Analysis the positive and negative impact on Global Economic Integration
- Word count: 1858
- Category: Economics
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Economic integration used to describe how different aspects between economies are integrated. They exchange goods, labor, technique and capital. Nowadays, along with the growth of economic and the openness policies, the global economic integration walks into our life. In the world wide, global economic integration is countries more and more rely on each other, import and export more and more among countries. Since the early 1980s, followed by an economic in favor of laissez-faire, the free market, and the gold standard, the number of countries cooperate was increased sharply ever.
Between 1989 and 1996, the total amount of world trade was tripled compared with the last year and the total international trade of merchandise and service are increased by 6. 2% every year. In 1996, the multinational were occupied 40% of the global GDP. This represented a real increase of 3. 1 fold when allowing for price hikes and an average annual growth of 6. 2 percent, up 5. 1 percentage points on the average annual growth of 1. 1 percent between 1953-78 .
In addition, in the last decade, the figure of foreign investment companies were increased 30%. The world imports increased to 13. trillion US dollars in 1996 from 10. 9 trillion US dollars in 1978, representing an annual average growth of 15. 2%. In spite of rapid advancement of productive forces and science and technology worldwide, as countries become increasingly closer in their relations and the charges and commission rates for trans-border transactions and capital transfer, their economic interdependence and mutual support of relative advantages have grown all the more obvious. They are attached to one another and make into a whole. It is easily to see in modern business world.
In this situation, we call it “Global Economic Integration”. Analysis the positive on global economic integration In the first place, as we can see in the world, different countries have their own advantages and disadvantages, such as China and India are labor intensive, on the other hand, Japan and German are technology intensive. The Heckscher-Ohlin theorem told us different countries produce the same products costs are different, it depends on labour, original resources, land, etc. This is comparative advantage. Global economic integration makes comparative advantage more distinct.
Companies concentrate on theirs intelligent and saving costs. Secondly, economic of scale as a result of the larger market, many multinationals set up branches in other countries, use the natural resources which can reduce their costs, such as New Zealand land, Indian labour, or Japanese high technology. Each company just produce one part of the goods which they are good at. This way can save time, energy and reduce waste, obviously, it save costs, make companies more efficiency. Encourage the developing countries development and shorten the gap with developed countries.
It also provided good chances to developing countries to learn new technology from developed countries. In addition, it put capital, products, technology, labour and market in ordered, the economic integration urge the competitive among countries more strong and intension. The reason of this is the resources are limited in the world and every country want to protect its profits and status in the business world. Global economic integration provides more opportunities to domestic firms and provider wider consumer choice. Along with global economic integration spread the world, governments reduce the tariff to fetch more foreign investment.
More and more countries want to join the World Trade Organization (WTO), in order to get more opportunities to becoming multinationals. It seems a sigh to join WTO means more and more countries are on the way to achieve the target of global economic integration, the organization protect their rights to be fair and free. It is not only benefits for the company and businessmen, economic integration also bring a lot of benefits to consumers; they can shop locally and have more choices, people can choose whatever they want from the worldwide. Another important point need to mention that economic integration can avoid monopolization.
In the past, the policy was blockage, people have to buy the products in the local markets otherwise they have to pay a big amount of money on tariff, in this reason, some company are lazzie-faire. They do not care the quality of the products and put the price on the top, because they do not have competitors. However, economic integration avoids this bad situation, it push companies do better because they have strong competitors around the world, and it makes companies produce products more efficiency and forces firms to produce quality products, encourages firms to innovate.
In addition, as we know, the financial crisis is one of the biggest events in the last two years. There is no doubt that openness environment policy can encourage the multinationals cooperate. The most important meeting in economic world is G20, it was hold in London this year, there are twenty countries’ leaders join the meeting to discuss how to survive during this tension period. Economic integration provides the chance to countries to hold together face the difficult situation. Become “a big family” can also protect safe of trading, fighting with sea rover together. ` Analysis the negative on global economic integration
Countries rely on each other too much than ever before, so that they become a chain, if one country in trouble, others will in trouble as well. It wills influencing the whole world and difficult to avoid. Such as the financial crisis in America in 2008, at the beginning just American bank bankrupt, but as we know, many multinationals cooperate with the USA, they all play a role in the business chain, one part broken, the other will broken one after another. Another example is in 1997, the currency crisis in Thailand, it contagion quickly to the southeast of Asia including Japan and South Korea.
It becoming the seriously area economic crisis, then it spread into Russia and South America, finally, it become the global economic crisis. The single country’s economic dominion freedom faces to big challenge, the power of control their economic was decreased when the global economic integration was increased. Take the European Union for example, in 1999, the EU start to use EURO instead of their own currency, in order to promote greater integration in the global economic they have to give up or make a concession to currency dominion and tax policy.
Besides the EU, other countries are also face to a big challenge. One of these challenges is to make a concession to economic dominion and the governments reduce the tariff and open to business conversation. The global economic integration makes a big gap between rich and poor. Because of the higher growth, but regulation may be laxer in developing countries. They are developing on political, economic and diplomatism, the stativity economic situation will influence the developing countries.
The fact of economic integration is make the whole world becoming one big market, during this process, high efficiency make the profits, at the same time, the capital flow into the fewness countries or some interest groups. According to the World Bank statute, in 1083, the lower countries’ GDP was 2. 4% of higher income countries. In other words, GDP in higher countries were the 43 times as much as lower countries. However, in 1994, this figure was decline to 1. 6%. One of the reasons is the countries that rich in capital and technology will play the main role.
They always control the price and in initiative situation. They can make more profits when they make a deal with developing countries. Many small companies did not have such strong competition to against world brand so that the developing countries lost their local brands. Many multinationals are in charge in local firms. They control them as a part of itself, so that the local companies do not have their own strategy and aims. Another point is human resource management. Global economic integration will reflect developing countries losing people who with ability, especially people who have skills and high technology.
In spite of this, skilled person move to developed countries get good jobs and salaries but on the other hand, unskilled workers in developed countries will lost their jobs, it will bring over competitions. The researchers have come up with data that shows there is nearly 10% unemployment in developed countries. Specialization and competition may lead to contraction of industries and unemployment which may be regionally concentrated, and may affect workers with particular skills. Global economic integration leads to social dumping. The developed countries hold the main positions, such as America and Europe, they control the economic market.
Developing countries export goods to developed countries with very lower price, it bring a big threat to developed countries, especially in the same industries. For example, after the financial crisis, America in order to protect its local companies, it enacts a policy which is restricting import tyres from China in 2009, America thinks the tyres import from China to the USA becoming a big threaten to American tyre producers. In 11th of September, the president of U. S Obama announced that the tyres import from China have to imposition more than 35% tariff.
It also may increase income inequality developing countries. Global economic integration brings fierce competition, some developing countries in order to survive, they have to pay lower salaries, and meanwhile, the welfare for workers and staff is weak. They use the cheap labor to have the competition advantage. It is unfair policy for both developing countries and developed countries. For developing countries, they offer a service but they don not get their rocks off. On the other hand, for developed countries, their products are too expensive because the costs are high, they don’t have fairly competitions.
Conclusion In this essay summarized the positive and negative impact on global economic integration, at the beginning, it describes the positive, which are distribute resources wisely to make the marketing more efficiency; encourage more domestic firms becoming multinational; encourage the growing of economic market and well balance it and also avoid monopolization, make companies more efficiency and cut price, produce more innovation produces with high quality. The last point is global economic integration can well management the world business.
It use examples and figures to analysis the economic integration brings benefits. Then it turns to the negative side, it describes the harmful phenomenon when the world becoming one big market. It makes the market alteration a lot, becoming a chain; because of the higher growth, but regulation may be laxer in developing countries, it make a big gap between the rich and the poor, the workers in developing countries have lower salaries and long working time. In addition, during the strong competition environment, any small domestic firms are difficult to survive.
The countries will lose its ethical firms. Then, in human resource management, economic integration influences the selection of person with ability. Many workers in developed countries without skilled are can not find jobs because the strong competitors move from developing countries. Finally, the countries that are well developed or rich resources, they promulgated agreements to the developing countries which are unfair and break the fundamental of trading fairly. It takes a latest case happened in September, 2009 which is America increasing 35% tariff on tyres importing from China.