Demographics of the Global Economy

Question: Write an essay about the demographics of the global economy. Answer: The Changing Demographics of the Global Economy: The Global Economy is referred to the world economy. This is considered as international exchange of services and goods, which is expressed in monetary units of account. The U.S. ruled the world trade picture and the world economy by accounting almost 40% of world economic activity in 1960s. However, by 2012, this economic activity has decreased to 23%. In this global economy, U.S. multinationals ruled the half of the world and the international business scene. This economics of the communist world was centrally planned. This economics was limited to Western international business. This economic structure is also observed in other developing countries. In contrast, the share of the developing nations in the world economy is increasing. It is expected that, by 2020, the economic activity will rise to more than 60% (Dunning, 2012). This output of these developing countries in the account of the global economy is gradually increasing from 1960. The cross-border flows show a sustained gr owth in foreign direct investment (FDI). For example, it was seen that U.S. firms had accounted for approximate two-thirds of worldwide FDI flows. Recently, the account of the U.S. has decreased to less than one-fifth of worldwide FDI flows. This pattern is observed in the other developing countries. In contrast, the share of FDIs account has risen in developing countries. For example, China has become famous destination for FDI. The other popular FDI destinations are UK, Canada, China and USA. A multinational enterprise is referred to the business, which has productivity in two or more countries. It is observed that the number of mini-multinationals and non-U.S. multinationals has increased since 1960s (Wild et al., 2014). Most of the former Communist nations in Asia and Europe are now committed to free market economies and democratic politics. This communist collapse in Eastern Europe exhibits a representative of investment and export opportunities for Western business. It shows n ew opportunities in the International business in spite of continued Communist control. The economic development in China represents major risks and opportunity. With this, signs of growing totalitarian and unrest tendencies are observed in some countries. For example, Latin America and Mexico also represent tremendous opportunities both as sources and as markets of production and materials. It is observed that the FDI has increased from $2 billion to $100 billion in China in between 1983 and 2010 (Beamish, 2013). In China, there are many strong companies, which can give tough competition to Western firms. The opinion of the author is based on the changes in the world economy system along with globalization. Authors personal opinion will be to know the reasons behind this change. Debate on Globalization: Globalization is referred to as shift from a centre to more interdependent and integrated global economy. The debate has stared between anti- globalization protestors at all meeting of a global institution. According to protestors, globalization is altering the world in a negative way. Critics feel that jobs are being lost to low-wage nations due to globalization. According to the supporters, cross border investment and increased trade give rise to low prices in services and goods. It leads to greater economic growth with more jobs and higher consumer income. In this debate critics believe that the free trade supports firms from growing nations to shift manufacturing facilities registered in less developed countries with lax labor and environmental regulations (Killing, 2012). The free trade supporters observed that strict labor standards and tough environmental regulation go together with progress in economy. Additionally the foreign investment helps a nation to increase its standar ds. While critics are disappointed in the fact that due to the globalization the economic power is altering from national governments towards super national organization, like, the United Nations, the European Union (EU), the World Trade Organization (WTO). However according to the supporters the organizational power is limited to states-nations agree to grant. The organizational power lies in their capability of making some nations to follow some actions. The critics state that the distance between poor and rich has become wider. So, the globalization is not distributed equally (Ball McCulloch, 2012). Whereas supporters state that governmental actions have showed limited improvement in economy in most of the countries. The author supports the globalization. Some undeveloped nations can raise their economy by reducing barrier of investment and trade and also through implementing trading policies based on economies of free market. For example, McDonald is growing in Japan and other countries due to globalization. Economic System: An economic system is referred to as a system, which deals with resource allocation, production, distribution and exchange of services and goals in a provided geographical area or a society. This system is connected with political ideology. The countries, which are focused in individual goals in the system, have market-based economies. The dominant collective goals are observed in the economic system of the countries with common state-ownership. Individualism and democracy go together like totalitarianism and collectivism. Generally, three types of economic systems are observed, which are, mixed, planned or command and market. Command economy system is completely government based. In this system, rather than free market, government decides the production of the goods, the quantity of the production and the price of the goods, which will be opened for sale. It is a key characteristic of communist society (Cavusgil et al., 2014). This system is completely state-owned. Government distri butes the resources for the good of the society. This system has a tendency to stagnate as it has low incentives to be efficient and control costs. A market economy is a system, where the decisions regarding distribution, production and investment are taken by market. In this system, the prices, demand and supply of services and good are decided in a free economy system. Government encourages in fair and free competition among the private sectors. Market economies are also two types, social and liberal. Mixed economy is the system, which deals with the combinations of various economy systems, like, economic interventionism, free markets, private ownership, public ownership and economic planning. In general, in this system, the private economy is controlled by the provision of government. Mixed economy is more practiced in India and China. In China two systems model is observed. One of them is capitalist, which is similar to state-planned economies with the combination of institution al structures. The other system is political system, which is under control of communist party. This leads to weak legal system and lack of transparency. In India, democratic political system and economic freedom are observed and it is gradually opening towards FDI mixed economy is more practiced in these countries because, this economy has strong concern on free market principles, and still it depends upon the government (Jenkins, 2013). According to authors opinion, mixed economy is better because it involves the opinion of two systems. The free market involves with the variety of products. While, the government helps to deal with certain matters ranging from environment to education, which are overlooked by the private organizations. The government also helps to nurture a newly grown company and to establish that company in the global economy. Culture: Culture is defined as a system of norms and values, which are shared in between same groups or different group of people. It helps to modify the structure of living. Norms are referred to certain cultural products like traditions, customs and values, which represent the basic knowledge of individuals on others activity and their vision. According to certain sociologists, norms are informal understandings, which deal with the behaviors of the individuals in the society. An example of norm is shaking hand during introduction between two people. Elements of norms are laws, taboos, mores, and folkways. Folkways are norms, which deal with casual or routine interaction in daily life. For example, certain food habits or dressing sense in different cultures. If an individual belched in America during dinner in presence of others, then that incident is referred as breaking the folkways. According to American culture belching in dinner table is not good (Folsom et al., 2012). After these broke n folkways, there are no legal or moral consequences. Mores are the norms, which are observed in the society. It refers to the functionality of the society, like religious doctrines. For example, the parents with more cannot allow the live together relationship between their daughter and her boyfriend. According to them, only married couple can stay together. If their daughter does this activity, then it will be referred as violation against more. Taboos are the norms, which are strongly connected with certain cultures. Violation of those norms gives rise to extreme condition at that culture. Sometimes those violators are thrown out of the society. For example, in Muslim culture pork eating is a taboo. Pigs are not staying in clean area, But Muslim strictly follows the cleanliness I their daily life. Law is referred to as certain norms, which are written by the leaders of the society, and it is implicated in the society through a law enforcement society. For example, in many countri es drink and drive is not allowed according to the law. If anyone breaks the rill, then according to the law, that person will be fined or imprisoned. Values provide the place, where, the norms of the society are put forward and followed with respect. For example, in a scholarly family, the parents will show more values on learning, achievement, hard work (Enderwick, 2013). According to authors opinion norm is better. It helps to understand one culture and its significance. In this modern age, it is very necessary to be globalized. It will help to modify the life and to build the career. Therefore, through knowing the norms of other cultures, people can overcome the cultural barriers. Culture determinism: Culture is referred to as the cumulative deposition of beliefs, experiences and knowledge of a particular society or nation. Cultural determinism is the belief where the present culture will determine the behavioral and emotional levels of the life. The communication between two culturally diverged people is the example of culture determinism. Many determinants are associated with cultural determinism, which are, social structure, language, education, economic in addition, political philosophies and religion (Moran et al., 2014). Social structure is the structure of the society, which differs due to the cultural variance. For example, social structure of certain nation is completely religious based, whereas, work based social structure in observed in somewhere. Language is the nonverbal or verbal expressions through which people communicate. Cultural determinism gives rise to variation in language. A nation with different language is also the resource of different culture, like Spain . Education is the way, through which people learn. It differs with the culture. For example, an education level in a nation sometimes determines the economy of that nation. Political and economic philosophies vary to a great extent due to the culture determinism. For example, in North Korea, communist ideologies are ruling as political parties (Vaara et al., 2012). Religion is referred to as spiritual belief of an individual. Culture differs with various religions like, Hinduism, Muslim, Christian are observed. For example, here, the author is from Pakistan. However, presently, the author is flowing British culture due to migration. Therefore, the cultural determinism affects the author in his life. The religion and language are completely different in Britain as compared to Pakistan. The author is not able to communicate in his language with the office staffs. The education and political system are also different in between these two cultures. British culture follows must advanced education system. Moreover, the social structure differs a lot. It has great impact in the life of the author. Transaction cost: FDI or foreign direct investment deals with the direct investment of the firm in a foreign country with new facilities to create new market. License or exporting works for existed products in the foreign country. Therefore, FDI occurs instead of licensing and exporting. Exporting is a process through which a product is shipped to the country with high demand from its home country (Shenkar, 2012). For example, the Arabian countries are richer with petroleum. Therefore, this product is exported to other countries due to the demands. Transaction costs are those costs, which are related to the exportation of the goods. Licensing is referred to the right of a product while introduction into the foreign country. For example, when McDonald is introduced in Japan, then it is necessary that the company should be licensed. In licensing, there are many costs like, transportation, trading costs etc. FDI deals with those barriers through quotas or import tariffs. Therefore, FDI is better than lic ensing. For example if a Fiat car is introduced in foreign country, then the licensing will cost more. However, that cost will be minimized through FDI. According to author, FDI is good because it stimulates the economic development of the target country. International trade becomes very easy due to this direct investment. Due to FDI, the foreign investors are making new companies in the target country. It is providing more job opportunities. According to author, FDI is not good because it hinders domestic investment, which is a great disadvantage. FDI is related with more nations and their political factors. Therefore, there are certain risks in FDI due to the political factors. FDI influences the exchange rate negatively, which affects the economic system of a nation. References: Ball, D. A., McCulloch Jr, W. H. (2012). International business. Beamish, P. (2013). Multinational Joint Ventures in Developing Countries (RLE International Business). Routledge. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., Rose, E. L. (2014). International business. Pearson Australia. Dunning, J. H. (2012). International Production and the Multinational Enterprise (RLE International Business) (Vol. 12). Routledge. Enderwick, P. (Ed.). (2013). Multinational Service Firms (RLE International Business). 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