Sample of assignment: Issues pertaining to international recovery

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Question 1

 

(a)    Critically evaluate the above statement by examining the issues pertaining to international recovery particularly in the United States and in Central European countries.

 

As Elwell (2011) indicated that although the economy recession from the year 2007 to 2009 was a long and deep period for the international economy, which even led to the most severe shrink of the economy since the 1930s. Meanwhile, although the slowdown situation of the world economy became relatively moderate during the first half of the year 2008, the financial crisis had further weakened the international economy.

 

But most of the evidences pointed out that it is seemed an economy recovery from the first quarter of 2009. And meanwhile it appears that some economic activities are expanding once more in the world with a relatively solid growth and a decline trend in unemployment in these developed countries including the U.S and some European countries (Oxford Economics 2010). In the following we’ll have a discussion on the economic recovery in the U.S. and central European countries in the aspects of some economic policies, activities, employment situation and other related aspects.

 

ⅰ) The United States

 

Policies to support the economy recovery

 

The U.S. government really tries its best to assist the economy recovery which is reflected in these policies issued by this government including the fiscal and monetary stimulus.

 

In terms of the fiscal policy, the U.S. congress has implemented a series of action to stimulate the economy such as the Tax Relief, Unemployment Insurance Reauthorization, as well as 2010Act of Job Creation. The main concerns of these fiscal policies are the extension of the tax cuts, 2% cut of payroll tax in 2011, 13 months’ extension for unemployment benefits as well as the allowance for rapid business investment. (International Monetary Fund 2010)

 

And referring to the monetary policies, we can get the following information. The U.S. Federal Reserve announced a more monetary stimulus will be injected to promote the domestic purchase with an additional $600,000,000,000 of treasury securities in the March of 2010. And then the U.S. Federal Reserve had enhanced the balance sheet’s size to nearly $2.5 trillion. (International Monetary Fund 2010; Elwell, C.K. 2011)

 

Performance of the economy

 

With this economic stimulus, the growth of the U.S. economy has enjoyed the signs of more solid trend which is relatively sustainable.

 

Figure 1.0

 

 

                                                

Firstly, real GDP of the United States has a relatively steady increase from the middle of 2009 as figure 1.0 shows. We can see in the mid of 2009 the GDP began to increase such as from the -6.8% at the beginning of 2009 to 1.6% at the fourth quarter of 2009. And from 2010 to 2011, the recovery trend becomes more obvious. For instance, there is a steady increasing rate in the recent two years, which enjoyed a good performance at the beginning of the year 2010. (Trading economics 2011)

 

   Figure 2.0

Under the stimulus of the federal spending as well as inventory adjustments’ contribution, the domestic consumption also has a solid performance which we can observe from figure 2.0 which gives us the outlook of the consumer confidence in the United States that from the mid of 2009, consumer confidence for the United States has steady improved even reaching the peak at 70. This kind of rate indicates the accelerating trend of consumer spending. (Trading economics 2011)

 

Figure 3.0

 

 

 

And thanks for the international economy recovery trend and these measures implemented by America government, from the mid of 2009 until now, we can see an increasing rate on both of the import and export performance of the United States. As figure 3,0 shows in this year, the monthly export amount even reaches at nearly $18,000 million and the import amount reaches at nearly at nearly $225,000 compared with the lowest amount in 2009 at nearly $120,000 and $140,000. Such kind of active business activities indicates the solid economy recovery situation of the United States. (Trading economics 2011)

 

Meanwhile, the manufacturing activities in the United States become more active. For instance, the total output has increased about 5% compared with last year and the utilization capacity has also improved to 74.4% (Kollewe 2011).

 

Figure 4.0

 

And according to the survey from Elwell (2011), from the late of the year 2009, employment in the United States has increased by nearly 1.69 million jobs. As figure 4.0 shows there has been a decreasing trend of the unemployment rate in the U.S. although it become relatively slow recently, it still has a steady decline (Trading economics 2011).

 

Moreover in the share market, we can also observe the rebound. For example, the Dow Jones stock index had plunged to almost 6500 in the beginning of 2009, but it had a rebound by nearly 70% in the mid of this year. (Kollewe 2011)

 

By and large, all of the above economy performance of the United States shows us the solid economic recovery trend of this nation.

 

ⅱ) Central European countries

 

Stimulus policies

 

These central European countries have the same recovery trend as the United States and they even acts as the positive contributors to the global economy.

 

In the central Europe, many larger countries such as Germany, French, and UK and so on all have implemented several fiscal stimulus packages to provide the support to this region’s economy at a certain extent. For instance, the European zone as a whole is estimated by the IMF that 1.6% of the GDP in the year 2009 to 2010 was owned to the contribution of these measures. (Oxford Economics 2010)

 

Meanwhile, the other supporting factors contributing to the economic recovery activities are proved to be the monetary stimulus by the governments from these central European countries. For instance, the Euro-central banks has cut interest rates to a relatively low level and several unconventional measures for unemployment issues have been provided to stimulate financial markets. For example, the Federal Reserve, the European Central Bank and the Bank of England had been holding their policy rates approximately to the lower bound till the end of 2010, which was aimed to alleviate the pressure for the economic recovery in the Europe region. Meanwhile, these unconventional measures have been very steady and gradually so as to maintain the abundant liquidity as well as avoid the risk in some unsettling problems in financial markets. (Oxford Economics 2010)

 

Performance of the economy

 

To begin with, we’d like to discuss the GDP performance in these central European countries. As figure 5.0 shows, from the mid of the year 2009, the GDP annual growth rate in these countries has enjoyed a recovery which is from the low point of -5.5 to 2 at the first half of this year (Trading economics 2011). In The Gross Domestic Product (GDP) in the United Kingdom expanded 0.70 %, in Germany it expanded 2.7%, in France it expanded 1.6%, in Italy it expanded 0.80%, in Sweden, it expanded 5.3% in the second quarter of this year compared with the previous year, which do indicate a solid and relatively steady economy recovery trend (Trading economics 2011).

 

 

Figure 5.0

 

And in terms of the shareware performance, the performances of these central European countries are also relatively healthy. Germany has a leading performance in this aspect with the increase index up to 5.75% in its equity market. And for France, the index is 9.72% compared the 9.79% in Netherlands, 15.38 in Spain and 3.69% in Sweden. (Trading economics 2011)

 

And although the unemployment rate in these central European countries still remain at a high rate, there is seemed a decline trend in this year thanks for the assistance from these stimulus packages and unemployment benefits offered by the governments(Trading economics 2011).

 

Furthermore, the international business vitality of these central European countries is also solid and began to recover. As figure 6.0 shows from the mid of 2009, the total amount of the export and import of the European region remain at a high level which indicates the good dynamic of the economy in this region. And till the second quarter of this year, the export has reached $142,987 million and the import has also reached at $142,068 million, which is a good performance compared with the previous time performance.

 

Figure 6.0

 

 

 

 

 

In short, the above evidences give us the clear view that most countries in the central European have experienced a solid and graduate economic recovery.

 

(b) Do you agree that the emerging economies never suffered the effects of the crisis mentioned in this statement? A balanced discussion is expected in the context of the future dominance of the emerging economies and the risks and challenges faced by these countries (1000 words).

 

ⅰ) Emerging economies suffering less

 

According to Mody (2004), the emerging economies refer to the economies in some certain Asian and Latin American countries which has a rapid growth pace. These countries such as China, India, Brazil and so on belong to such kind of economy. And Berkman et al. (2009) also pointed out that the so called global economy crisis may not truly affect the world entirely. Some evidences indicate that several countries didn’t suffer the economy crisis, which especially refers to these countries which are in the emerging economy.

 

The reasons for the countries with emerging economies that suffer less than other countries are due to following reasons.

 

In the first place, as Green, King and Miller-Dawkins (2010) pointed out that the financial and economic institutions in these countries with emerging economy are relatively conservative, which may not have too much connection or involvement with these business activities with high risks. Due to the relative safe characteristics of the markets in these emerging economy countries, international investors prefer to invest more in these places. Such kind of business environment also assisted these countries to be more strong and powerful to meet the challenges rising from the financial crisis. And with the less impact from financial crisis, there are more time and chance for emerging economy to speed up its developing pace in the future.

 

In the second place, governments in these emerging countries such as China and India, they acted relative carefully and deliberately to protect the economy steady of their countries. Although these countries often belong to the developing countries, which often depend on the export, once there were some signs of economic problems or other unsteady factors in economy aspects, the governments often took immediate action to convert their countries’ economic activities or business orientation. This kind of situation became the reason that the countries belong to emerging economies suffer less in the financial crisis. (Boorman 2009)

 

ⅱ) Dominance of the emerging economies

 

Green, King and Miller-Dawkins (2010) advocated the idea that the emerging economies will have a bright future and dominance position in the world economy including countries such as Brazil, Russia, India and China and so on. For instance, the stock markets in n these emerging economies will be much larger compared with their present size. It predicts that in next decade that the combined value and size of the emerging economies may exceed the combined value and size of the United States, Japanese and European share markets due to the developing track of these countries in emerging economies that they developed from economies of low-cost manufacturing to economies of growth-driven under the support of a large and strong consumer base.

 

Meanwhile, the importance of the emerging economies in the future will become more and more obvious. The domestic demand of these markets, for instance, will increase at a high speed compared with the domestic demand of the developed countries including the United States, European countries and so on due to some fiscal challenges from these countries. And the domestic consumption of the countries in emerging economies are predicted to be driven by relatively sustained ways including the rising personal income and these energetic, productive young working forces. (Sornarajah & Wang 2010)

 

Generally speaking, with the above analysis, we can predict a relatively promising and healthy developing road of the emerging economies, which may have a dominant role in the world economy in the future.

 

ⅲ) Risks and challenges

 

Although it predicts that the emerging economies will have a bright future, there are still several challenges and risks for the emerging economies to ensure the economic position in the future.

 

The first challenge faced by the emerging economies is the over-dependence on the export which focusing too much on the export industries development to gain more profit from these overseas markets via the cheap labor forces and primary resources assistance. Countries such as China and India depend so much on the export industries which even plays a significant weight on their GDP. Such kind of situation may put these countries in emerging economies on a relatively passive position when there is some emergent crisis occurring in the international business or their business partners. (Sornarajah & Wang 2010)

 

The next major challenge and risk for the emerging economies is the over hot domestic contribution industries. Although the continuous strong developing trend of the estate markets have brought a high revenue and profit for these countries in emerging economy, the future of this market may be just like a bubble which may break at one day. The collapse of the estate market may bring great disaster for the domestic economy and even the death block. Due to this consideration, the future of the emerging economy is really worrying. (Marr & Reynard 2010)

Moreover, the emerging economies are also faced with the challenge of high inflation rates in these related countries. Marr and Reynard (2010) pointed out that the challenge for countries in emerging economies to maintain their sustainable and healthy growth without too much bother from the inflation of their currency is relatively serious. Due to the relatively fluctuant currency inflation rate in these countries, it may be in the risk of frustrating the promising emerging economies. Moreover, the high price of food consumption in countries with emerging economies also brings relatively great pressure for their people.

 

By and large, then above major three challenges and risks for the emerging economies do make the future of these countries in such kind of economies faced with a serious situation, which calls for a proper and correct management and direction from the government to make full use of the market mechanism and the strong labor forces base as well as the rich resource to further assist these countries to have a relatively smoother developing path in the future.

 

Question 2

 

A number of definitions create ambiguities about what global governance is. To better understanding the implications of global governance here we would use a definition proposed by Lawrence S. Finkelstein (1995): Global governance is governing without sovereign authority, relationships that transcend national frontiers. And global governance is doing internationally what governments do at home. Therefore, another definition for the word “governance” is necessary as “global governance” is the internationalization of governance. The World Bank defines governance as the exercise of political authority and the legal use of institutional resources to manage society’s problems and affairs (World Bank, 1998). In light with these two definitions, we can draw a new definition of global governance in our own words: Global governance is the exercises of political authorities to use the institutional resources legally to manage the international relationships, problems and affairs.

 

As the emerging economies are contributing a lot to the recovery of the world economy by keeping its fast growth while the established economic powers such as European Union, Japan and the United States still stand amid the ripple effect of the global financial crisis and other issues, regarding the emerging economies contribution in term of the global governance, in my own view, there is a parallel contribution and like their still small global market share of economies, their contribution is still small but is growing fast. Following are some illustrative examples reflecting some major emerging economies in exercising their political roles, contributing to the institutional resources and contributing to the management of the international problems and affairs.

 

Exercises of political authorities in emerging economies

 

China as one of the five permanent members of the United Nations Security Council, it is also the one that least uses its power in dealing with the international issues. According to the data collected by Global Policy Forum, 257 vetoes have been used by the five permanent members from 1946 to 2004 rejecting over 200 draft resolutions. While Russia (formerly the Soviet Union) used 122 times, the United States used 80 times followed by 32 times by Britain and 18 times by France, and China only used 5 times in about 60 years (Wouters & Ruys 2005, p.9). One reason is that for a long time China had been following the decision of Russia (formerly the Soviet Union) and another reason is the weak military and economic power and the country’s policy to focus on economy stability. With the rapid growth of its economy, China is seeking a “peaceful emergence”, and it does not only demonstrate its emergence through holding a splendid Olympic games abut also begin to use its rights as a permanent member. In 12th Jan 2007, China and Russia today vetoed a draft resolution in the Security Council – the first use of multiple vetoes at the Council since 1989 – that had called on Myanmar to release all political prisoners, begin widespread dialogue and end its military attacks and human rights abuses against ethnic minorities (Un.org 2007). The usage of the veto by China shows its willingness to protect its interests because it is widely believed that United States’ interests in Myanmar is not about human right justice that they claimed but to build up a government that favors the US for its convenience of military actions in the Myanmar territory against China. The new order that reflects the balance of power is being shaped by the conflicts between the emerging powers and the established powers.

 

Contribution to the institutional resources

 

As many of the developed countries such as Greece have been trapped in the debt crisis and other financial difficulties, the World Bank also has difficulties in managing these problems with its original funding. Consequently the World Band had to expanding its funding. In 2010, the World Bank announced its passage of what it calls a “historic” package of reforms at the end of key meetings of global finance leaders.  The package includes a massive increase in capital for the institution, its first in 20 years, and an increase in voting rights of China and other developing and emerging nations. As the organization raised its lending resources by more than $86 billion while the developed countries were still having troubles dealing with their own domestic problems, the emerging economies contributed their increased power by contributing half of the increase of the $86 billion. As a result this change pushes China’s influence in the World Bank to the third place above the major western economies and only behind the United States and Japan.

 

In another case, India as one of the largest emerging economies in term of the annual growth rate and GDP value is involved. Ever since, 1950s when Indian troops were deployed for UN operations, it has been committing around 4000 troops through the decades except 1970s when no troop was committed to operations. After the Code War, India continued the contribution to the UN peacekeeping missions with around 8,000 troops developed around the world to carry out the UN peacekeeping missions in 2006 (Dnaindia.com 2006). With an increasing contribution to the UN military actions, recently this year a top official of the world body in April sought a “larger role” for the country (India), commensurate with its growing stature, to bring peace and security in various conflict various zones. As Anthony Banbury, Assistant Secretary General for Field Support in UN commented, UN wants India – a major military force contributor to global peacekeeping missions – to play a larger role in making strategies and policies for the United Nations in helping to deal with the growing challenges in various conflict zones.

 

Contribution to the management of the international problems and affairs

 

Global warming is known as the global problem that is caused by the emission of the greenhouse, majorly CO2 which is generated by a wide range of human activities, global warming will lead to a number of problems because of the change of climates. As a measure to combat the problem of the continuous increase in global emission of greenhouse gases, the Kyoto Protocol was negotiated in 1997. The Kyoto Protocol requires the industrial countries to cut the emission levels at least 5 percent less than the 1990 emission level which was set to be achieved from 2008 to 2012 (Tamiotti 2009, p.71). Though the Kyoto Protocol has been heavily criticized in some quarters for creating quantitative obligations only for the rich countries, without placing any constraints on emissions from the fast-growing emerging economies (Stern 2007, p.554), the fact that fast-growing emerging economies such as South Korea, Brazil and India will be soon placed under constrains on emissions after the 2012 indicates that the developing countries are actually taking up leadership in helping with the climate change with increased responsibility (Bleischwitz 2011). In contrast, as the world’s leader in the management of many international affairs, United States still has not signed the Kyoto Protocol and The Rejection of the Kyoto Protocol the United States’ rejection of the Kyoto Protocol provides an example of its unwillingness to lead the world in the formation of international environmental policy (Ervin & Smith 2008, p.87). This fact has again proved that what the United States fight for is their interests rather than the common good for the all the human beings. And the established countries are not doing a perfect job in the global governance in term of the management some of the global issues.

 

Another international issue is the Somali Pirates. More than 100 ships have been attacked in Somalia’s pirate-infested seas in the year 2008 alone. Warships from China, India, Italy, Russia, France, the United States, Denmark, Saudi Arabia, Malaysia, Greece, Turkey, Britain and Germany have all joined the anti-piracy campaign (Gettleman & Ibrahim 2009). Threaten by the Somali Pirates, the emerging economies that rely very much on the sea transportation such as China and India also contributed their military forces to fight against the Somali Pirates issues.
Reference

 

Berkman, Pelin, Gelos, G., Rennhack, R., & Walsh, J. P. 2009, The global financial crisis: Explaining cross-country differences in the output impact, International Monetary Fund Working Paper,

 

Bleischwitz, R. 2011, International Economics of Resource Efficiency: Eco-Innovation Policies for a Green Economy, Springer – Verlag Heidelberg. Wuppertal.

 

Boorman, J. 2009, The impact of the financial crisis on emerging market economies: The transmission mechanism, policy response and lessons, electronic version, Centennial Group, Mumbai, viewed 16 September 2011,

<http://www.emergingmarketsforum.org/papers/pdf/2009-EMF-Global-Boorman_Financial_Crisis.pdf>

 

Dnaindia.com 2006, Indian contribution to UN peacekeeping highest ever,  electronic version, viewed 14 September 2011,

<http://www.dnaindia.com/india/report_indian-contribution-to-un-peacekeeping-highest-ever_1021385>

 

Elwell, C.K. 2011, Economic recovery: Sustaining U.S. economic growth in a post-crisis economy, electronic version, Congressional Research Service, viewed 15September 2011,

<http://www.fas.org/sgp/crs/misc/R41332.pdf>

 

Ervin, J. & Smith, Z. A. 2008, Globalization: a reference handbook, ABC-CLIO, Inc. , California, p.87

 

Finkelstein, L. S. 1995, What is Global Governance? Global Governance, P.367 – 372.

 

Gettleman, J. & Ibrahim, M. 2009, Somali Pirates Get Ransom And Begin to Leave Ship, viewed 15th September 2011,

<http://www.nytimes.com/2009/02/06/world/africa/06pirates.html>

 

Green, D., King R. & Miller-Dawkins, M. 2010, The global economic crisis and developing countries: impact and response, electronic version, Oxfam. Org, Australia, viewed 16 September 2011,

<http://www.worldbank.org/financialcrisis/pdf/G20FinBackgroundpaper.pdf>

 

Kollewe, J. 2011, Hopes rise for US economic recovery: The world’s largest economy grew at an annualised rate of 3.2% between October and December, guardian.co.uk viewed 15September 2011,

<http://www.guardian.co.uk/business/2011/jan/28/us-economic-recovery-hopes>

 

Marr, J. & Reynard, C. 2010, Investing in Emerging Markets: The BRIC Economies and Beyond, John Wiley & Sons, West Sussex,

 

Mody, K. 2004, What is an emerging market, electronic version, International Monetary Fund, viewed 16 September 2011,

<http://cdi.mecon.gov.ar/biblio/docelec/fmi/wp/wp04177.pdf>

 

Oxford Economics 2010, Is the economic recovery sustainable in the US and Europe, Oxford Economics, electronic version, viewed 15September 2011,

<http://www.oef.com/free/pdfs/recovery_in_us_and%20europe(feb10).pdf>

 

Stern, N. 2007, The Economics of Climate Change: The Stern Review, Cambridge University Press, Cambridge, p.554

 

Sornarajah, M. & Wang, J. Y. 2010, China, India and the International Economic Order, Cambridge University Press, Cambridge

 

Tamiotti, L. 2009, Trade and climate change: a report by the United Nations Environment Program and the World Trade Organization, WTO publications, Switzerland, p.71

 

Trading economics 2011, United States GDP Growth Rate, United States Consumer Confidence, United States Exports, United States Imports, tradingeconomics.com, viewed 15September 2011,

<http://www.tradingeconomics.com/united-states/imports>

<http://www.tradingeconomics.com/united-states/exports>

<http://www.tradingeconomics.com/united-states/consumer-confidence>

<http://www.tradingeconomics.com/united-states/gdp-growth>

<http://www.tradingeconomics.com/united-states/unemployment-rate>

<http://www.tradingeconomics.com/euro-area/gdp-growth-annual>

 

Un.org 2007, China and Russia veto US/UK-backed Security Council draft resolution on Myanmar. Viewed 16th September 2011

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World Bank, 1998. Managing development: the governance dimension, The World Bank, Washington DC.

 

Wouters, J. & Ruys, T. 2005, Security council reform: a new veto for a new century? (Egmont Paper 9), Academia Press, Belgium, p.9

 

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