![]() ![]() ![]() The same applies to the decision to reduce capital controls which are used by national governments in order to regulate in inflow and outflow of capital.The conclusion or non-completion of such an agreement is a political decision, too. Additional trade policy instruments are bilateral or regional free trade agreements which are used in order to reduce or even eliminate tariff and non-tariff barriers to trade. In case of the European Union, these national competences are transferred to the EU. This decisions is in the hand of the national government respectively parliament. ![]() Lower barriers in trade increase the incentive to trade with other countries. The decision of a country to reduce import tariffs is essential for the size and structure of international trade in goods and services.Just a few examples for the role of political decisions are the following: The extent of globalization is shaped by political decisions which promote or impede economic cross-border interconnections. It is this framework which decides whether cross-border activities are facilitated, made more difficult or even completely forbidden. At the end of the day, whether economically motivated cross-border activities do actually take place or not depends on the policy frameworks in place. Reducing or even eliminating barriers to trade in goods, services, labor and capital are political decisions. Political decisions: Economic processes are not operating in a political or institutional vacuum.Without these reductions of costs, phenomena such as outsourcing, long-distance trade and global value chains would not be possible. Technology: Due to technical progress, costs of transportation and of communication decreased strongly during the last decades.Concerning international division of labor, it will specialize on the production and export of labor-intensive products. Such a country has an international competitive advantage in manufacturing labor-intensive products. If a certain economy has a large number of workers but only a small stock of physical capital, the country is labor-abundant and capital-poor. Demography: The size of the population of a country is important for factor endowment differences between countries.In my opinion, there are three main drivers for economic globalization and its different characteristics such as trade (see figure 1), international capital markets, currency markets, migration and more: This interdependence relates both to the exchange of factors of production (labor, capital, technologies, know-how) and the exchange of products (material goods and services, finished and unfinished products, consumer and capital goods). Economic globalization stands for the economic interconnectedness of countries with the global economy as a whole. ![]()
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