Question

In: Economics

Assess the impact on international trade of emerging economies like those of Europe, India, China, Brazil,...

Assess the impact on international trade of emerging economies like those of Europe, India, China, Brazil, Russia, and other countries of your choice. What can we expect from them in the next 20 to 50 years.

Solutions

Expert Solution

The worldwide financial power shift away from North America, Western Europe, and Japan's developed developed economies will continue over the next 35 years. In 2014, China surpassed the US to become the biggest buying energy parity (PPP2) economy. In terms of market exchange rate (MER), despite its predicted slowdown in development, China will overtake the US in 2028. In terms of PPP, India has the ability to become the world's second largest economy by 2050, although this needs a continuous structural reform programme.

Emerging economies such as Mexico and Indonesia are expected to be bigger by 2030 (in terms of PPP) than the UK and France, while Turkey could be bigger than Italy. In the era up to 2050, Nigeria and Vietnam could be the fast-growing big economies.
According to our country specialists, Colombia, Poland and Malaysia all have excellent potential for viable long-term development in the coming decades.
At the same moment, latest experience has re-emphasized that comparatively fast development for emerging economies is not guaranteed, as evidenced, for instance, by latest issues in Russia and Brazil. It requires sustained and effective investment in infrastructure and improving political, economic, legal and social institutions. It also requires remaining open to the free flow of technology, ideas and talented people that are key drivers of economic catch-up growth.

First, considering the mixture of financial bottlenecks and institutional deficiencies, it will be hard to maintain growth levels in the E7 era from 2000 to 2012 and other significant emerging markets. This is supported by this report's thorough assessment. Managers need to comprehend and have processes in place to prevent or at least mitigate the political, legal and regulatory hazards as they occur. They also need to comprehend the dynamics of progressively mature, advanced and digitally savvy emerging consumer economies.
Second, emerging markets differ widely in their institutional strengths and weaknesses and need a nuanced assessment. There could also be major differences in institutional strengths between industry sectors within countries. Deep local knowledge that is updated in real time is critical here to manage businesses successfully in an emerging market environment. Having the right local partners to navigate you through local political, legal and regulatory systems is also critical . Identifying and promoting local talent who understand local business and social cultures better than any outsider will also be an increasing source of comparative advantage.

Third, part of their contribution could be to attempt to enhance the local institutional structure for bigger Western firms making strategic investments in emerging economies. This could require providing local governments with suitable technical help and guidance in fields such as corporate governance, fiscal policy and protection of intellectual property rights. It could also require investing in social and economic infrastructure (such as schools, highways, railways, electricity and water networks) where these are critical to the long-term achievement of a company in a region.

In brief, while emerging markets have significant potential for development, they can also be an institutional minefield–both executives and investors need to walk cautiously. Global policies need to strike the correct equilibrium between mature, lower-risk developed economies and faster-growing but usually higher-risk emerging markets. The right balance will vary from company to company, but our strategy toolkit for growth markets can help guide the way


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