IB7012-2 Econwk 5
IB7012-2 Econwk 5 IB7012
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This 9 page Class Notes was uploaded by JC11 on Friday April 8, 2016. The Class Notes belongs to IB7012 at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months taught by in Spring 2016. Since its upload, it has received 8 views. For similar materials see Global Economic Environment in Economcs at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months.
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Date Created: 04/08/16
NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET Student: THIS FORM MUST BE COMPLETELY FILLED IN Follow these procedures: If requested by your instructor, please include an assignment cover sheet. This will become the first page of your assignment. In addition, your assignment header should include your last name, first initial, course code, dash, and assignment number. This should be left justified, with the page number right justified. For example: Save a copy of your assignments: You may need to resubmit an assignment at your instructor’s request. Make sure you save your files in accessible location. Academic integrity: All work submitted in each course must be your own original work. This includes all assignments, exams, term papers, and other projects required by your instructor. Knowingly submitting another person’s work as your own, without properly citing the source of the work, is considered plagiarism. This will result in an unsatisfactory grade for the work submitted or for the entire course. It may also result in academic dismissal from the University. IB70128 Richard Thompson, PhD Global Economic Environment Assignment 5 Faculty Use Only <Faculty comments here> <Faculty Name> 2 Introduction By assessing and evaluating a developing nations’ economy, trade terms, patterns of trade, and related trade policies, a researcher can begin to understand the role of multinational enterprises in world trade. Although international trade can provide benefits to domestic producers and consumers, some economists argue that the current international trading system hinders economic development in many developing nations. This week’s assignment is to provide an examination on the reasons behind controversy in trade. This examination reviews the differences between developed and developing nations. The following areas will also be discussed to take a further look into the developing a nations’ economy: (a) characteristics of developing nations trade: patterns of trade, trade terms, trade effects, (b) main points and issues of the tensions between developing and developed nations, (c) aiding the developing nations: the World Bank and International Monetary Fund, (d) determining if aid promote growth of developing nations, and (e) economic growth strategies: import substitution versus exportled growth. Developing Nations Trade Characteristics There are a number of characteristics that make up developing nations. The first of which involves the concept of exporting only one or potentially only a few primary products. Many developing nations have the tendency to put all their eggs in one basic by relying on one or only a few exports. If demand is decreased, the decrease in the country’s can be detrimental. Decreased demand and revenues can seriously affect income, and in turn, can decrease employment levels. The decreased level of trade certainly creates a problem when the country begins to rely primarily on exports to provide stability to the country (Carbaugh, 2013). 3 Another characteristic of developing nations involves patterns of trade in the developing nations. The theory of overlapping demands was developed by an individual named Staffan Linder, a Swedish economist in the 1960s. Linder’s theory applied to the trade of primary products, natural resources, and agricultural goods, but does not apply to manufactured goods (Carbaugh, 2013). A primary product of export that is common among developing nations is the sale of agricultural goods, raw materials, and fuels. When the nations are able to successfully export goods, the nations show a significant reduction in poverty levels. Now, while international trade patterns of natural resources can be described with Linder’s theory, manufactured goods are subject to demand conditions in the domestic trade market. One of the key concepts of this theory is built on the basis of domestic demand. Essentially, if there is a large demand domestically, the product will do much better in the international environment. Overall, if there is a large demand and the manufacturing systems are already in place and it is much easier and more efficient to increase outputs. Not only are primary products of international export important topics of trade, regional trading agreements are also important trade effects. The effects to highlight for discussion are statistic effects and dynamic effects (Carbaugh, 2013). Static effects rely on economic integration and the levels of both productive efficiency and consumer welfare. Dynamic effects relate to longrun growth rates. Longrun growth rates are impacted over long periods of time utilizing a cumulative effect to realize growth. In addition, the terms of trade can be significantly affected by the formation of a custom’s union. Those nations that are affected the most, are those that form a union with a large number of other nations. It is shown that the larger number of countries involved in the unions, the greater the gains and the larger possibilities (Carbaugh, 4 2013). Tensions Tensions between developing and developed nations also exist as a part of the overall trade process. While the tensions will most likely always exist, most academics and policymakers agree that it is in the best interests of poor countries to develop and take advantage of international trade. Although, one of the issues that arises within developing nations is that developed nations will increase barriers to decrease entry levels to protect the home country. As with most people, businesses, and nations, the goal is to get to the top levels, and once there, the goal is to keep that position. To stay on top in many circumstances generally requires finding ways to reduce the ability of other to enter into same market. If entry into the market is limited, the top performing businesses can stall and innovation is reduced. Another area of contention between developing and developed nations is that commodity terms of trade have deteriorated. This deterioration is responsible for a reduction in the prices of exports in comparison to imports. Developed nations, under many circumstances, will begin to block entry to developing nations and blame a decline of decline in terms of trade. As developing nations are attempting to expand into other markets to expand growth to not have to rely on developed nations for aid (Carbaugh, 2013). By the same token, one of the other noted tensions in international trade is in regards to high food prices. Governance of developing countries affect food prices by influencing low yields and expanding croplands. By doing so, the newly developed farmland is exposed increased levels of deforestation. As yields are poor and the lands are deforested, food prices for those in developing countries continue to increase. Until a balance among the nations is found, tensions will continue to develop (Wang, Biewald, 5 Dietrich, Schmitz, LotzeCampen, Humpenöder, & Popp, 2016). World Bank and International Monetary Fund One of the questions that is asked within the international market is whether the World Bank and the International Monetary Fund (IMF) actually provide aid or cause harm to developing nations. The World Bank and the International Monetary Fund were created to support developing nations and the generalized system of preferences. Both institutions were created in the 1940s. They were developed to provide funds to promote economic development and financial stability during the transition of wartime to peacetime during the Great Depression. The purpose of the World Bank was to provide loans to developing nations to help them reduce poverty and develop their associated economies. While the World Bank lends money, it is not a typical bank in the general sense of the word. The World Bank lends money to organizations and governments within 187 member nations that are part of the UN. The sole purpose of the loans and grants provided is to provide funding for infrastructure inclusive of hospitals, schools, roads, etc. While the overall purpose is to help reduce poverty, there are too many stakeholders involved that are not in alignment with the World Bank’s mission. While the mission is to reduce poverty and to help developing nations, the World Bank’s initiatives also achieving a healthy profit margin. The amount of profit taken in directly relates to the rate of pay that is directed towards the staffing of the bank (Ravallion, 2016). The IMF also has a similar mission. The IMP was developed as a set aside to promote and encourage economic growth as well as private land ownership with structural adjustments. The IMF focuses on the agricultural products while the World Bank focuses on manufacturing products (Shandra, Shircliff, & London, 2011). One of the issues with both the IMF and the 6 World Bank is that they are highly subject to political influences and undue risks. Even with the idea that both entities are put in place to help developing nations. Both the World Bank and IMF involve significant amounts of flowing capital and are subject to high levels of corruption (Vehorn & Hashemzadeh, 2009). Aid and Growth in Developing Nations A consistent controversy throughout the ages is whether or not giving aid to developing nations harms or hurts a nation’s growth. By providing handouts, the argument is that governments will not grow as they should and the officials would choose to be reliant upon aid rather than do for themselves. The concept of providing aid in a humanitarian sense is more likely to provide relief than it is to provide growth. The aid provided generally serves to help support the people of the country by supplying basic necessities to sustain life, inclusive of water sanitation and food. By providing aid, growth based upon humanitarian efforts yield $1.64 from each dollar spent (Carbaugh, 2013). While the growth rates appear to remain low with countries receiving the aid, the aid has in fact helped to reduce poverty levels and prevent a worsening of their current conditions. So, while the discussion suggests that aid hinders a country’s growth, the value provided appears to outweigh the negative impacts. Economic Growth Strategies The next topic of discussion involves two different economic growth strategies; import substitution and exportled growth. They both have advantages and disadvantages to compete within an industrialized nation. One growth strategy is focused upon industrialization from domestic trade within the country while the other is focused on exports. Import substitution provides a number of advantages that will encourage economic development. Overall, this 7 concept provides a developing nation the ability to compete by restricting trade on products exported by developing nations. Also, if a product market already exists for a given product, the risks are less than when a business develops a preexisting home market. While there are a number of advantages, there are also a number of disadvantages to utilizing import substitution. Domestic industries are less likely to have the need to increase efficiency or provide better products when there are trade restrictions in place allowing international goods to enter the country. With trade restrictions in place, domestic firms have an advantage and are able to readily sell products. In addition, a high per unit cost is anticipated in a small domestic market, potentially inviting corruption (Carbaugh, 2013). While import substitution is one method utilized to grow an economy, exportled growth is another development strategy. This strategy focuses on bringing the domestic economy into the world economy where growth is promoted by exporting manufactured goods. By focusing on exportled growth policies, efficient firms are encouraged while inefficient firms are discouraged. Competition on an international basis drives the products and competiveness. It does so by opening up the trade barriers. This method is opposite of import substitution which closes borders, restricts trade, and allows domestic firms to acquire market share, no matter the quality of products (Carbaugh, 2013). Conclusion Overall, this week’s assignment involved a discussion of two types of nations, developed and developing and trade patterns and policies. As world trade is analyzed, a researcher can begin to understand the role of multinational enterprises and apply trade patterns and policies to encourage development. Two systems that were set up, the World Bank and the International 8 Monetary Fund to help provide support to developing nations. The World Bank is affiliated with goods while the IMF is associated with agriculture. While these entities were set up to help reduce poverty, they are continually subject to politics and corruption. In addition to the concern of politics and corruption is one of the main areas of controversy involving aiding developing nations. While one side discusses that aid hinders a nation, the other suggests that aid helps a poor nation from getting worse. In addition, a discussion on the advantages and disadvantages of economic growth strategies, economicled growth and import substitution are provided. While one strategy closes the borders allows businesses to compete within, the other opens the borders and focuses on the exportation of goods. Each strategy is valid in its own right, but by understanding both the positive and negative aspects of each, a strategic advantage can be created. 9 References Carbaugh, R. (2013). International economics. (14th ed.) Florence, KY: Southwestern Ravallion, M. (2016). The World Bank: Why it Is still needed and why it Still disappoints. Journal of Economic Perspectives, 30(1), 7794. doi:10.1257/jep.30.1.77 Shandra, J. M., Shircliff, E., & London, B. (2011). The international monetary fund, World Bank, and structural adjustment: A crossnational analysis of forest loss. Social Science Research, 40210225. doi:10.1016/j.ssresearch.2010.08.004 Wang, X., Biewald, A., Dietrich, J. P., Schmitz, C., LotzeCampen, H., Humpenöder, F., & Popp, A. (2016). Analysis: Taking account of governance: Implications for landuse dynamics, food prices, and trade patterns. Ecological Economics, 1221224. doi:10.1016/j.ecolecon.2015.11.018 Wolff, M. J. (2013). Failure of the international monetary fund & World Bank to achieve integral development: A critical historical assessment of Bretton Woods institutions policies, structures & governance. Syracuse Journal of International Law & Commerce, 41(1), 71 144
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