The USA Economy and Economy of the Republic of Ireland - Case Study Example

Introduction The need to understand to have a better understanding the of the country’s economy in the whole the whole call for comparison to other recognized economies in the world. In this case, USA economy is one of the best models for comparison to the Republic of Ireland. The choice for USA was suitable for this project since it can act as a suitable benchmark for measuring the overall Aggregate Demand of the country. As asserted by the Keynesian framework, getting the aggregate demand is requires for the summation of consumer spending, investment, government spending and the difference between the exports and imports. Aggregate demand is a measure of national output thereby representing the state of the economy. This implies that comparing USA economy to that of the country requires the comparison of the economic structure of the two. The economic structure is represented by the level at which each of the economy values exports in their structure. Further, another intrinsic indicator, of economies, as implied the Keynesian framework, is the recent economic history studied of the economies. This means that obtaining data for the two countries for the past performance will be essential for the assignment completion. Further, the level of unemployment studied between the two countries is also essential for the comparison reasons as provided by the Keynesian framework. This acts as a benchmark for comparing the reasons behind the realized trend in unemployment rate of the future for each of the countries. Exports In terms of exports, the Irish has higher proportion on the importance of exports than the USA even though the latter has witnessed an increasing trend in the value for its exports. USA has a higher value for exports as compared to the Irish structure. As of the year 2013, Irish had its exports value at $119.03 billion compare to that of USA which was $1.56 trillion. The growth of export values in the two countries shows that US has witnessed a constantly increasing growth in its export as compared to its counterpart. The graphs below show the characteristics of the growth trend witnessed by each country from the year 2000 to the year 2014. As shown in the graphs, Ireland exhibited a period of higher sparingly higher exports between the last quarter of the year 2000 with followed decrease in the first quarter of 2013. Indifferent to Ireland, USA witnessed a generally growing trend from $80000 million in 2000 to 190,000 in the first quarter of 2014. This is an indication of the higher preference of exports in the US than that of Ireland. Figure 1 showing the trend in Ireland exports from 2000 to 2014. Retrieved from: http://www.tradingeconomics.com/ireland/exports Figure 2 showing the trend in Ireland exports from 2000 to 2014. Retrieved from: http://www.tradingeconomics.com/ireland/exports Since the total gross domestic product for the countries are different, it is important to apply the X/GDP formula which gives the fraction of export by a country in its GDP. The following is X/GDP calculation to illustrate on the differenced difference between the two economies. For USA = X/GDP = 1.56 trillion/16.8 trillion = 0.09286 For Irish = 119.03 bn/163.9 bn = 0.7262 The calculations show that exports in Irish constitutes a larger fraction of the GDP compared to that of the USA. The gross domestic product for each of the regions acts as the major reason for the differences. USA has a relatively higher GDP which indicates that the owners of businesses therein have more probability of purchasing their exports. Ireland, on another hand has lower GDP which shows that the business people have lower exporting ability. This is a stun illustration of the higher national input of USA because the consumption adds up to the aggregate demand. Further, it is also important to consider that US employment highly relies on the exports into the country. Most of the companies employing individual relies on the material exported from other nations to support the production activities. Compiling this conclusion in the formula for aggregate demand, without considering the other factors, USA has more than Ireland. Even though USA economy has a larger value than that of Ireland it is important to consider the resulting similarity in this case. The similarity occurs in the proportional level of the importance of exports in both countries. Both of the countries have witnessed a relatively growing trend in their exports over the last two decades. Each of the nations has their reasons for embracing expansion of their exports demands in each sector. The small nature of the domestic economy of Ireland makes it important for the country to expand its economy by embracing as much of exports as possible. In this case, most of the companies seek for export market in order to achieve the most effective economies of scale for competition with other international companies. Intuitively, the Irish government has considered it as of much importance as the years go by. As for the US government, it depends on the exports to help in healing the prevailing unemployment rate. Recent economic history The study of recent economic history of the two also gives a glimpse in the comparison. Both of the countries have gone through economic crises which have henceforth served in shaping the economies. The global economic crisis of 2008 affected the economic state of USA and Ireland in equal measures thereby affecting the overall aggregate demand of each country. The global economic crisis was a time when there was global economic downturn which paralyzed operation of most of the economies at the times. The countries had to reduce on their operation costs in order to offset the depreciating purchase values since the crisis affects everybody (Millard & Chapa, 2004, p60). Further, the countries had to cut down on the amount of money they put towards invention and innovation since this will have little effect in the market during the crisis (Millard & Chapa, 2004, p60). Consequently, this was a dark year for the both of the economic structures. However, the state of USA in recent years is brighter as compared to that of Ireland because of the following reasons. The large debts experienced with some countries in the EURO zone, like Greece and Italy, have triggered the investors into feeling that they are not safe in the market. The major cause of the accumulating debts arose from the need to recover from the global economic crisis. The countries had to raise their levels of borrowing together with involved households and companies adjusting their balance sheets in order to suit the situation (White, 2014). Because of the debts, the potential investors have put worries over the promptness of sustaining the debts in the countries. Most of the investors start exhibiting concerns on the ability of the countries to refund the capital they own to the third party. The effect of large debts in a country normally affects the operation of the investors since it determines the ability of the country to support their operation. The inability of the country to pay their debts implies that they (countries) are unable to raise budget surpluses for the existing operation. The investors also loss their confidence because the countries cannot raise fiscal revenues, which can support all the expenditures, while leaving surpluses. Further, the investors would need higher interest rates in order to subscribe new public debt as a compensation for the risk of insolvency (Massa & Keane, 2011). This action by the investors higher the insolvency risk thereby leading to problems in the balance sheet meant for the public sector. The absence of the interest rates enough to cater for the insolvency risk thereby forms background for the investors to lose confidence in subscribing to the public debts. The debt burdens witnessed in Greece have so much reaching effect that the government cannot sort for the normal ways of devaluation. Consequently, the country have to adopt plans that make them depend on other EURO zone countries to get support, a situation that have triggered the threatening slow growth. Widening bond yields is also a factor in causing the depreciating confidence in EURO zone. This has especially occurred in Greece, Ireland, Italy, Portugal and Spain where the individual countries have been unable to force the ECB to buy its own bonds (Massa & Keane, 2011). The problem of less attractive bond in the countries has made the investors to loss their confidence in operating in such conditions. Considering that there are some countries, within the EURO zone having more attractive bonds, (for instance Germany) the investors have considered the relocation of their portfolios to those countries. Isabella Massa and Jodie Keane assert that the European debt crisis may also lead investors to reallocate their portfolios from advanced country bonds into more attractive developing country bonds (Massa & Keane, 2011). Unemployment rate The study of the unemployment rate also helps in comparing the aggregate demand between the two countries. As seen in the graphs for unemployment, Ireland witnesses a higher unemployment rate of 12% as compared to that of USA which is only 6% currently. The witnessed trend bases on the reasoning that technology is an important factor for the development of a country. Consequently, the ability of a country to take over the power of global balance will rely on the incorporation of technology in their production process. USA has experienced a higher rate of technological growth boosting on their development and hence the industries for employment. The evidence in increased growth of technology is in the number of the invention that is now on the rise in the countries. Further, USA has increased the number of students in the engineering and technological field thereby elevating the amount of technological knowledge (Bhidé, 2009, p.121). The numbers of the trained engineers have also increased relatively compared to that of Ireland. This has increased the capability of USA to perform well in the technological field. Further, the increased numbers of technical institution in the countries have also contributed to the increased adoption of technology (Bhidé, 2009, p.121). These have enabled China to experience low manufacturing cost in relation to Ireland and hence put up more companies which can employ individuals in the country. The forecast done shows by Trade Economics shows that USA will exhibit an average of 6.50% in its unemployment rate; the value is lower than that of Ireland which is forecasted to be 11.50%. The recent years have seen Ireland witnessing increasing rates of unemployment. Ireland has experienced a high rate of unemployment, in the last 4 years, because of the effect of the global economic crisis. This is enough evidence that Ireland is witnessing economic regression that makes the country unable to support its employment rates. This is different to USA, which has now peaked in their economic growth as shown by the steep decrease in the unemployment rate (Fan, 56). The US rate of economic growth is now exceeding that of the Ireland as witnessed by the IMF (History.com, 2014). The reforms have occurred in the last decade boosting the USA economy to be at its peak. The growth has seen the countries rising from economic financial crisis that occurred in the last 15 years. The immigration laws have made it difficult to control the rate of unemployment because the state has more undocumented immigrants into the country (Bordering On Reform, 2). There is a claim that few work visas are issued every year even though there is more demand in the market as compare to the number of the work force (Montesino & Sherr 81). Because the immigrants cannot obtain the work visas, they do not secure employment from the legal businesses in the country. This has led to the current escalating rates of unemployment problem, in the US, which is mainly the failure on the part of the government. The reduced work force has triggered the reduced production in the big production companies. The many undocumented immigrants will always take long to register legally according to the immigration laws. Therefore, the employers seeking for employees will have to wait for so long to get the workers to fill the work force gap in the US. Bibliography White, Thomas, 2014. Ireland: Celtic Tiger Licking its Wounds. Retrieved from: http://www.thomaswhite.com/world-markets/ireland-celtic-tiger-licking-its-wounds/ History.com, 2014. A History of U.S. Economy. Retrieved from: http://www.randomhistory.com/us-economy-history.html Trading Economics, 2014. United States Unemployment Rate. Retrieved from: http://www.tradingeconomics.com/united-states/unemployment-rate Trading Economics, 2014. Irish Unemployment Rate. Retrieved from: http://www.tradingeconomics.com/ireland/unemployment-rate\ Bhidé, A 2009, Where innovation creates value, Mckinsey Quarterly, 2, pp. 119-125, Business Source Complete, EBSCOhost, viewed 16 November 2012. Fan, Peilei. "Innovation Capacity And Economic Development: USA and Ireland." Economic Change And Restructuring 44.1-2 (2011): 49-73. EconLit with Full Text. Web. 16 Nov. 2012. Massa, I. & Keane, J., (2011). The Euro Zone Crisis: Risks for Developing Countries. Retrieved from: http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7365.pdf Bordering On Reform. (cover story). Latin America Monitor: Mexico Monitor [serial online]. March 2005: 22(3):1-3. Business Source Complete, Ipswich, MA. December 6, 2011. Montesino, M., & Sherr, M. A. Challenge to Diversity in the United States: Two Points of View on Immigration Reform. International Journal of Diversity In Organisations, Communities & Nations, 2008. 8(3), 75-84. Viardot, E. (2004). Successful marketing strategy for high-tech firms. Boston, Artech House. Trading Economics, 2014. Ireland exports. Retrieved from: http://www.tradingeconomics.com/ireland/exports Read More