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Global Managerial Economics - Essay Example

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Free trade zones such as the North American Free Trade Association (NAFTA) and international trade agreements like the General Agreement of Tariffs and Trade (GATT) is a manifestation of…
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Global Managerial Economics
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Global Managerial Economics When is international trade an opportunity for workers? When is it a threat to workers? The advent of globalization has drastically changed the landscape of international trade. Free trade zones such as the North American Free Trade Association (NAFTA) and international trade agreements like the General Agreement of Tariffs and Trade (GATT) is a manifestation of the general liberalization, which according to Anthony Bende-Nabende, allowed foreign participation in previously domestically oriented economies. (Shannon, p. 1) Buoyed by the advances in technology and communication, the cost, time and distance involved in trade is significantly reduced.
The increase in the economic activity becomes an opportunity for workers because of the increase in the demand of a new integrated global market as well as the dynamism of the flow of capital. When a company goes global in its business strategy, for instance, it could invest in an overseas country to take advantage of the cheap labor, hence, generating jobs for the work force in that particular locale. This is especially helpful for workers in the Third World countries which lack financial capital to support enterprise that would lead to employment opportunities. Ideally, it is hoped that the growth generated by these trade breakthroughs would close the income gap of workers in developing and industrial countries.
On the other hand, the current trend in international trade becomes disadvantageous to workers when the increase in competition among enterprises causes local firms to fold-up, leaving a trail of unemployed or underpaid workers behind. The entry of multinational companies in a particular market - with the advantage of its resources - swallow small and medium sized companies in mergers or drive them out of business because it could afford to lower its products prices. We see the most adverse impact of globalization in the agriculture industry of smaller countries and those whose governments are barred to subsidize their industries. 1
Another disadvantage, which is technically not a consequence of globalization per se but the lack of state policies and regulation on this new economic phenomenon, is the bad labor standards of the multinational companies.
2. What are some of the major challenges confronting the international trading system?
The current international trading system follows the trade liberalization and deregulation terms dictated by the World Trade Organization. There are already several milestones achieved by the world body mainly in the lowering of tariffs as well as in the cooperation of its member-states in legislating policies in line with deregulation. However, one of the most serious challenges in achieving the success of this system is the requirement for governments to surrender some of its sovereignty. The problem comes in when states, especially those who are economically powerful, insist on protectionist policies which stall important trade measures and result in unfair trade.
Finally, another challenge comes with the vulnerability of the system itself. There was no previous experience of globalization of this magnitude in the past so lessons are learned as economies struggle. An example was the financial crisis that hit Asia in 1997. As explained by Shannon (p. 5), the growth experienced by the region is mostly derived from international trade and capital flows. Hence, while it served as the engine of success for the region it also became a source of weakness. The negative movement of international trade and capital flows could have an immediate and far reaching impact due the integrated business environment.
Work Cited
Lechner. Globalization Reader. 2nd ed. Blackwell Publishing. 2003.
Shannon, Vaughn. International Trade. Capital Flows and Economic Development in East Asia. Ashgate Publishing Ltd. 2003 Read More
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