor mobility. With regards to the need of modifying the EU-ASEAN: Facing Economic Globalization in a globe with foreign direct investment and global profit transfers, a general analysis with outward FDI and inward FDI does not simply yield definite outcomes. A much simpler analysis of the findings for certain parameter collections should be put into action. Work Cited Welfens, Paul. EU - ASEAN: Facing Economic Globalization. New York: Springer Publishers, 2010. Print. Read More