Economics in an International Context Assignment - 1

Economics in an International Context - Assignment Example Similarly, the policies of the central government and the central bank are aimed at improving international trade and they have an impact on country’s economy and its international trade. Corporate social responsibility calls for balancing positive and negative externalities in businesses for sustainable growth and development in the long run. 1. International trade International trade is an important component in GDP of several nations. ‘The World Trade Organization (WTO) deals with the global rules of trade between nations.’ (World Trade Organization, 2013) Trade between nations has the potential to benefit all participating countries due to several reasons like import of technologically advanced machineries, materials for manufacturing products for exports and export of surplus agricultural produce. Reuvid & Sherlock (2011, p. 23) stated, ‘Between 2001 and 2008, world merchandise trade exports increased steadily from $4.7 trillion to $12.1 trillion, while trade in commercial services rose from 1.5 trillion to 3.8 trillion.’ Market structure and economic systems: According to Rivera-Batiz & Oliva (2003, p. 392) ‘Differences in market structure create different incentives affecting production decisions and trade behavior.’ Monopoly in various countries has given way to monopolistic structure or oligopoly with the smaller number of firms controlling the markets indirectly, circumventing the regulations on restrictive trade practices. The structure of markets in any country is influenced by the economic system adopted in the countries like the capitalist, socialist or communist. Traditionally, the imposition of tariffs and quota system in closed economies increased the prices that affected imports negatively. Under the free trade regime, the complexities have considerably increased. However, new trade models are not in a position to dispense with the subsidies and tariff, since various countries have various economic agenda that may not be consistent with free trade policy. Restrictive trade practices: In the international trade, import controls are the important tools adopted by governments to regulate the countries’ foreign trade. ‘The main objectives of import controls have been to protect domestic industry, raise revenue, and improve the balance of payments.’ (Thomas, V. & Nash, J. 1991, p.5) Though the objectives are reasonable, under globalization drive pursued by the countries in the recent years their economies cannot be kept insulated from the developments in the international economy. Krishna (1985, p. 1) stated ‘Voluntary export restraints (VER's) have been increasingly used to restrict imports recently’ and the malady still persists. Such problems mainly arise due to worsening balance of payments position in developing and underdeveloped countries. The impact of regional trade agreements on international trade cannot be underestimated. Kurihara (2011 , p.846) argues ‘RTAs are not an efficient way to promote international trade.’ Restrictive trade practices in the international trade will be detrimental to the development of global competitiveness in the industries. Collusion among the producers could lead to the formation of cartels and differential pricing.