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In: Economics

What significance does growing economic interdependence have for a country like the United States? 3 Pros...

What significance does growing economic interdependence have for a country like the United States? 3 Pros and 3 Cons

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Expert Solution

Economic interdependence is a system by which many companies are economically dependent upon each other. On a macroeconomic level, this can involve many countries being economically dependent upon each other as well. This interdependence is a product of labor specialization, meaning that when so many products are produced in one nation, jobs become more specialized and economic interdependence is bound to form. When this happens, companies must become part of a trading network, and they depend upon each other to supply products that they cannot produce themselves. One by-product of economic interdependence is globalization.

The pros and cons of economic interdependence are as below:

Pros

1. The economic interdependence due to international trade will leave some countries being more dependent on other though the general good is that in such a relationship there will be a positive impact on the states involved.

2. Increase of imports and exports in the sense of being a share of national output through its increasing economic interdependence.

3. The presence of foreign competition has increasingly affected the wages of domestic employees, as well as the profits of domestic firms.

Cons:

1. One of the major costs of having interdependence among nations is the exit costs. In other words, the opportunity of withdrawing from an international tie is more adverse than the costs a country incurs by joining.

2. Interrelationship may create modern capitalism such that some countries are in a relationship to exploit others rather than pursuing the major goal being economic success for all the parties involved.

3. Capitalism arises in interdependence where some countries seek to accumulate more capital selfishly while they exploit the poor countries.


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