The Main Features of an International Economy - Article Example

International Economy Student Name: Institution: Date: The main features of an international economy Introduction The term International Economy refers to the integral economy of the world with transnational movements of labour, services and goods that are not restricted (Grieco, 2000). It makes a projection of a picture of a world that is increasingly interconnected with free capital movements across countries. The international economy as a concept cannot therefore be understood in an isolated manner. Globalization is defined as consumption and production integration in each market across the world. Globalization is viewed as a fact that will lead to the betterment of the economy of the world as much as it will benefit all countries (EconomyWatch, 2010). The political and country-specific economic decisions are taken on the global scale in the world today. The global considerations are becoming more essential than the narrow, provincial ideas. This article will pertinently discuss the main features of an international economy sighting facts that led to such an economy in the 19th century (Grieco, 2000). The main features of the international economy The capital flows and international trade intensification Since the Second World War, an international economic integration increase is observed regarding the trends in finance, foreign direct investment, and trade. Trade-The national economies integration via cross-border exchanges of services and goods has greatly increased since the Second World War (Grieco, 2000). In 1946, the countries that were industrialized reduced the tariffs they had after the Second World War from 40% to around 5% by the end of 1990s. That helped in spurring world exports boom. The United States of America is the perfect example of a country that experience international trade integration. Within the international trade integration general framework since the Second World War, there are three indicated developments. To start with, there has been an intra-industry trade increase (WTO.2014). Rather than exchanging of a shoe for a computer, for example, people often saw cross border exchanges of goods that are similar. Second, several developing countries, mostly in Southern and East Asia, have successfully integrated into the economy of the world. The third key contemporary trading system characteristic is the growing and continuing growing role of regional trading networks. A more pronounced trade regionalization occurred between Brazil, Argentina, Paraguay and Uruguay, which formed the South’s Common Market in 1991 whose acronym in Spain is Mercosur. It is just the country that is part of the European Union appears to have experienced a regional concentration decrease of trade around 1990s. This could be as a result of expansion in the EU membership during the period (WTO.2014). Finance: Foreign Direct Investment and Portfolio -The cross-border flows of capital are the second concern area of the recently intensified international economic concerns of integration. Such international capital movements have three key categories of capital movements; Portfolio investments- they consist of cross-border sales and purchases of bonds and accounts of money market establishment (Rogoff, 2004). They also consist of foreign equity securities purchases whose levels of ownership do not reflect a capacity of a buyer to be able to influence the how a firm is managed and hence issuing equities. Finally, other portfolio investments include the financial derivatives such as the future options and contracts. Foreign direct investments (FDI) - here there are purchases by residents from a single particular country of a level that is sufficient (Blanton & Blanton, 2007). This refers to 10% or more of the shares that are traded publicly or the equivalence they have of an enterprise in a different country. Or a new enterprise establishment by a firm in foreign countries purposing to have an interest that is lasting in and influence on the enterprise. Other foreign investments- they include bank deposits, trade credits, and bank loans. Their maturity is often very short-term (Blanton & Blanton, 2007). The flows across borders that are international have greatly increased during the era of the post second world war in recent years. The global financial integration process was intense around the 1990s, this included data from Taiwan. According to sources, while the total capital flowed out in the US the low was about 4-6% of the GNP in the 1970s. Such flows equalled 8-10 % of the GNP of the US by the end of 1990s. The attention of the media to a great deal was devoted to portfolio investments. This was especially short-term capital flows. The Portfolio played an essential role in the financial crises for instance that that occurred in the 90s in the international market. It happened in Korea, Mexico, Russia, Indonesia, and Thailand. Foreign direct investment, however, has long-term roles. Those by multinational enterprises to be particular could be even more important in forging a world economy that is truly global. Recent analyzes suggest that foreign direct investments have constituted larger global capital flows (Blanton & Blanton, 2007). The key actors in the international economy The International political economy, since the Industrial Revolution of early nineteenth century and late eighteenth century, has dramatically changed (Broome, 2015). There are at least three identifiable main political actors in the international political economy contemporarily. They include global institutions, regional arrangements, and multinational enterprises. Multinational Enterprises (MNEs) Around sixty thousand parent firms direct the manner of operation of around five hundred thousand global affiliates. Most importantly, among the parents, there are the top one hundred non-financial multinational enterprises. Almost all of it, however, comes from Japan, Europe, and the US. In 1997, the one hundred largest non-financial MNEs companies, for instance, Ford Motor Company, General Electric, Nestle, IBM and Royal Dutch Shell, had foreign sales that ranged around $2.1 trillion back in 1997. It was around 22% of the total sales of all the MNEs. International banks, for instance, the US Citigroup, are other major Private Actors category in the world economy (Broome, 2015). Global Institutions There are at least three global institutions serving as essential frameworks within which a national government. And, increasingly, non-governmental actors and private firms seek to have an influence on the international economy operations (EconomyWatch, 2010). The institutions are as follows. International Monetary Fund (IMF) - it started to exist in 1945. It resulted from the concluded Bretton Woods, New Hampshire, negotiations in the 1944 summer. Member states here make key decisions basing them on by the votes weighted by the financial contribution of the members to the Fund. The World Bank - it was founded due to the Bretton Woods Conference. Its members today are 182 just like IMF. Its headquarters is in Washington with ten thousand professional staff members. The bank loans the developing countries for projects that are long-term. The World Trade Organisation (WTO) - it was considered a successor that was more formal than the General Agreement on Tariffs and Trade (GATT). Its establishment was way back in 1995. The regional Arrangements There are approximately 134 regional trade arrangements in place according to the WTO. Among them, the most paramount are the North American Free Trade Agreement (NAFTA) and European UNION (EU). European Union - it is the chief economic arrangement across the region of Europe. It presently consists of 15 member states from Europe. Its mission is to reduce any barriers of member’s economic interchange hence promoting a greater overall cooperation among its members. NAFTA-is a regional arrangement for trade introduced in January 1994 including Canada, Mexico, and the US. Free Trade Commission is its main form of institution. It’s constituted trade ministers from the three member countries. Some working groups have also been formed by government representatives who are specialized (EconomyWatch, 2010). Schwartz (2010), state that an international economy has the characteristics of the world economy with a market that is unified for every good that is produced across the world. It, therefore, gives domestic producers the opportunity of expanding and raising their capacities as per the demands of the globe. The economy also avails an opportunity to the domestic consumer to select from imported goods of a vast array. The aim of an international economy is to rationalize the global prices. A cup of coffee or a computer would cost the same in India and the United States of America. This possible in real times only if units that are identical of all the goods are purchased. The free flow of services and goods between developing and developed countries has become distinctively possible. This is as a result of the reduction in the quotas and tariffs levels under the new World Trade Organization (WTO). The WTO is among the youngest of the entire international organisation (WTO, 2014). Multinational Companies and Transnational Companies have emerged as a result of the direct effects of globalization. According to Nicol (2005), globalization boosts productivity to a big extent and the capacities of the companies to astronomical highs due to the competition that is stiff at the international level. Technological improvements in countries that are developed for instance Japan and the USA tend to permeate to the developing countries that are less developed for instance in Africa, India, and Latin America. The people from the developing countries have hence adopted requisite technical knowledge and skills sophisticated equipment operations. Throughout the economy, the skills percolate improving the general productivity of their labour within the countries and hence increasing the levels of incomes. An international economy has an advantage that is distinct in raising the productivity of the world. It also raises the incomes and brings about an improvement in living standards for everyone at the global level. It has side effects of inequality and growth that is dangerous. That has been evidently portrayed in economies that are less developed for instance in China, India, and Brazil. Globalization here did not percolate to the lowest level. This has hence led to a big divide between the have-lots and the have-nots (Nicola, 2005). An international economy leads to shifting of jobs as well from the developed to developing countries due to the lower wage rates in the developing countries. Companies from nations that are advanced, therefore, end up growing exponentially (Chappine, 2003). For instance, computer chips made in China could be exported to the United States of America for designing and later used subsequently in Japanese supplied computers globally. This process is referred to as outsourcing. Outsourcing leads to workers exploitation in developing countries where there is the existence of income inequality. An international economy nevertheless, may have benefits to the entire world. This may hence result into fighting the issue of the economies, for instance, environmental degradation, global warming and climate change collectively and effectively (Chappine, 2003). Factors that led to the development of an international economy in the nineteenth century According to Rogoff et al. (2004), the late 19th century witnessed the changes in trade, industrial production and imperialism that led to the emergence of the international economy. In the 19th century, a lot of essential changes took place. To start with, Germany, around the 1870 emerged as the new leader in the industry of Europe By far; Germany exceeded any European nation’s production in electrical equipment and chemicals. The nation expanded its networks of trade and was soon enjoying a flood of factories and plants that were new. Great Britain, on the other hand, strived to retake the position it initially held, but Germany was not willing to easily surrender the newly acquired title it had. Germany, therefore, continued being the industrial leader in Europe. The United States, at the Second Industrial Revolution, also enjoyed success. The industry had, in fact, made the U.S very rich, the world’s richest nation (Rose, 2004). The Second industrial revolution saw a growth in transportation and industry, increasing trade among nations. Combined with merchant marines with capabilities of transporting goods and service by the sea, an international economy started to form. An international economy refers to a description of integrating trade in services, goods and money internationally or rather globally. The trade spread and investment abroad has a link to imperialism (Rogoff et al., 2004). Between 1900 and 1870, there was a tremendous increase in the European imperialism (EconomyWatch, 2010). Sometimes, historians refer to it as the new imperialism. That insinuated that nations from Europe were dashing for pieces of Africa and Asia. This was referred to as colonization. Colonization was the domination of non-Europeans by the Europeans. A key factor that contributed to colonization influence was competition that existed between various countries. Countries like the Great Britain, in the quest for wealth, sought colonies in Asia and Africa (EconomyWatch, 2010). The colonies provided them with ports and offered material resources. The economic benefit, therefore, of having colonies was seen to be a major motivation. Several colonies offered material resources like tin, gold, oil and diamond. European countries, therefore, by taking those areas, had cut out the middle-man. They now directly controlled the resources and hence did not need to trade. There were very fierce competitions and rivalry between countries. As a result, a country will hence set a colony in certain areas simply to keep out another rival country. France could for instance scramble setting up various colonies in particular areas so as to put off others like Russia, Germany or Britain. Every major power in Europe needed a share of colonialism as soon as it started. A country was therefore viewed as weak when they were not participating in colonialism (EconomyWatch, 2010). There were, however, several factors in the 19th century that undermined the growth of the global economy that were to be sorted (Root, 2014).The factors were sorted in that in the 20th century; the international economy had improved to a great extent. A lot of 19th-century perquisites were sorted in the twentieth century when the Second World War was brought to an end. It became clear in 1944 that the Second World War was going to end. The west Allied powers, therefore, decided for the second time to attempt building a world order that was new. The representatives of the Allied powers had a meeting in Bretton Woods, Washington Hotel in New Hampshire. The representatives of England and the US, White H.D and Keynes J.M. respectively set to create institutions that could prevent the Second World War reoccurrence. They proposed that three organizations were to be established with each institution contributing positively to the smooth running of an international economy. The three organizations included the International Bank for Reconstruction and Development (IBRD, commonly referred to as the World Bank) as the first institution. The role of the World Bank was rebuilding the economies that were war torn in Asia and Europe. The Bank has evolved into the most influential foreign aid lender to across international economy developing nations (Rogoff, 2004). Grieco (2000), states that the second organization that was established was the IMF-International Monetary Fund. Its primary purpose was to maintain an exchange rate that was fixed as that of the system of the Bretton Woods. After Bretton Woods System was dissolved in the early 70s the International Monetary Fund has been the overseer of the financial system of the international economy. Recently it has played a very visible but controversial role in the East Asian financial crisis aftermath. IMF is a symbol of the international economy that was made because of a number of factors. The key factor, however, is offering financial support to developing and crisis-stricken nations. Third, the International Trade Organization (ITO) was formed because of several economic challenges in global trade. It was meant to liberalize the world trade. After colonization, the countries that were newly liberated had to select the kind of economic structure they were willing to adopt so as to achieve the development objectives they had in place. Most of them opted for socialism (Grieco, 2000). Conclusion In conclusion, the international economy is very paramount because it affects the economy of many nations. The economy has been enhanced by the rise of globalization because goods and services are exchanged more easily. Developing nations have gained from the international economy by the finances from organizations like World Bank and the International Monetary Funds. The developed countries gain by monopolizing international markets. References Blanton, S., L. & Blanton, R., G. (2007). What Attracts Foreign Investors? An Examination of Human Rights and Foreign Direct Investment. The Journal of Politics, 69(1):143-155. Broome, A. (2015). Issues and Actors in the Global Political Economy. 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Schwartz, H.M., (2010). States versus Markets: The Emergence of a Global Economy, 3rd edn. Basingstoke: Palgrave Macmillan. WTO (2014). World Trade Organisation. Retrieved April 26th from Read More