Cordero, Maricris

WRITTEN OUTPUT

ISSUE: WHY DO NATIONAL BORDERS PERSIST IN THE GLOBAL ECONOMY ON

INTERNATIONAL TRADES

National Borders persists in the global economy on international trade because…

 It allows countries to participate in a global economy, encouraging the

opportunity of Foreign Direct Investment (FDI) which is the amount of money that
individuals invest into foreign companies and other assets. In theory, economies
can, therefore grow more efficiently and can more easily become competitive
economic participants.

 · Trade fosters economic dynamism and innovation. Improvements in

manufacturing quality and productivity have been credited to the pressure of
competition from Japan and elsewhere over the past decades in the United
States.
 Economic growth and development in the new global economy has been
preceded by a complex structural realignment of investment streams, the
clustering of business enterprises, the transformation of the production process
and the adoption of a niche marketing approach. Furthermore, it has
necessitated the effective integration of state-of-the-art technologies in the
domain of information and communications in order to enhance competitive
advantage in the forum of international trade. All of this has resulted in a
fundamental restructuring of economic society. The role of innovation as a
catalyst that drives the engine of economic growth needs to be acknowledged as
a fundamental postulate of the new global economy. 
 An economy that is closed to trade is one in which inefficient industries and
laggard firms are well protected. In fact, studies suggest that barriers to trade are
a major cause of extreme underdevelopment. The countries that are most closed
to trade tend to be the poorest in the world. Countries that have reduced trade
barriers and increased the share of imports and exports in their economies tend
to be among the fastest-growing nations.

EXAMPLE:
According to a World Bank study, twenty-four developing countries that became
more integrated into the world economy in the 1980s and 1990s had higher
income growth, longer life expectancy, and better schooling. Per capita income in
these countries, home to half the world’s population, grew by an average of 5
percent in the 1990s compared with only 2 percent in rich countries. China, India,
Hungary, and Mexico are among the countries that adopted policies that allowed
their people to take advantage of global markets. As a result, they sharply
 increased the amount of their GDP accounted for by trade. Real wages in these
countries rose and the number of poor people fell.

INTERNATIONAL TRADE

 International trade is the exchange of goods and services between countries.

 International trade has a rich history starting with barter system being
replaced by Mercantilism in the 16th and 17th Centuries. The 18th Century
saw the shift towards liberalism. It was in this period that Adam Smith, the father
of Economics wrote the famous book ‘The Wealth of Nations’ in 1776 where in
he defined the importance of specialization in production and brought
International trade under the said scope. David Ricardo developed the
Comparative advantage principle, which stands true even today.
 All these economic thoughts and principles have influenced the international
trade policies of each country. Though in the last few centuries, countries have
entered into several pacts to move towards free trade where the countries do not
impose tariffs in terms of import duties and allow trading of goods and services to
go on freely.
 At the beginning of the 19th century, there was a shift to professionalism,
petering down by the end of the century. Around 1913, Western countries say a
major move towards economic freedom where quantitative restrictions were
abolished and customs duties across countries were reduced. All currencies
were freely convertible into gold, the exchange currency of the international
currency. Establishing business anywhere and finding employment was easy and
one can say that trade was really free between countries around this period.
 The First World War changed the whole course of world trade and countries built
walls with wartime controls around themselves. Post-world war, as many as five
years have gone into dismantling wartime measures and returning to normal
trade. But then the economic recession in 1920 changed the world trade balance
again, and many countries experienced a shift in fortunes due to fluctuation of
their currencies and depreciation creating economic pressures on various
Governments to adopt protective mechanisms by adopting to raise customs
duties and tariffs.
 Exports create jobs and boost economic growth. They give domestic companies
more experience in producing for foreign markets. Over time, companies gain
a competitive advantage in global trade. Trade also makes companies more
efficient. Research shows that exporters are more productive than companies
that focus on domestic trade.

 Trade liberalization is based on the export led growth model which espouses the
economic benefits of exports to the national economy in the form of employment
creation, income generation, and as a contributor to economic growth. Indeed,
the concept of trade as an engine for growth has been an economic paradigm
that has been passed down from the trade theorems of the nineteenth century.
  The contemporary vision of the new global economy embraces the promotion of
a free trade environment that encourages trade across national borders of goods
and services, the transfer of intellectual property, and the unregulated flow of
capital. In this respect, the modern phase of free global trade promotes an
ambitious agenda that includes not only trade and payments, but the whole
gamut of international transactions that effectively create an open, competitive,
and stable international environment.

GLOBALIZATION

o The integration of national economies into a global economic system has been
one of the most important developments of the last century. This process of
integration, often called Globalization, has materialized in a remarkable growth in
trade between countries.

o Economic globalization is the global integration of economies through trade and

investment flows, as well as the production of goods and services in order to
enhance international competitiveness. Other capsulated definitions include the
process of accelerating international integration of markets that result in an
integrated global market without national economic borders. 

o Globalization has been driven by technological change and financial

liberalization, and sustained by an appreciation among policy makers that an
open, liberal, and rules-based international trading and financial system is
essential to global economic progress. The new economy has become truly
global in scope and substance. The free flow of capital, labor, goods and
services within free trade regions, the development of new financial instruments
and institutions, and instantaneous access to information and communication
through the new digital networks, have created a fully integrated global economic
system of tremendous scope and opportunity, and achieved a higher level of
international economic inter-dependence and linkages than ever before.

Reasons why International trade is good for economic development:

1. International trade enables a country to enjoy the advantages of international

specialization according to comparative costs.

Every country specializes and exports those commodities which it can

produce cheaper in exchange for what others can provide at a lower cost.
2. Widening of Market and Raising Productivity
It is said that by widening the scope of the market and the division of
labor, foreign trade allows greater use of machinery, stimulates innovation,
overcomes technical indivisibilities, increases labor productivity, and generally
allows the trading country to enjoy increased returns and economic development.

3. It provides an opportunity for importing capital goods and materials required for
development purposes. The import of machinery, transport equipment, vehicles,
power generation equipment, road building machinery, medicines, chemicals and
other goods with high growth potential provides greater benefits to the
developing countries.

4. It is said that foreign trade helps to increase capital formation. Saving capacity
increases as real income increases through the more efficient allocation of
resources associated with international trade. Foreign trade also provides
incentives for investment, thereby increasing the rate of capital formation. This
stimulus stems from the possibility of increasing returns on wider markets
provided by foreign trade. In addition, by allowing economies of large scale
production, the access to foreign markets makes it profitable to adopt more
advanced techniques of production.
5. Another direct advantage of foreign trade for the economic development of
underdeveloped countries is that these countries can industrialize themselves by
importing necessary capital goods like machinery, semi-finished products and
industrial raw materials from industrialized developed countries.

In return, these countries can export primary goods and mineral resources
and thus solve the problem of balance of payments. In this way, import of capital
goods and export of primary goods are possible under foreign trade.