Question

2- What are the basic determinants of the international economy that will be affected mainly by the three shocks that globalization has received in the past two decades? How will this affect global economic growth?

3- What are the options that the world is facing today, and will they lead to an increase in international trade and revive globalization, or what?

4. What are the possible scenarios for the development of globalization trends? Are there alternatives suggested and which of these alternatives would be the best option in your opinion?

Answer 1

2- Globalization changes the entire economic structure across the globe in economic and financial and many other terms.Globalization pushed the economy to take many decision on determinants of trade and specialization. They include technology, factor endowments, trade costs, tastes, and returns to scale. Various theories exist that explain the effects of these determinants and a number of empirical studies have been performed to check if these theories provide good explanations of the data after ther introduction of globalization and it reached in it's peak in the last 2 decades.Now days we can find that the determinants of trade have a significant effect on the pattern of trade and specialization in production. It would be interesting then to somehow compare the importance of these determinants.

There are many things which came into the world of international trade after the empowering of globalization across the world which inclueds,

>>Interconnectedness

Globalization has resulted in greater interconnectedness among markets around the world and increased communication and awareness of business opportunities in the far corners of the globe. More investors can access new investment opportunities and study new markets at a greater distance than before. Potential risks and profit opportunities are within easier reach thanks to improved communications technology.

Products and services previously available within one country are made available to new markets outside the country due to globalization. In addition, countries with positive relations between them are able to increasingly unify their economies through increased investment and trade.Even many continents started their relationship economically and socially only after the growth of globalization across the globe.

>>Maintaining Competitiveness of Traders

Globalization has had the effect of increased competition. Companies are broadening their target area, expanding from local areas and home countries to the rest of the world. Suddenly, some companies are fighting strong competition from outside their home country. This forced them to source materials and outsource labor from other countries. This story of ‘sourcing and outsourcing’ turned many companies into global ones, actively seeking for production locations and partners for new ventures. Globalization has facilitated this and made the transition to global markets easier.Countries like India which is an agrarian economy started earning revenue from international trade only after the coming of globalized economy.

>>Technology and Efficiency

More advanced systems are needed to facilitate global trade. Globalization pushed us to create better systems to track international trade. ERP systems are one of the solutions provided to support global trade.

Enterprise resource planning (ERP) is a process by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance and human resources.

This technological innovation in global trade has enabled a more efficient environment. Technology empowers efficiency in global trade and reduces cost and time. In addition, production processes became more efficient due to globalization as companies want to maintain their competitive advantage.

Relevance of of many ideas including import substitution and many other ideas only started after the coming of trade without boundary.

Latest Shock to the global Economy:

Corona pandemic changed and make a thought to every economist in the world about the future of econmies.The new coronavirus strikes as the pace of growth for some large economies around the world has slowed or even contracted. That constrains governments ability to respond. This is a supply shock – not a demand shock that can be rectified with monetary stimulus, while many central banks consider reducing interest rates, that will do little to make up for quarantines, travel restrictions or fear of public gatherings. It is necassary governments to avoid premature focus on restarting economic engines that could trigger a relapse. “his underscores what could well be the toughest dilemma for globalization – the tradeoff between the quantity and quality of economic growth  shocks like COVID-19 unmask compromises that have been made on the quality side of the global growth equation.” such shocks, governments must consider scientific findings in areas as diverse as emerging diseases and climate change to invest in long-term resilience and protection otherwise it make huge losses to the entire globe in every manner.

3-What We Have Today:

The tensions we are now seeing in the international trading system have been building over decades. Many people are concerned that not everyone is playing by the agreed multilateral rules, that high levels of state support and protection remain in key sectors, and that new multilateral rule-making is not keeping pace with the business realities of today. Against this background, protectionism is on the rise.The relevance of international trade is really high in the existance and growth of an globalized economy.The years from 2008 to 2018 were an eventful period for the global economy, but no one would call them transcendent. The advanced economies suffered their most serious economic and financial crisis since the Great Depression, while events in Greece and elsewhere in Europe threatened the very survival of the Euro Area. A disappointing recovery gave rise to concerns about secular stagnation, the idea that deficient demand combined with stagnant productivity growth doomed the advanced countries to chronic slow growth.In contrast, emerging markets, led by but not limited to China, escaped the crisis largely unscathed. They continued to expand throughout the crisis and for much of the subsequent decade. Even the scenario is really making down the entire world there are many options which is availbale in the current world of trade.

>>Importing and Exporting

Importing and exporting are the oldest and most prevalent forms of international trade. For many companies, importing is the primary link to the global market. American food and beverage wholesalers, for instance, import the bottled water Evian from its source in the French Alps for resale in U.S. supermarkets.Fine Waters Media, . Other companies get into the global arena by identifying an international market for their products and become exporters. The Chinese, for instance, are increasingly fond of fast foods cooked in soybean oil. Because they also have an increasing appetite for meat, they need high-protein soybeans to raise livestock.Exporting and importing of goods and services playing a major role still today in international trade and here lot more to explore.

>>Licensing and Franchising

Companies which wants to get into an international market quickly while taking only limited financial and legal risks might consider licensing agreements with foreign companies. An international licensing agreement allows a foreign company to sell the products of a producer or to use its intellectual property in exchange for royalty fees. Here’s how it works: You own a company in India that sells coffee-flavored popcorn. You’re sure that your product would be a big hit in Japan, but you don’t have the resources to set up a factory or sales office in that country. You can’t make the popcorn here and ship it to Japan because it would get stale. So you enter into a licensing agreement with a Japanese company that allows your licensee to manufacture coffee-flavored popcorn using your special process and to sell it in Japan under your brand name. In exchange, the Japanese licensee would pay you a royalty fee.

Another popular way to expand overseas is to sell franchises. Under an international franchise agreement, a company grants a foreign company the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance. Franchising is a natural form of global expansion for companies that operate domestically according to a franchise model, including restaurant chains, such as McDonald’s and Kentucky Fried Chicken, and hotel chains, such as Holiday Inn and Best Western and such chains and many other industries.

>>Strategic Alliances and Joint Ventures

What if a company wants to do business in a foreign country but lacks the expertise or resources? Or what if the target nation’s government doesn’t allow foreign companies to operate within its borders unless it has a local partner? In these cases, a firm might enter into a strategic alliance with a local company or even with the government itself. A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both partners. ICICI bank and Vodafone India have a strategic alliance to alliance to launch a unique mobile money transfer and payment service called 'm-pesa' and like that in international trade also have strategic alliance which promotes the global trade and commerce.

>>Foreign Direct Investment and Subsidiaries

Many of the approaches to global expansion that we’ve discussed so far allow companies to participate in international markets without investing in foreign plants and facilities. As markets expand, however, a firm might decide to enhance its competitive advantage by making a direct investment in operations conducted in another country. Foreign direct investment (FDI) refers to the formal establishment of business operations on foreign soil—the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country. On the other hand offshoring occurs when the facilities set up in the foreign country replace U.S. manufacturing facilities and are used to produce goods that will be sent back to the United States for sale. And on that way it is useful to use invesments in international aspect while we are entering into the world of inernational trade.

>>Contract Manufacturing and Outsourcing

Because of high domestic labor costs, many U.S. companies manufacture their products in countries where labor costs are lower. This arrangement is called international contract manufacturing or outsourcing. A U.S. company might contract with a local company in a foreign country to manufacture one of its products. It will, however, retain control of product design and development and put its own label on the finished product. Contract manufacturing is quite common in the U.S. apparel business, with most American brands being made in a number of Asian countries, including China, Vietnam, Indonesia, and India and it helps alot in the aspects of global trade.

With the help of options which is avalable in the market will help to go forward by growing eventually in international trade and it will help to make huge impacts in the total growth of the economy in every aspects, the unexpected shock towards the economy also can possibly overcome with the help of some tools which is available in the trading world.

4-In the pandemic running economic and social world, economists are think about a future which is post pandemic ,trying to figure it out what will be the future of world economies.The era of globalisation, open borders and global value chains is under severe pressure. Populism, protectionism and climate change have all challenged economic globalisation. The COVID-19 pandemic presents the latest challenge. This raises the question whether the outbreak of COVID-19 has sounded the death knell for economic globalisation. Some relevant scenarios help to figure it out many things here international trade increased rapidly after 1990, fuelled by the growth of a complex network of global value chains These chains represent the process of ever-finer specialisation and geographic fragmentation of production. International trade and the integration of developing countries into the world economy caused poverty to fall sharply.In recent years, this model of economic growth based on economic globalisation has been challenged. Long before COVID-19, environmental groups, labour unions and populists all criticised free trade and globalisation for different reason.

>>Analysing of impact of covid -19 on globalisation

To analyse the long-term effect of COVID-19 on economic globalisation, we must decompose the various elements of globalisation. Economic globalisation includes a variety of elements such as cross-border trade flows, capital flows, data flows, exchanges of people and so forth. This article will focus on the impact on global supply chains.

We can distinguish between local value chain participation, regional value chain (RVC) participation and global value chain (GVC) participation. Generally speaking, the higher the participation in intra-regional RVCs, the higher the degree of regional economic integration. Likewise, the higher the degree of participation in inter-regional GVCs, the higher the degree of economic integration into the global economy.Assessing the level of economic globalisation by GVC participation does not fully resemble the complex reality, as various other drivers of globalisation such as people-to-people exchanges are excluded. Nevertheless, the concept of participation in GVCs helps better grasp the potential impact of COVID-19.So, what will the impact be on the participation in inter-regional and intra-regional value chains and, ultimately, on economic globalisation? There are at least three scenarios that we can distinguish to analyse the this.

>>Localisation instead of globalisation

In this scenario, the pandemic will lead to the collapse of global value chains as national governments adopt protectionist policies and force companies to relocate production facilities closer to home to avoid a reliance on foreign suppliers. The participation of companies in both inter-regional as well as intra-regional value chains will decrease.The coronavirus outbreak could have a similar negative impact as the 2008 financial crisis.The 2008 financial crisis has already demonstrated that a severe crisis can have a structural negative effect on globalisation. The coronavirus outbreak could have a similar negative impact.Before the financial crisis, globalisation thrived and GVC value-added production activities grew at a much higher rate than domestic value-added production activities indicating a strong process of globalisation. However, after the financial crisis the growth of participation in GVCs slowed and did not return to pre-crisis levels.

Between 2012 and 2016, GVC activities as a share of global GDP fell, while the share of domestic production activities rose. Furthermore, the nominal average annual growth rates of complex GVC production activities declined steeply (-1,65%), as did simple GVC production activities (-1,00%) and traditional trade (-0,28%). On the other hand, domestic production activities grew by an average of 1,49% during the same period.

Participation in inter-regional value chains could decrease as the coronavirus outbreak speeds up the process of US-China decoupling. Curtis Chin, Asia fellow at the Milken Institute, warns that COVID-19 will accelerate the process of decoupling more than the trade war as countries and businesses think about their supply chain in the long run.

Participation in intra-regional value chains could also be negatively affected, as might already be the case in the EU. Time Magazine pointed out that “the pillars that were meant to hold up the EU — the free movement of goods and people — crumpled, as borders went back up and panicked governments stockpiled medical supplies with little regard for their neighbours”.On 25 March, Hungary, for example, banned the commercial export of hydroxychloroquine sulfate, an ingredient used in drugs for coronavirus treatment. and there are many things which make a change in the trading process of an economy

>>Regionalisation instead of globalisation

In this second scenario, the pandemic will have a higher impact on complex inter-regional value chains and a lower impact on intra-regional value chains. The coronavirus outbreak will not lead to the end of economic globalisation, rather, it will lead to a strong process of regionalisation.

Philippe Legrain, senior fellow at the London School of Economics, argues that COVID-19 could mark the tipping point that prompts businesses to restructure and shorten their supply chains, “with US companies moving production to Mexico and European ones to Eastern Europe or Turkey”.The process of regionalisation has arguably already started before the pandemic as the last two decades have seen a spike in new regional trade agreements

The process of regionalisation has arguably already started before the pandemic as the last two decades have seen a spike in new regional trade agreements. Last year, the US, Mexico and Canada for example adopted a trade deal the so-called USMCA Agreement. The pandemic could catalyse this process of regionalisation of trade.

In Europe, the coronavirus outbreak may reinforce the EU’s quest for strategic autonomy and economic sovereignty. These concepts have recently found traction in Brussels as the EU tries to reduce its dependency on third countries particularly in sectors vital to public health, security and public order.

Many things which leading to the process of regionalism already started before the pandemic but right now the relevance of these thoughts are very high.

>> A continuation of globalisation

In the third scenario, economic globalisation will recover once the economic recession has ended and financial markets have recovered from the shock of the coronavirus. Participation in inter-regional GVCs and intra-regional GVCs will recover and economic globalisation will return to pre-corona levels.

Empirical historical data shows that, in the past, the world economy often reacted according to a ‘V-shaped’ model to an epidemic, meaning a quick down and a quick back up. After previous epidemics such as SARS in 2003 and the “Hong Kong” flu in 1968, economic growth fully recovered and more or less absorbed the economic shock.

If globalisation continues, US-China decoupling and COVID-19 will not lead to more regional value chains, but will stimulate companies to shift production to other Asian markets Contrary to the previous scenario, in this scenario, US-China decoupling and COVID-19 will not lead to more regional value chains, but will instead stimulate companies to shift production to other Asian markets such as Vietnam and Indonesia. As such, global value chains would continue to play an important role. According to a report from Qima, a Hong Kong-based supply chain inspection company, US buyers already moved their sourcing away from China as inspection demand in China decreased by 14% compared to 2018.

The report states that US companies “were not in a hurry to bring the manufacturing back home, instead dividing the diverted business between near-shoring regions and China’s neighbours in Asia”. Manufacturing, for example, moved to Southeast Asia and Taiwan where inspections and audits from US companies increased by 9.7% in 2019.

Thus, COVID-19 could also trigger a process of diversification of supply chains. Accordingly, global supply chains would be reshuffled, however, not reduced. This means the pandemic would cause individual companies to remodel their supply chains, but accumulatively, RVC and GVC participation could very well return to pre-crisis levels.

>>As the coronavirus takes hold, the only certainty is that nothing is certain. It is difficult to draw any predictions in the midst of an unfolding event and the degree to which these scenarios play out will be affected by other factors.

It is still unclear whether global value chains will only be reshuffled, or whether they will be reduced. Whether they will be localised or regionalised, or whether we will see a continuation of globalisation. It could also be the case that we will see a combination of the three scenarios, or an alternative scenario.The goal of these scenarios is, however, not to predict the future, but to contribute to the debate and enable policymakers and managers to better navigate the uncertainty that COVID-19 will bring about.It is not important which of the three scenarios will stand the test of time, but whether the supply chain of organisations would stand the test of these scenarios.

>>In My Opionon:

In my opnion the continuation of globalisation is far better that any other scenarios which is available right now. For the time being the relevance of the continuation of globalization is much high and it will make better contribution to the economy as whole. So that the scenario which leading the economy is continuation and proper movement og globalization.

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