Last Updated 11 May 2020

International Trade and European Dimension

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Exploring the significance of international trade and European dimension for UK businesses

  1. Describe and discuss the role of foreign direct investment (FDI) in globalisation. What do you conclude?
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FDI has become more of a driving force for economic globalisation; it has not only contributed significantly towards the even distribution of resources globally but catalyzed the industrial and climatic restructuring, sowing the seeds of competitiveness and efficiency. It also helped in promotion of advancement and innovation in economic systems and technology. As Globalisation is composed of four major trends, those making up the “first wave of globalisation” with financial flows as the most important of them, Foreign Direct Investment makes up the most of this pillar.

According to the article Transition Economies: An IMF Perspective on Progress and Prospects (2000), FDI plays a significant role towards the development of economy, it shows different arrangement in regional patterns as compared to the international trade, on one hand there are countries like India who increased her share of global trade with little FDI while her immediate neighbour China rolled out on world stage with the momentum given by massive injection of Foreign Direct Investment. Of the total capital inflows into this region, FDI makes up the largest pie thus accounting to be the single most decisive factor in transformation of Asia as a global economic power to reckon with.

This flow of capital helped its recipients to optimize the investment environment for attracting more FDI; even the countries like China which had remained a forbidden fortress’ opened themselves up by standardizing, rectifying and reforming the market order to create a transparent, stable and predictable environment, as described in the article Transition Economies: An IMF Perspective on Progress and Prospects (2000). This transformation for positive inflows leading towards globalization’ made countries to integrate further into the regional economies by helping them to harmonize.

FDI did not only actuate the transfiguration of nation’s core policies but it also acted as an impetus in radicalizing the domestic investment, as shown by the FDI ‘elasticity of domestic investment’ that has been positive for all these years. As the State counsellor of Fujian China told on CIFIT affair that ‘Drawing more foreign Investment and Going Global goes together hand in hand and these had been the major drivers in steering China to the world stage’.

  1. Critically evaluate the contribution of Economic and Monetary Union (EMU) to progress towards full integration

The facets of resource allocation have been the focus of the conjecture and operation of economic integration. According to the article Historical Documentation of EMU and the Euro, the EMU represents an acme of long and laborious process towards greater economic concordance among the league of states making up the greater Euro-zone by using the established institutions like European Council of Ministers of the Economic and Finance (ECOFIN), needed for strengthening coordination and integration backed by liberalization of the capital flow, which in particular focuses on the promotion of exchange rate stability in the member states under the autonomous European System of Central Bank (ESCB).

The Maastricht Treaty and the attached criteria to be fulfilled for the countries opting for membership promoted a standardized procedure and benchmark for various economies to reform and evolve themselves to be ready for absorption, as described in Historical Documentation of EMU and the Euro. Minimal inflation rate, Average nominal interest rate and the allowable band for government deficits pushed the member states in speeding up the process towards getting mature so that they should not become destabilizing factor for the monetary union.

The EMU did not only provide the mechanism for the premature member states in accelerating their reform process but its “Stability and Growth” pact though softer then the previous terms exhibits automatic fines in circumstances where deficits crosses the red lines, which might be triggered due to recession thus resulting in a languid growth. This measure has ensured long term stability by making governments aware and responsible of the possible foreseeable furrows which might occur.

Another major contribution is its translation into decreasing commercial transactional costs which came as a result of the replacement of local currency by a single mother currency; this resulted into intra-continental competition, enhancement and augmentation of productivity and reinforcement of the single European market.

The abolishment of exchange rate risk with in the EU has allowed SMEs with amplified opportunities to extend their operations across Euro Zone. It also extends the EMU with greater absorbing power to bear exchange rate shocks form the outside world, thus making the zone and economies constituting’ virtually invulnerable. Last but not least the floating of single currency “Our Currency” helped in promoting a symbolic effect towards fostering the notion of European integration and union.

Investigating the economic, social and global environment in which organisations operate

Dawn of the age of globalisation brings with it opportunities which till now has been experienced through out the world by bringing efficiency and competitiveness, thus making use of resources in the most efficient way possible. On the other hand this enhanced integration has also brought with it the storms of challenges and shadows of constraints. The more organizations are entrenching themselves into global economy, they are enjoying the breadth of stretched market and depth of opportunities, it blend today’s organizations with the colour of social diversity, thus enabling the efflorescence of new ideas and thoughts, vital for survival and advancement.

Till now this open window has brought fruits of diversification and furtherance but the same open corridor also makes them vulnerable to the shocks of planetary stretch which may have originated at one corner, is bound to jolt all to the very roots’ as is happening in today’s crisis. Thus Globalization, Foreign Direct Investment, Economic Monetary Union, International Financial and Monetary Institutions, though still holding in them scars of fragility are headed towards making this world a common and harmonized place, a place with no economic, social or environmental hedges.

  1. Critically evaluate the role of government intervention in a period of declining economic growth

The economic hazard that originated from the US sub prime burst intoxicated the global financial system, making it indisposed and decrepit. Responsibility fell on the US Government to act quickly and decisively to contain the spill form ruining whatever was left after the great storm. They were left with two choices, either to allow the market forces to act on their own and heal the wounds it suffered out of its own callous ways or to go after the inflicted impairments in repairing them. The Fed came up with an impressive $700 Billion bailout package to brace the economy and its institutions form total melt down.

Thus by extending support to the likes of J.P.Morgan in taking over the grand Bear Sterns, by enacting the Housing and Economic Recovery Act ,US  Government halted the free fall of the largest mortgage entities of the continental United States Fannie Mae and Freddie Mac, who alone backs half the $12 Trillion mortgage entities. List is just the beginning, fault line of the great jolt extends to Merrill Lynch, the Lehman Brothers, AIG, Washington Mutual, Wachovia and it goes on, and it doesn’t confine itself to mere financial sector but gobbles the rest of mega industries like the legendary General Motors and Chryslers.

The plan for such action has been to absorb the bad books of banks to cleanse their sheets, while liquidating the chocked financial engine so that revolutions could again be induced. It intends to keep these books up to period where their values would be restored, to be able to be floated into the mainstream again. An attempt by the US government to engender confidence and to impel the desired inertia, for which it has taken a risky step of further indebting itself, an obligation for the future generations’ paid for today’s oilification.

This is a struggle to restore the sliding consumerism which is not only hurting domestic production but producing ripples plaguing the rest of world. Thus the founder of free market and Capitalism in a bid to halt a free fall has been compelled to engineer the market moves by serious but vital intervention.

  1. Compare and contrast transitional and emerging economies. Use examples to support your answer

Transition process is envisioned to include the evolution through Liberalization, Macroeconomic stabilization, Restructuring and Privatization, Legal and Institutional reforms. While emerging economies are a group of nations which are observing rapid informationalisation under the environment of completed or fragmentary industrialization, thus this is the league of countries that is experiencing extraordinary economic growth on the basis of telecommunication, IT advancements and newer energies.

Emerging are world’s largest embryonic markets, the breeding ground of global human resource and the place for global brands, trends and innovation. Most of the transitional economies are concentrated in eastern Europe and Baltic region who in a bid to join the lucrative bloc are either lingering or have accomplished the path of post-soviet metamorphosis to knock at the doorstep of EU for embracement, the former being the Commonwealth of Independent States like Armenia, Russia, Georgia, Moldova, while the later being Central & Eastern European Economies like Bulgaria, Croatia, Czech Republic.

The transitional bloc usually consists the archipelago of small countries who are striving to crack the hull of their communist while the emerging economies include the confederacy of today’s rising economic powerhouses like China, India, Brazil. They are more of regions rather than countries who have emerged to become the manufacturing, services and natural resource base of today’s world, not only feeding upon their own pace but giving a new push to the global and regional economies. These emerging centres of power are shifting the traditional balances from the West while establishing the remodelled nucleus in the Greater East.

Thus the major difference lies in approaches fuelling development on both sides of fences, the former being narrow and striving to affiliate with centres of established power and influence while the later sect is endeavouring to become the league of their own.


Emerging Economies. Available: Last accessed 16 Nov 2008.

International Monetary Fund. (2000). Transition Economies: An IMF Perspective on Progress and Prospects. Available: Last accessed 16 Nov 2008.

Shipman, Tim. (2008). Financial crisis: US bailout fails to do for Bush, what's done for Brown. Available: Last accessed 16 Nov 2008.

Historical Documentation of EMU and the Euro. Available: Last accessed 16 Nov 2008.

Economic and Monetary Union is 10 years old. Available: Last accessed 16 Nov 2008.

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