The Important Characteristics Of Contemporary World Economy Economics Essay
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Published: Mon, 5 Dec 2016
The growth of International Trade promotes globalization development significantly, which lead to the world economy system have a big change from bi-polar to tri-polar since 1980 (Wall, et al. 2010. P4). Therefore, the balance in the world economy, the growth export is mainly in developing countries rather than developed countries. This essay will study the elements that impact the international trade, and then analyse the balance of the regional economic development, at last survey how MNEs (multinational enterprises) and developing countries to adjust their strategy to adapt to the situation of the global economy.
International trade is usually referred to the exchange of goods, and services between countries (Abendini, PhD, n.d). The international economic and cultural exchanges more close between countries lead to more countries and companies choose exports and investment to foreign markets. As well as, the increase of international trade has three factors are cannot be ignored.
To beginning with, the relation between supply and demand influence the international trade (Dexter et al, 2002. pp5). That is because one country has to import goods or technology from other country when its demand exceeds supply. For example, rare earth is indispensable element in the world manufacturing, China is the country with the most substantial storage in the world’s rare earth resources which accounting for 30% of the world’s total reserves, known as “Rare Earth Kingdom” (shebang-china.com, 2011). However, German domestic is shortage of rare earth resources meanwhile the German car manufacturing industry needs a large number of rare earth. This demand exceeds supply lead to German import rare earth from China that effect the international trade. As a result, the relationship between supply and demand is an important element for international trade change.
In addition, International Law provide secure business environment for international trade which was enacted by agreement between the countries. Different international business behaviours correspond to different International Laws. For example, International Investment Law applies to investments between States, and International Commercial Law to protect international trade. The International Law protect the international trade; also it limits some business behaviours. Wooten suggest that do not attempt to sidestep illegally if some countries want to evade the law to seek convenience, as doing so can have terrible (Wooten, 2011. para5). As a consequence, International Law is one reason to impact the international trade.
Moreover, exchange rate affects the international trade as a major factor (exchangrates.doc, n.d. p2).If a country’s currency devaluation which result in the same import goods needs more domestic currency, and lead to the price raise in the domestic markets. To some extent, that will be affects their sales, and maybe stop the international trade when the costs are higher than earnings. Therefore, the exchange rate’s change determines the amount of a country’s import and export, particularly for developing countries the export is some countries’ main source of income. Exchange rate’s change can hinder the development of international trade and also it can stimulate the development of trade.
Nerveless, different international disputes have been come from the international trade development which leads to the regional economic unbalanced development. Different regional economic organizations are established by nation because that can help to balance the regional economic and solve international issues. The most representative organization is The World Trade Organization (WTO). The WTO is the only global international organization to sort out trade issues between the countries, and its main goal is to help member states to carry out their business globalization and provide their international activities (WTO, 1995). The WTO provides a fair competition environment to the Member States, and it reduces the trade barriers between nations. However, the competition is brutal which caused an impact to weak domestic enterprises and capital.
With the international market development and technological advancement, the world economy from bi-polar to tri-polar, the competition becomes more intense. After 1990 a lot of multinational enterprises adopt the distributed industry chain management to adapt the changing international market environment. In other words, they put the certain production and service behaviours turn to low-cost centres in a foreign country which can reduce production costs (Wall, et al. 2010. P4). Also they choose the developing countries to build factories and produce the goods. In order to achieved the low-cost, high profit. As a result, the number of MNEs and FDI are rapid growth in the world, especially in the developing countries.
Developing countries encourage and protect the domestic industries, especially for infant industries and strategically important industries. Government control the number of foreign company which want to enter domestic market to protect some important enterprises. They also encourage foreign investment in domestic industries that their countries’ weak industries. For instance, the government of India through attract the investment to improve the country’s economic system, and enhancing the international competitiveness. In the consequence, the India’s Single Brand Retail increase doubled from 51% to 100% (JSA, 2012). Government also use control exchange rate and adjust taxation to support domestic enterprises develop foreign trade.
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