How Do Multinational Firms Affect the World Economy - Essay Example

Do international s effectively promote development? In support of your argument, select an important and discuss the developing countries’ experience and the ways in which the institution has impacted development. Contents Contents 2 Introduction 3 Discussion 5 Do international institutions effectively promote development? 5 An important institution and its impact on the development of a country 9 Impact of WTO on China 10 Impact of WTO on Cambodia 13 Impact of WTO on Malaysia 14 Impact of WTO on Brazil 15 Conclusion 17 References 19 Introduction International development is a concept that encompasses a wide level of developmental activities in the international scale. The roles of international in situations like the United Nations (UN), International Monetary Fund (IMF), World Trade Organization (WTO), the World Bank and the World Health organization (WHO) have been much significant in the development of various countries in different aspects like trade practices, health, education, financing systems and so on. These international institutions concentrate on improving the living conditions and alleviating poverty in different developing and under developed nations of the world by implementing suitable policies, programs and regulations. The various developments done in the global perspective are multi-disciplinary and encompass the aspects of literacy, gender inequality, healthcare, poverty reduction, foreign aid, infrastructure, environment, human rights, disaster preparedness, trade practices and governance. The international organizations work towards the betterment of the global economy consisting of the developed countries, developing countries as well as the backward countries. The current trend of globalization has brought with it the need for active international authorities to take collective and coordinated action in a global perspective. The integration of the activities of different nations has created a heightened level of interdependence of nations and has given rise to a pressing need of collaboration and coordination among various countries which can be effectively regulated and monitored by the international institutions by setting up proper standards and regulatory policies in different domains including banking, healthcare, education practices, trade practices, product standards, food safety as well as other domains. The global environmental issues have also been a common concern for different international authorities which are collectively working on developing the environmental conditions in all corners of the globe. The international institutions have been playing major roles in addressing the global problems faced by people across different nations. The international institutions include the international organizations like IMF, WHO, World Bank, WTO etc. As well as the international regulatory processes and agreements like the General Agreement on Tariffs and Trades (GATT) and WTO Preferential Trade Agreements (PTA). International Institutions by purpose (Source: Archer, 2001, p.178) Discussion Do international institutions effectively promote development? The international institutions are known to independently affect the economic, social and political aspects in the global scenario. Much research work has been conducted by different researchers and critics on the reason behind the creation of international institutions and how these institutions create changes in a world with diverse political and economic systems. These institutions not only affect then economic policies and processes in different countries but also strive to bring about equality by supporting the underdeveloped nation to compete in the global world. The increasing intensity of the process of globalization including privatization and deregulation has caused more intricate global interactions among countries and organizations a created a number of challenges with respect to the governance practices. The major types of problems that have been addressed by the international institutions are the common problems, coordination problems and the core values related problems like human rights. The coordination problems include the exchange of money, products, services, information and resources across borders. In this respect, coordination of the global connections is critical to facilitate these transnational exchanges (Downs, Rocke and Barsoom, 1996, pp.379-406). The electronic signatures and other necessary features of transnational exchanges are governed by the regulatory bodies like the World Trade Organization (WTO) to facilitate smooth flow of goods, services and money across the cross border nations. The GAAT is used to establish the authentic standards and technologies related to the global trade practices so that discrepancies and uncertainty in the trade practices are removed by making the countries comply with common set procedure and standards (Gowa and Kim, 2005, pp.453-478). Before the establishments of the important international institutions like the WTO, WHO, IMF etc., the countries with weak regulations related to labour and environmental safety were in an unfairly advantageous position over those nations in which appropriate and strict standards were maintained. The international institutions ensured the establishment of proper regulatory standards which decreased the inefficiencies within the process of global allocation of the trade and manufacturing processes and resources (Przeworski and Vreeland, 2000, pp.385-421). The common problems addressed but the international institutions include the protection of the public goods and common resources. These are the non rival goods in which it is it not possible to exclude any nation from using these goods. The international institutions have focused on welfare maximization by allowing free trade practices in the global economic scenario. The international institutions are also involved in developing then nations by reducing the problems associated with transcendent values or core values. These institutions support the causes of liberty, equality and democracy which add to the prosperity of nations. Ensuing the establishment of proper human rights system by the international institutions have gone a long way in developing and promoting global health and well-being for different nations. Since the state authorities may not have effective control over all the human rights regulation and practices, the international institutions play a major role in guaranteeing human rights across different countries to develop the social and economic conditions of these nations. The increases in global problems have created the need for international institutions. The governments of individual states play their own part in the protection of their interests and sovereignty. But the international institutions help in providing a framework under which the interconnection of nations on a global scale are protected and supported. The nation states act as the local institutes required for governance whereas the international institutions play the role of implementing suitable governance practices in the background of increasing globalization. The cross border transactions and trade practices call for expense of negotiation, time and cooperation which has increased the importance of the international institutions dramatically in the last fifty years. The international organizations like IMF have established strong monetary exchange practices, WTO has established effective trade practices and WHO has developed the environmental aspects in different countries. All these have contributed significantly to the growth of various nations from a wide range of perspectives. These institutions have established efficient practices on the international treaties and exchanges in response to the problems rising with the creation of an increasingly interconnected and interdependent world. Export volumes in developing, transition and developed economies from 1999-2009 (Source: Goldstein, Rivers and Tomz, 2007, pp.25). The effectiveness of the international institutions is determined by the structure of the institution and the support received from the national governments as well as the legitimacy of these institutions. The international institutions depend on the national governments to a high extent for the enforcement and implementation of the regulatory policies and standards set by these institutions. The United Nations (UN) and the International Monetary Fund (IMF) are examples of international institutions which have established suitable policies by designing a decision making structure that exists in conformation to the prevailing power structure of different powerful countries like the United States of America and the European Union (Stone, 2004, pp.1-15). IMF has immense power in controlling the economies of different countries. When a country requires getting loans from the IMF to payback private loans, IMF can impose substantial conditions on the nation to make changes in the structure and policies of the existing economy before it issues the loan. This helps to create a balance of power between nations as well as helps in restraining the increasing control of more powerful economies. The World Bank is more specific in its development operations in which it funds suitable projects aimed at building dams, roads or other infrastructures. The WTO focuses on the least developed countries by setting up global agreements and standards related to trading activities. The UN and its development network United nations Development programme (UNDP) work towards building sustainable livelihoods by supporting the local governments in various social development activities like capacity planning, policy setting and coordination planning. The membership of these international institutions are voluntary i.e. it is under the sole discretion of the nation if it wants to join these institutions or not. But it has been noted that the economies joining these international institutions have subsequently benefited from the memberships. As such the number of memberships in these institutions has increased at a multiple rate. For example, the membership of IMF has increased dramatically from 29 to 184 nations within a span of 12 years. The World Bank and the IMF have promoted and fostered trade liberalization by lowering the international trade barriers and facilitating the monetary exchanges (Simmons, 1998, p.10). This has resulted in the development of the global monetary and trade practices and the flow of goods, information and resources across the globe. These institutions have existed and functioned on four basic reasons which are the reduction of transactions costs, encouraging the transnational flow of information, restraining the powerful nations form exploiting the backward countries, establishing reforms in the political perspectives and facilitating reciprocity and cooperation in the international exchanges (Mansfeld, Milner and Rosendorff, 2002, pp.477-513). Some researchers argue that the role of the private investors and producers have become more critical with the functioning of the international institutions, particularly with respect to the IMF (Deardorff and Stern, 2002, pp.404-423). The pressure of the private investors and the powerful developed nations have somewhat constrained the effectiveness of the international institutions in the development of the global economy. But it can be established that the without the international institutions playing their critical roles, the underdeveloped countries would have been pushed and dominated by the developed economies and the gap would have been widened. The international institutions have instigated the development of the third world countries to a great extent ,especially through the constraining activities for the powerful nations, the establishment of human right practices, thorough the establishment of uniform rule sand practices and through supporting and developing the backward nations. An important institution and its impact on the development of a country The World Trade Organization (WTO) and its predecessor i.e. the GATT have been established with the aim of developing the world trade practices and fostering trade liberalization across the globe by reducing the barriers to international trade and providing opportunities to the developing countries to compete on a global platform. Increase of export in economies on destination basis from 1990 to 2008 (Source: World Trade Organization Corporate Website, 2008, p.1) Impact of WTO on China The impact of China, as a third world country joining the WTO is an important example of how tan international institution can impact development in a country. China joined the membership of WTO in the beginning of the 21st century. The country reached an advantageous position soon after attaining this membership. In the present century, China has emerged as a strong member of the world economy due to the support of the World Trade Organization (WTO). The membership of WTO has opened up new avenues for the country with respect to the global trade. The conditions for the membership of China in the WTO included the reduction of tariffs involved in importing activities, the exposure of the finance and telecommunication sectors to foreign competition, the permission provide to the foreign companies to establish their operations in the country as well as sell their products and services directly in the China market. The membership of WTO has promoted the market of China to use the foreign competition in facilitating and speeding up the economic reforms in the country in the service sectors, manufacturing sectors and the industrial sectors. The WTO membership of China has promoted development through the major aspects of tariff reduction, increase in the import levels of the agricultural goods, abolition of the barriers of non-tariff related to the industrial goods, abolition of the import quotas and the phasing out of the quota system from the export activities of China particularly in the clothing and textile sectors. China has experienced high economic growth facilitated by two major sources. The first source is the boost in specialization of the country through the processes of participation in international trade which has been gained by a modification in the composition of the outputs in the trading activities. The availability of foreign goods and the lowering of tariffs in the domestic market have increased the total consumption of products in the economy. The increase in the export levels has also increased the GDP growth for the economy of China. The effects of the membership are showing gradually because of the limited scope of the provisions of membership as well as because of the non-flexibility and resistance of the legal, political and economic institutions towards change (Finnermore and Sikkink, 1999, pp.27-32). The agreements which have been agreed upon by China while entering the WTO have served as the standard guidelines for the formal institutional and economic changes in the country which have been the major sources of boosting then economy. These are also expected to work as blueprints in the future working of the economy of China to make it a stronger player in the global economic market (Staiger and Tabellini, 1999, pp.1-36). The membership status in WTO has also resulted in the creation of several psychological effects on the Chinese people creating a level of confidence of the common citizens on the leaders. The membership of WTO has instilled a confidence among the Chinese people regarding the effective steps taken by the Chinese leaders to implement effective democratic reforms in the country to foster the well-being and development of the country as well as the people (Rosendorff, 2005, pp.389-400). The modernization of China has increased the power of the economy and has also gone a long way in correcting the negative perspectives of political and legal systems prevailing in the Chinese economy. The financial sectors and the agricultural sectors have been the most delicate areas in the agreements of WTO membership of China. The removal of the business and geographical constraints in China has caused more foreign players entering the market. This has created an accelerated level of competition in the country. The financial sector has opened up to the competition from foreign players as a part of the bilateral agreement signed in the WTO membership. This has played a significant part in the shift of the Chinese economy to a market economy from being a traditional planned economy. The WTO accession has facilitated the growth of medium and small enterprises by providing them with better facilities and the opportunity to compete in the world economic and trade market. The WTO membership has had much efficiency benefits on China mainly in terms of internal growth and resource allocation. The internal growth of the economy has been boosted by the international investments and trading activities. The improvement in the efficiency of resource allocation has created competitive advantage and promoted market competition (Rose, 2002 pp.54-56). The adoption and absorption of new technological processes have also improved the productivity and technical side of the economy. The GDP of China has increased due to the associated facets of the WTO accession. These include the abolition of the high protection which has caused an improvement in the international competitiveness of the economy and the abolition of redundant agreements like the Multi fibre agreement which are likely to improve the competitiveness of the giant clothing and textile industry of China. The macroeconomic benefits of the WTO accession of China can be indicated in the following table (Brown and Hoekman, 2007, p.8). Impact of WTO on Cambodia Cambodia is another country which has been immensely benefited by joining the membership of the WTO. Cambodia is a small country with low environmental, social and economic development rates. The WTO and IMF have contributed to significant GDP improvement in the region by almost5 % in four years. Cambodia has benefited much by employing the frameworks supported by WTO. Privatization and trade practices have grown significantly after the WTO accession as indicated in the table below. Economic growth of Cambodia (Source: Chea, 2004, p.8) Cambodia is one of the first backward nations to have enrolled in the WTO. With time, Cambodia has emerged as a strong player in the mainstream trade due to the effective development strategies taken up from WTO. Trade has been the central factor in promoting economic development and reducing poverty in the region. The WTO has supported the growth of Cambodia from a war torn nation to a high growth export economy. The opening up of the nation to international trade practices and foreign investment has improved the GDP and other integrators of the economy to a high extent. The challenges faced by Cambodia on the aspects of poverty, low economic growth, less expertise and knowledge to compete on a global platform has been removed to a large extent by the supportive framework provided by WTO (Finalyzson and Zacker, 2009, pp.569-570). The region is now boosted with a large scale garments export sector, knowledge sharing, capacity building, technical assistance and foreign direct investments into the region. Cambodia is trying to instil the core principles of WTO which include a common set of values like non-discrimination, open trade practices, multilateralism, predictability and proper dispute resolution. This has improved the market access, society, economy and created a strong image of Cambodia in the minds of the foreign trading and investing entities. Impact of WTO on Malaysia Malaysia is one of the founding nations for WTO. The country has been a part of the WTO GATT since the beginning of 1957. Malaysia has been benefited by the WTO membership through the establishment of a predictable, certain and transparent global trading environment for the country. The obligation of different members of the WTO with respect to the trade rules and policies have supported the development of Malaysia and other developing countries to increase their foothold in the global trading economy. This has been done through the market access granted to Malaysia on a multi perspective basis. Malaysia has complied with the WTO policies and implemented transparency and predictability in the trading activities which has promoted the reliability factor for the country and promoted international investments coming into the region. Malaysia has implemented the multilateral rules specified in the GATT, adopted transparent and unbiased trade policies and undertaken elimination and reduction of export and import tariffs. These steps have improved the competitiveness and performance of the country in the international business environment. Malaysia has been supportive of the trade policies of WTO like the development of multilateral rules which are aimed at trade facilitation through fast delivery of goods, reduction of transport costs and simplification of the customs procedures for cross border transactions (Anderson, 2000, pp. 131). The increasing market opportunities and the elimination of the international trade barriers have boosted the export markets in Malaysia. The establishment of an open economy has increased the inflow of investments into the country and encouraged the development of competitive features in the domestic companies and industries of Malaysia. The non-discriminatory approach of the WTO members towards the Malaysian products has been an enormous benefit for Malaysia derived from the WTO. Being a member of the WTO, Malaysia has become eligible for many trade concessions granted by other members of the international financial institution. WTO has implemented the anti-dumping actions in Malaysia successfully due to which the unfair trade practices like dumping goods below cost in order to increase market share have been abolished. The anti-dumping policy as a trade remedy for unfair trade practices have supported the development and protected the domestic industries in Malaysia. Impact of WTO on Brazil Brazil is one of the least developed countries (LDCs) which have been promoted by WTO on the agricultures, services and industrial domains. The agricultural sector of Brazil was most benefited by the WTO membership with the high discriminations and unfair practices being minimized by the implementation of the WTO policies. These policies also helped in the reduction of poverty in the nation. High levels of protection ensured to the domestic industries with respect to the trade practices and fiscal incentives were aimed at renewing economic and industrial growth in Brazil. Fiscal incentives and exchange rates are critical in the exporting activities (Wang, 2011, pp. 73-74). The regulation of these factors by the WTO helped Brazil to strengthen its position in the global trading market. The conflict with the international players and the imposition of US sanction on the exporting activities of Brazil were the main barriers in the growth of the economy. The WTO accession helped to improve these factors by creating the open market policies and setting up a biased framework for trade practices for all the member countries of WTO. The experience of Brazil as a member of the WTO has been beneficial and enlightening due to the absorption of knowledge and competitive factors which helped in the growth of the domestic companies across the key sectors of the nation including the manufacturing and agricultural industries. The opportunities and limitations set by the WTO policies have helped the country to design its trade practices and build a varied knowledge level for the domestic industries. The negotiations of the multilateral policies of WTO of Brazil are done with adherence to the commitments and goals set in the commercial agreements like FTAA. These involved the agricultural sector and helped in promoting economic growth by tapping in the concessions provided by the members of WTO in the international trading system. Conclusion The share of developing countries in world economy -1990 to 2009 (Source: Rodrik, Subramanian and Trebbi, 2004, pp.162) The international institutions have mixed effects on the improvement of the world economy. Though some minor disadvantages can be noticed in the functioning of the international institutions, yet the benefits received from these institutions clearly outweigh the disadvantages. It can be argued that without the functioning of these international institutions, the world would have been at a much lesser developmental stage than it is at present. The international institutions have played a significant role in reshaping the political, environmental, economic and social scenarios in various nations for the betterment of the global citizens. The development of various third world countries as equipped nations to compete in the global world has made it clear that the role of these institutions is critical in bringing about positive changes in the world economy. The conventional wisdom related to political and international economy suggest that the international institutions have caused major benefits for developed as well as developing nations across the globe. Therefore, it can be concluded that the development of nations and their future sustainability would not be possible without the effective functioning of these international institutions. 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