International Trade in Goods and Services
International Political Economy
Obsolescing bargain model refers to the interaction between a multinational firm and the Government in the host country. In the initial stages of development, the firm is given preference for having more bargaining power, however, as the firm acquires more assets and stabilizes; the Government interferes as the bargaining power shifts to the Government. For any economy to grow, it needs both internal and external investors. In most cases, the external investors are discouraged by the tough rules and regulations set by the Governments.
Obsolescing bargain is significant to globalization since countries with resources can invite skilled labor and technology from foreign countries. It is boosts the interaction between Governments as they improve their economies with help from their neighbors. It is caused by the desire by the Government to control the use of the country’s resources and protect its citizens from exploitation. To ensure that this happens, the host Government may set up laws and regulations that are too harsh and discourage more investors. Amawi (1997) asserts that this leads to the underutilization of resources in the country as the country may not have the necessary expertise and technology to exploit its resources. The issue of bargaining power arises due to the proportion of foreign ownership retained. It was experienced in China for fifteen years when it initiated restrictive laws against foreign investment. It was also experienced between Chad and Cameroon on the oil pipeline project. The term is an example of a barrier to economic development since the shifting of the bargaining power from the manufacturers to the Government discourages foreign investors leading to a slowdown in development.
Kindle Berger spiral is a diagram that was introduced by Kindle Berger in 1973 to illustrate the world trade in the initial stages as a downward spiral. It has twelve axes, which originate from the center outwards to measure the world trade for each year. It sowed the great depression from 1929 to the early 1940’s when most of the world’s banks had less money, and the Government levied high taxes, imposed price and wage controls and raised the bank reserves, which increased the lending rates.
Globalization and World Trade Organization
The significance of this term is that the great depression, though it affected many nations in the world, the economy was self-adjusting to come back to equilibrium. This helped the countries to combine efforts to curb the issue of bankruptcy through the establishment of world banks. Frieden (1990) affirms that countries could also borrow loans from other countries. This boosted globalization as the countries interacted with their neighbors to boost their economy. This also improved the relationship among the different states as they appreciated their efforts to maintain peace.
International monetary fund is an International Organization that promotes international trade through stabilizing the global exchange of money. It aims at the reduction of poverty in member states by reducing unemployment through promoting international trade and availing funds for correcting the balance of trade deficits.
The significance of the IMF is to eradicate poverty among the member states. Globalization is achieved because countries depend on each other in times of difficulties such as balance of payment deficits and negative balance of trade. It ensures that individuals suffering in different parts of the world are assisted effectively.
Public goods are goods that are subject to non-excludability, and the consumption faces no rivals. This means that they are no charges in the course of consuming such goods. For instance, free air. Non-rivalry means that if one person consumes then it does not reduce for another person.
Public goods are mostly the gifts of nature and no human being has control over them. These goods are shared among all states and form part of the basic human needs. People in different countries enjoy these goods and will not like them to be destroyed by any country. For instance, the fight against pollution is supported by most countries in the world. These countries work to maintain the safety of these public goods through the invention and innovation of technology.
Most favored nation status refers to those countries that enjoy low taxes and tariffs. These countries enter into an agreement to trade among them and ease the movement of people and goods. All the members of World Trade Organization belong to this class. Manufacturers of these countries are encouraged to produce more to export to other countries.
The significance of this term is that it shows the distinction between member countries that enjoy the privilege of free movement and cheaper trade. It improves peace and harmony among these countries as they appreciate each other because of the products they exchange. However, this facilitates the smuggling of illegal goods among member countries. It also encourages hoarding of goods when the prices in one country are less than in other countries. It also discourages trade with other non-member countries as they will have to pay more taxes, which make trading expensive.
An optimum currency criterion refers to the use of a similar currency among neighboring countries. This is done to ease trade between member countries, as they will not have to incur the conversion expenses hence improving trade among them. This depends on the intensity of trading activities between a country and its neighbors.
An optimum currency criterion strengthens the value of the currency. It also encourages foreign trade and development among member countries. Peaceful correlations are also enhanced as the common currency makes citizens feel part of one another and can freely associate with each other. Through this, the forces of demand and supply determine the amount of money in the economy. It also encourages increased production. This term has historical importance in the United States of America as most states use the same currency, dollar. However, it does not give a clear distinction in the performance of different countries as they have the same value in all countries. This makes it difficult to measure economic growth and development in different countries.
In conclusion, the significance of IMF, optimum currency criteria, public goods and most favored nation status is that they created peaceful coexistence among individuals and Governments of different countries. They were also meant to reduce the level of unemployment and improve the economy.