IB Culture (Autosaved)

8/13/2019 IB Culture (Autosaved)

1/22

What is foreign corrupt practices act?

Define common law and civil law.

Civil LawIt is the most prevalent and oldest surviving legal system in the world and is found incontinental Europe,is based upon legal principles and codes usually rooted from the laws and

legal system of the Roman Empire. Any updates to the legal code must be made throughlegislation or other lengthy processes. Therefore, judges must make rulings based only on thesecodes and statutes, only analyzing past judicial interpretations of the law for advice. This processallows for a stabler and more representative legal system. France, Germany, and Spain aremodern examples of countries who use civil law.

Common lawhas a legal system based primarily upon past judicial opinions. These judicialopinions are interpretations of legislation, which are considered more as a guide than as literalrequirements such as under civil law. Thus, common law systems acquire their laws over timeand may have their laws altered by single rulings. This practice allows for a more flexible andexpeditious legal system bypassing the often reluctant and slow-moving legislative system.Because it was developed in England, modern examples of countries which use common law aretypically former English colonies such as Australia, India, Canada, and the United States.

Defne collectivism and individualism. Collectivismmeans the subjugation of the individual toa group -- whether to a race, class or state does not matter. Collectivism holds that man must bechained to collective action and collective thought for the sake of what is called 'the commongood'. Collectivism holds that the group---the nation, the community, the proletariat, the race,etc.---is the primary unit of reality and the ultimate standard of value. Asiancollectivistcultures like China (Hong Kong 37th rank), view other companies with less collectivisticphilosophy as cold and not supportive. Collectivistic cultures have a great emphasize on groupsand think more in terms of we. Harmony and loyalty within a company is very important andshould always be maintained and confrontation should be avoided.

"Individualismstands for a society in which the ties between individuals are loose: everyone isexpected to look after himself or herself and his or her immediate family on. For example,Germany can be considered as individualistic with a relatively high score (67) on the scale ofHofstede compared to a country like Guatemala where they have strong collectivism (6 on thescale).

Mention three anti dumping measures.In economics, "dumping" is any kind of predatorypricing, especially in the context of international trade.Selling same product at different prices,at home and abroad It occurs when manufacturers export a product to another country at a priceeither below the price charged in its home market, or in quantities that cannot be explainedthrough normal market competition.Objectives of dumping.Seasonal - when exporter has a bumper crop

Cyclical - when exporter has a slump at home Predatory - intended to eliminate competitors

Persistent - goes on and on. Types of dumping:Sporadic Dumping:Occasional sale of a commodity at below cost in order to unload anunforeseen and temporary surplus of the commodity without having to reduce domestic prices.Predatory Dumping: Temporary sale of a commodity at below cost or a lower price abroad inorder to derive foreign producers out of business, after which prices are raised to take advantage


2/22

of the monopoly power abroad. PersistentDumping: Continuous tendency of a domestic monopolist to maximize total profits by sellingthe commodity at a higher price in the domestic market than internationally (to meet thecompetition of foreign rivals). For international price discrimination to take place, conditionsmust be met: Domestic and foreign markets must be separated. Demand elasticity of the

product must be different in two markets. The good can be sold with a lower price where thedemand elasticity is high; and with a higher price where demand elasticity is low.What is social mobility? Social mobilityor intergenerational mobility as economists preferto call itmeasures the degree to which peoples social status changes betweengenerations.Refers to the movement of individuals or groups insocial positionover time. It mayrefer toclasses,ethnic groups,or entirenations,An obvious example would be the son ordaughter of up unskilled worker who is successful at high school, goes to college, qualifies as acomputer software engineer and make a success of his/her life and earns vastly more than his/herparents did.In the traditionalcaste systemof India, social position is determined by the historicalrank, or caste, of the family and can rarely be changed. Social mobility is very limited in areaswith rigid social structures, as marriage is often forbidden or frowned upon between people with

widely different social standing.what is multipoint competion? Multipoint competition exists when firms compete with eachother (or could potentially compete with each other) in more than one market.Multipointcompetition refers to situations in which firms meet the same rivals in many markets, which maylead to a reduction of competitive pressure. Indeed, a high number of multipoint contactsbetween two rivals provides many footholds in each others strategic territories called spheresof influence - increasing the deterrents to attack.,This situation is known under MutualForbearance (MF) Hypothesis, which proposes that firms wich are multipoint competitors willcompete less intensively with one another.Multipoint competitors can develop a tacit agreementby which each firm recognises the mostimportant territories of their competitors since all territories served by a firm do not

necessarily have the same strategic character.What is eclectic paradigm?The eclectic paradigm is a theory in economics and is also knownas the OLI-Model or OLI-Framework In order for a direct investment in a foreign country to bebeneficial, the following advantages must be present:1. Product or company specific advantages, such as a comparative advantage.2. Location specific advantages - where the company derives greater benefit through a foreignestablishment.3. Market internalization - meaning, it is better for the company to exploit a foreign opportunityitself, rather than through an agreement with a foreign firm.

Definition of 'Purchasing Power Parity - PPP'

An economic theory that estimates the amount of adjustment needed on the exchange ratebetween countries in order for the exchange to be equivalent to each currency's purchasingpower.The relative version of PPP is calculated as:Where:"S" represents exchange rate of currency 1 to currency 2"P1" represents the cost of good "x" in currency 1"P2" represents the cost of good "x" in currency 2
http://c/wiki/Social_positionhttp://c/wiki/Social_positionhttp://c/wiki/Social_positionhttp://c/wiki/Social_classeshttp://c/wiki/Social_classeshttp://c/wiki/Social_classeshttp://c/wiki/Ethnic_groupshttp://c/wiki/Ethnic_groupshttp://c/wiki/Ethnic_groupshttp://c/wiki/Nationshttp://c/wiki/Nationshttp://c/wiki/Nationshttp://www.wisegeek.com/what-is-a-caste-system.htmhttp://www.wisegeek.com/what-is-a-caste-system.htmhttp://www.wisegeek.com/what-is-a-caste-system.htmhttp://www.wisegeek.com/what-is-a-caste-system.htmhttp://c/wiki/Nationshttp://c/wiki/Ethnic_groupshttp://c/wiki/Social_classeshttp://c/wiki/Social_position


3/22

the exchange rate adjusts so that an identical good in two different countries has the same pricewhen expressed in the same currency.For example, a chocolate bar that sells for C$1.50 in a Canadian city should cost US$1.00 in aU.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Bothchocolate bars cost US$1.00.)

Regional trading blocksA trade bloc can be defined as a preferential trade agreement (PTA)between a subset of countries, designed to significantly reduce or remove trade barriers withinmember countries. The two principal characteristics of a trade bloc are that: (1) it implies areduction or elimination of barriers to trade, and (2) this trade liberalisation is discriminatory, inthe sense that it applies only to the member countries of the trade bloc, outside countries beingdiscriminated against in their trade relations with trade bloc members.The main trade blocs are: the EU_European Union, NAFTA MERCOSUR, CACM, CARICOMCEAO, UEMOA, ASEAN, SAARC

Advantages of regional trading blocks:

1.Transaction costswill be minimized. Eg.UK firms currently need about 1,5 billion a yearbuying and selling foreign currencies to do business in European union if it is not a member.Holidaying needs no change of money.2. Price transparency: Since it is difficult to accurately compare the price of goods, servicesand resources because of exchange rate differences. Because price is a mechanism to allocateresources.3. Uncertainty caused by exchangefluctuations can be eliminated.Single currency in a single market makes sense.4. Rival to big league of other countries.

5. Could prevent war. an essential strategy to address the effects of conflicts and politicalinstability that may affect the region. Useful tool to handle the social and economic challenges

associated with globalization

6. Increased trade and reduced cost to firms. By exchange of products and services and easy

exchange rates

7. Inflation is controlledbecause of greater coordination between central banks

8.Trade Creation: Member countries have (a) wider selection of goods and services not

previously available; (b) acquire goods and services at a lower cost aftertrade barriersdue to

lowered tariffs or removal of tariffs (c) encourage more trade between member countries the

balance of money spend from cheaper goods and services, can be used to buy more products andservices

9. Employment Opportunities: As economic integration encourage trade liberation and lead tomarket expansion, more investment into the country and greater diffusion of technology, it createmore employment opportunitie to find jobs at higher pay.11. Preferential Trade Area (PTAs) exist when countries within a geographical region agreeto reduce or eliminatetariffbarriers on selected goods imported from other members of the area.This is often the first small step.
http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/


4/22

12.Customs Union;A customs union involves the removal of tariff barriers between members,plus the acceptance of a common (unified) external tariff against non-members.14. Common Market is the first significant step towards full economic integration when allbarriers to trade in goods, services, capital, and labour are removed leads to CommonAgricultural Policy(CAP) and Common Fisheries Policy (CFP) of the European Single Market

(ESMDisadvantages: 1.Instability of the system. due to change in progress, productivity, localpolitics, of one country affects the other.2. It would be impossible to maintain exchange rate stabilitywithin the system.3. Overestimationof trade benefits. There is little to be gained as to fall in line with the otherchanges and rigidities of other countries.4.National Sovereignty: Requires member countries to give up some degree of control over keypolicies like trade, monetary andfiscal policies.5. Deflationary trendsIf a country is able to manufacture and produce goods at a price that isfar cheaper than your local regional manufacturers.6. The old saying .be local buy local? seems to have some merit in this example, even if the

product may be a little more expensive.7. No benefits for intra-industry trade. When countries form free trade agreements amongthemselves and exclude various other countries that might not offer similar benefits for intra-industry trade.

8. Regional businesses could sufferif there is no trade agreement with non trade block

countries as their tax and tariff differ. This kind of disadvantage is foundbetween Europe,Australia and New Zealand.

Protectionism:thetheory,practice, or system of fostering or developing domestic industries byprotecting them from foreign competition through duties or quotas imposed on importations.Reasons for protection.

1.Infant industry argument by Alexander Hamilton, Anew industry having potential comparativeadvantage may not get started in a country unless it is given temporary protection against foreigncompetition.2. Diversification argument A diversified industrial structure is necessary to maintain stabilityand acquire strengthened it needs protection.3. Improving terms of trade. By imposing tariff the country expects to obtain a larger quantity ofimports for a given amount of exports or conversely to part with lesser quantity of exports for agiven amount of imports.4. Improving balance of payments. Developing countries especially may have problem of foreignexchange shortage hence it is necessary to control imports.5. Anti-dumping is a measure of protection otherwise the foreign firms will gain monopoly and

suppress domestic industry.

6. Bargaining to lower duties on exports of other countries. 7. Employment argument to

stimulat domestic economy and expand employment opportunities.

8. National defence Economic factors do not justify free trade. Defence and strategic reasons

stress on protection.
http://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://dictionary.reference.com/browse/theoryhttp://dictionary.reference.com/browse/theoryhttp://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.html


5/22

9. key industry argument. Economy depends on developments of key industries and their output.

10. Keeping money at home. When we buy manufactured goods abroad we get goods and

foreigners get money.

11. The pauper labour argument. If the home country wage level is substantially high comparedto the foreign countries then the foreign producers will dominate the home market because the

cheap labour will allow them to sell goods cheaper and it will affect domestic labour.

12. It will enlarge the market for agricultural products because agriculture derives large benefits

from protective duties and from increase the purchasing power of the workers.

13. Equalisation of costs of production between domestic and foreign producers and neutralise

the any advantage.

14.Strategic trade policy: which advocates protection and government cooperation to certain

high-tech industries in developed countries.

Increasing U.S. protectionism will further slow economic growth and cause more layoffs, notless. If the U.S. closes its borders, other countries will do the same. This could cause layoffsamong the 12 million U.S. workers who owe their jobs to exports.

International businessrefers to business activities that involve the transfer of resources, goods,services, knowledge, skills, or information across national boundries.International business is aterm used to collectively describe all commercial transactions (private and governmental, sales,investments, logistics, and transportation) that take place between two or more nations.

turnkey project-- a project in which a builder/developer contracts to construct a completed

facility that includes all items necessary for use and occupancy. All that is required of the buyer

to begin using the facility is to turn a key in the new door lock and enter.

Mercantilism: An economic philosophy of the 16th and 17th centuries that internationalcommerce should primarily serve to increase a country's financial wealth, especially of gold andforeign currency. It emphasised limitation of imports from other nations in order to improve taxrevenues by exporting more goods.

A franchise is a method by which the owner of the business, the franchisor, confers oninvestors, the franchisees, the right to operate the business in an agreed manner and style inreturn for ongoing fees. The agreement is governed by a contract, the Franchise agreement,which runs for a defined period of time, generally renewable and ranging from five to 20 years.

Economic exposure: Currency exchange rate fluctuations due to economic and political turmoilsin a country like civil war affect a firm's competitive position, the value of its assets, and itsoperating cash flows. If a company strikes a business deal with a small foreign nation and that


6/22

nation becomes embroiled in acivil warthere is then a high probability that the country will not

honour its debt obligation to the business.

Leontief paradox: Professor Wassily W. Leontief in 1954 reached a paradoxical conclusionthat the USthe most capital abundant country in the world by any criterionexported labor-intensive commodities and imported capital- intensive commodities. This result has come to beknown as the Leontief Paradox. [para = contrary to, dox = opinion]

customer mobilityshould be built on the assumption that consumers are mature citizens whofreely choose products and services and should therefore take full responsibility for their actions.

organizational structureis the pattern or arrangement of jobs and groups of jobs within an

organization. This pattern pertains to both reporting and operational relationships, provided they

have some degree of permanence. The individual elements of an organization structure typically

include 1) departments or divisions; 2) management hierarchy; 3) rules, procedures, and goals;

and 4) temporary building blocks such as task forces or committees.

BOOT: (build, own, operate, transfer) is a public-private partnership (PPP) project model inwhich a private organization conducts a large development project under contract to a public-

sector partner, such as a government agency. A BOOT project is often seen as a way to develop

a large public infrastructure project with private fundingThe Culture shock is the trauma you

experience when you move into a culture different from your home culture. A communication

problem (verbal and nonverbal) of the new culture, it's customs and it's value systems cause

frustrations that come with the lack of understanding; The differences that people may

experience include lack of food, unacceptable standards of cleanliness, different bathroom

facilities and fear of personal safety.

Reverse Culture Shock(a.k.a. "Re-entry Shock", or "own culture shock" may take place

returning to one's home culture after growing accustomed to a new one can produce the same

effects of external culture shock. This results from the psychosomatic and psychological

consequences of the readjustment process to the primary culture. The affected person often

finds this more surprising and difficult to deal with than the original culture shock.

Definition ofacculturation- socialization: the adoption of the behaviour patterns of thesurrounding culture; "the socialization of children to the norms of their culture" all theknowledge and values shared by a society. the process of assimilating new ideas into an existingcognitive structure.

Cross cultural management: Is manage people across cultures. The effective interaction and

understanding of people who represent different cultures. When person from one culturalbackground meets interacts with, understands and deals with person from other culturalbackground. That is cross-cultural management. Some people are in favour of the world isconverging, all things are going to be same. They are right. Some people are arguing still theworld has divergence. They are also right. we learn how to manage both the convergence anddivergence

Transaction risk: Exchange rate fluctuations affect a nation's trading relationships with othernations. A higher currency makes a country'sexports more expensive andimports cheaper in
http://www.wisegeek.com/what-is-a-civil-war.htmhttp://www.wisegeek.com/what-is-a-civil-war.htmhttp://www.wisegeek.com/what-is-a-civil-war.htmhttp://www.investopedia.com/terms/e/export.asphttp://www.investopedia.com/terms/i/import.asphttp://www.investopedia.com/terms/i/import.asphttp://www.investopedia.com/terms/e/export.asphttp://www.wisegeek.com/what-is-a-civil-war.htm


7/22

foreign markets; a lower currency makes a country's exports cheaper and its imports moreexpensive in foreign markets.

Translation risk: Also called accounting Risk, the degree to which a firm's financial statementsare exposed to exchange rate fluctuations. Exchange rates usually change between quarterlyfinancial statements, causing significant variances between the reported figures.

Turnkey project: It is a contract under which a firm agrees to fully design, construct and equip a

manufacturing/ business/ service facility and turn the project over to the purchaser when it is

ready for operation for a remuneration

Tax haven: a country or independent region where taxes are low. Tax Haven or the place inwhich certain taxes are imposed either at a low rate or not at all is the best possible way out forthose interested in reducing their tax rates. Bermuda is the first Tax Haven .Tax Haven in itstruest sense was Switzerland.

Technology TransferActivities include:processing and evaluating invention disclosures; filing for patents; technology marketing;

licensing; protecting intellectual property arising from research activity; and assisting in creatingnew businesses and promoting the success of existing firms. The result of these activities will benew products, more high-quality jobs, and an expanded economy. Commercialization is oneeffective method of transferring technologies. Establishing a technology's prospects forcommercial success depends largely on five factors: 1.Technical Development 2.RegulatoryClearance: 3. Manufacturing Requirements: 4. Market Development: 5. Financial Feasibility:

NAFTA:North American Free Trade Agreement.A 1994agreement reached by theUnitedStates,Canada, and Mexico that instituted aschedule for the phasing out oftariffs and eliminateda variety offees and other hindrances to encouragefree tradebetween the threeNorth Americancountries.over a period of about 14 years.

Reasons For the Growth of MNCs :Expansion of market territory.Marketing superiorities.Financial Superiorities.Technological Superiorities.Product Innovations.

Advantages of MNCsMNCs have become vehicles of technology to the developing countries. Eg: GE, Toyoto,Greater employment and career opportunities are provided by them MNCs make commendable

contribution to inventions and innovations in the host country.MNCs bring better management practices to the host country,

Varity of goods and services produced for local customers. Trainlocal workforce with more sophisticated techniques. Raise the

growth rate of host nation by introducing new investment. Promote subcontracts and ancillary

industries. Contributions by

way of taxation and providing the host country with foreign exchange that can be used to

purchase vital imports.

Disdvantages of MNCs MNCs
http://www.investorwords.com/5686/North_American_Free_Trade_Agreement.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.businessdictionary.com/definition/United-States.htmlhttp://www.businessdictionary.com/definition/United-States.htmlhttp://www.investorwords.com/4405/schedule.htmlhttp://www.investorwords.com/4877/tariff.htmlhttp://www.investorwords.com/1922/fee.htmlhttp://www.investorwords.com/2090/free_trade.htmlhttp://www.businessdictionary.com/definition/North.htmlhttp://www.businessdictionary.com/definition/country.htmlhttp://www.businessdictionary.com/definition/country.htmlhttp://www.businessdictionary.com/definition/North.htmlhttp://www.investorwords.com/2090/free_trade.htmlhttp://www.investorwords.com/1922/fee.htmlhttp://www.investorwords.com/4877/tariff.htmlhttp://www.investorwords.com/4405/schedule.htmlhttp://www.businessdictionary.com/definition/United-States.htmlhttp://www.businessdictionary.com/definition/United-States.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.investorwords.com/5686/North_American_Free_Trade_Agreement.html


8/22

create monopolies in the market and eliminate local competitors. MNCs may

create depletion of resources due to its continued usage of raw material.

MNCs generally carry out their R&D in their home country and supply to the host country.

Avoid tax by practicing transfer pricing.

Advantages of regional trading blocks:1.Transaction costswill be minimized. Eg.UK firms currently need about 1,5 billion a yearbuying and selling foreign currencies to do business in European union if it is not a member.Holidaying needs no change of money.2. Price transparency: Since it is difficult to accurately compare the price of goods, servicesand resources because of exchange rate differences. Because price is a mechanism to allocateresources.3. Uncertainty caused by exchangefluctuations can be eliminated.Single currency in a single market makes sense.4. Rival to big league of other countries.5. Could prevent war. an essential strategy to address the effects of conflicts and political

instability that may affect the region. Useful tool to handle the social and economic challengesassociated with globalization

6. Increased trade and reduced cost to firms. By exchange of products and services and easy

exchange rates

7. Inflation is controlledbecause of greater coordination between central banks

8.Trade Creation: Member countries have (a) wider selection of goods and services not

previously available; (b) acquire goods and services at a lower cost aftertrade barriersdue to

lowered tariffs or removal of tariffs (c) encourage more trade between member countries the

balance of money spend from cheaper goods and services, can be used to buy more products and

services9. Employment Opportunities: As economic integration encourage trade liberation and lead tomarket expansion, more investment into the country and greater diffusion of technology, it createmore employment opportunities.to find jobs at higher pay.11. Preferential Trade Area (PTAs) exist when countries within a geographical region agreeto reduce or eliminatetariffbarriers on selected goods imported from other members of the area.This is often the first small step.12.Customs Union;A customs union involves the removal of tariff barriers between members,plus the acceptance of a common (unified) external tariff against non-members.14. Common Market is the first significant step towards full economic integration when allbarriers to trade in goods, services, capital, and labour are removed leads to Common

Agricultural Policy(CAP) and Common Fisheries Policy (CFP) of the European Single Market(ESMDisadvantages: 1.Instability of the system. due to change in progress, productivity, localpolitics, of one country affects the other.2. It would be impossible to maintain exchange rate stabilitywithin the system.3. Overestimationof trade benefits. There is little to be gained as to fall in line with the otherchanges and rigidities of other countries.
http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/


9/22

4.National Sovereignty: Requires member countries to give up some degree of control over keypolicies like trade, monetary andfiscal policies.5. Deflationary trendsIf a country is able to manufacture and produce goods at a price that isfar cheaper than your local regional manufacturers.6. The old saying .be local buy local? seems to have some merit in this example, even if the

product may be a little more expensive.7. No benefits for intra-industry trade. When countries form free trade agreements amongthemselves and exclude various other countries that might not offer similar benefits for intra-industry trade.

8. Regional businesses could sufferif there is no trade agreement with non trade block

countries as their tax and tariff differ. This kind of disadvantage is foundbetween Europe,Australia and New Zealand.

Non-tariff barriers to trade(NTBs) aretrade barriers that restrictimportsbut are not in theusual form of atariff.NTBs have the effect of tariffs once they are enacted.

Domestic Content Requirementsregulations to restrict imports usually to stimulate thedevelopment of domestic industries, specify the percentage of a products total value that mustbe produced domestically in order for the product textiles, automobile, agriculture) to be sold inthe domestic market.lengthy customs procedures, seasonal import restrictions, over valued currencyquota system,product classifications, export subsidies, rules of origin, quality packing rules, product standards,occupational safety and health, Under an import licensing scheme, importers of a commodityare required to obtain a license for each shipment theybring into the country.Import State Trading Enterprises (STEs) are government owned orsanctioned agencies that act as partial or pure single buyer importers of a commodity or set ofcommodities in world markets. They alsooften enjoy a partial or pure domestic monopoly over the sale of those commodities. Testing,Labelling and Certification requirements are insisted upon for ensuring quality of goodsseeking an access into the domestic markets but many countries use them as protectionistmeasures. The While export subsidies tend to displace exports from other countries into the thirdcountry markets, the domestic support acts as a direct barrier against access to the domesticmarket. Anti-dumping and countervailing duties

India has been benefited by IMF

1. Many times by the advice and economic aid of IMF.

2. It is one of the founder members of IMP. Finance minister is the ex-officio governor in the

board of governors of IMF. RBI is the alternate governor. India is represented at the IMF by an

executive director who represents three other countries, viz. Sri Lanka, Bangladesh and Bhutan.

3. India ranked 5th till 1970 among the countries which had the largest quota in IMF. At present

India has lost her permanent membership because her quota in IMF ranks 11th which is less than

the first five countries. India's current quota in IMF is SDR 415820 million.

4. During the year 2002-06 India has made purchases transaction of SDRs 493230 million and

four repurchase transactions of SDRs 466474 Million.
http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/http://en.wikipedia.org/wiki/Trade_barrierhttp://en.wikipedia.org/wiki/Importhttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Importhttp://en.wikipedia.org/wiki/Trade_barrierhttp://basiccollegeaccounting.com/the-advantages-and-disadvantages-of-economic-integration/


10/22

5. On July 2004, India and IMF established a joint training programme in national banking

management Institute at Pune.

6. India also donates money in Subsidy Account of IMF. India has paid 10 lakh dollar as 13th

annual instalment in the Subsidy Account of Poverty Reduction Growth Facility (PRGF) during

July 2006. India provided 205 million( dollar in two separate instalments of IMF as loan underFinancial Transaction Plan in May and June 2003. Finally it may be said that IMF has

strengthened the monetary discipline among its members by timely assisting them to tide over

their balance of payments deficits.

Uruguay Round

The Eighth Round of GATT , known as the Uruguay Round established the World TradeOrganizationThe Uruguay Round Agreements greatly expanded the GATT Agreement on Trade in Goods by

adding:General Agreement on Trade in Services (GATS)Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)The GATT 1994 added three side agreements pertain to agricultureAgreement on AgricultureAgreement on Application of Sanitary and Phytosanitary Measures (SPS)Agreement on Technical Barriers to Trade (TNT)

Dispute Settlement Understanding

The Dispute Settlement Understanding (DSU) establishes a three tiered formal adjudicationprocess to resolve trade disputes.Normally a complaining Member challenges the legality of a measure as violative totheWTO.An ad hoc Panel of 5 trade law experts, who are not nationals of the parties decides the factual &legal issues and makes a recommendation on the measure;The parties may appeal the Panels decision to the WTO Appellate Body, a permanent body of7 trade law experts.The Appellate Body decision is then automatically adopted by the WTO Dispute SettlementBody (DSB) unless rejected by consensus of the WTO Members.

The WTO DSU Procedures

- 1. WTO Member seeks establishment of a panel after unsuccessful consultations.- 2 Director General establishes a panel- 3 Panel receives evidence and written arguments from parties- 4 Panel makes a recommendation with the WTO Dispute Settlement Body automatically adopts

unless there is a unanimous consensus against adoption.- 5. Parties may appeal questions of law to the Appellate Body- 6. The DSB through the panel and Appellate Body oversee implementation

Implementation of the ruling

If the panel or Appellate Body finds a measure inconsistent with the GATT it shall recommendthat the Member concerned bring the measure into conformity therewith.


11/22

Within 30 days of adoption of the panel or Appellate Body report, the Member concerned shallinform the DSB of its intentions with respect to implementation of the recommendation.

Agreement on Sanitary & Phytosanitary Measures (SPS)The SPS deals with:Food safety

Animal health standardsPlant health standardsThe SPS does not set the standards.It encourages members to use international standards, but allows them to set their own.

THE GATT

Underlying Principles of Charternon-discriminationreciprocitytransparency

GATT, WTO AND DEVELOPING COUNTRIESDiversity of views among developing countries

Longstanding concerns regarding trade architectureasymmetries in rules (eg. international factor mobility; excluded sectors)asymmetries in application of rules (eg. intellectual property; anti-dumping)Limited benefits from Special and Differential treatmentIncreasing engagement of developing countries

permits developing countries to retain higher levels of protection than would otherwise be thecase

Special and Differential Treatment

Right to Access

Generalised System of Preferences (GSP)

offers exports from developing countries access to OECD markets on a preferential basis

Right to Slower Adjustment - Uruguay Round transitional arrangementsprovides longer period for adoption of new disciplines and measures

.

Cultural environment and international business

MNC managers must know the cultural differences exist in the countries they operate.

International business success in various countries requires cross-cultural literacy.

1.In order to communicate effectively with customers, suppliers business associates, partners and

foreign employees. 2. To conduct

negotiations, nuances of bargaining postures. 3.To predict trends in

social behaviour. 4.To understand ethical

standards and concepts of CSR 5.Customers reactions to

advertisement promotional forms. Culture is a set of beliefs, values,

norms shared by the majority. Hofstede defined culture as the collective programming of the

mind that distinguished members of one group /category from another.


12/22

Culture and nation: Nation states are political creations that can contain one or more cultures.Similarly a culture can embrace several nations. Values and culture are the evolutionary productof a number of factors at work in a society including, religion, politics, economics, philosophies,education, language and social culture. For example the values of found in communist NorthKorea toward freedom, justice and individual achievements are different from the that of US

because each society operates according to different political and The elements of cultureThe major elements of cultureare material culture, language, aesthetics, education, religion,attitudes and values and social organisation.

Material culture Material culture refers to tools, artifacts and technology. All aspects ofmarketing are affected by material culture like sources of power for products, media availabilityand distribution. For example, refrigerated transport does not exist in many African countries.Material culture introductions into a country may bring about cultural changes which may ormay not be desirable Until the early 1990s, Zimbabwe did not allow both alcoholic and nonalcoholic beverages to be packed in cans. There were both economic and environmental reasonsfor this. Economically, Zimbabwe did not have the production facility for canning. Environmentally, Zimbabwe had seen the litter in Botswana, caused by discarded empty cans. By putting

a deposit on glass containers they ensured the empties were returned to the retailer, thus avoidinga litter problem. Language Languagereflects the nature and values of society. There may be many sub-cultural languages like dialectswhich may have to be accounted for. Some countries have two or three languages. In India wehave 22 scheduled languages. In certain countries linguistic groups have engaged in hostileactivities. Language can cause communication problems - especially in the use of media orwritten material.Spoken

Verbal cues ahh, ahh, OK got the nuts if you want to find out. tutututu yea,yea

communicated in a socialexchangebysignsaccompanying thewordsused in speech. Such cues

includebody language,tone,inflexion, and otherelementsof voice, dress, etc Facial expressions

GesturesEye contact

Language structures

Unspoken

Body language

Aesthetics: Aesthetics refer to the ideas in a culture concerning beauty and good taste asexpressed in the arts -music, art, drama and dancing and the particular appreciation of colour andform. Aesthetic differences affect design, colours, packaging, brand names and media messages.For example, unless explained, the brand name FAVCO (manufacturer of cranes, trawlers,Swedish co) would mean nothing to Western importers, in Zimbabwe most people wouldinstantly recognise FAVCO as the brand of horticultural produce.

Education: According to UNESCO for example it shows in Ethiopia only 12% of the viable agegroup enrol at secondary school, but the figure is 97% in the USA. Education levels, or lack of it,affect marketers in a number of ways: advertising programmes and labelling girls and women excluded from formal education (literacy rates) conducting market research complex products with instructions relations with distributors and, support sources - finance, advancing agencies etc.
http://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.businessdictionary.com/definition/word.htmlhttp://www.businessdictionary.com/definition/word.htmlhttp://www.businessdictionary.com/definition/word.htmlhttp://www.businessdictionary.com/definition/body-language.htmlhttp://www.businessdictionary.com/definition/body-language.htmlhttp://www.businessdictionary.com/definition/body-language.htmlhttp://www.businessdictionary.com/definition/tone.htmlhttp://www.businessdictionary.com/definition/tone.htmlhttp://www.businessdictionary.com/definition/tone.htmlhttp://www.businessdictionary.com/definition/element.htmlhttp://www.businessdictionary.com/definition/element.htmlhttp://www.businessdictionary.com/definition/element.htmlhttp://www.businessdictionary.com/definition/element.htmlhttp://www.businessdictionary.com/definition/tone.htmlhttp://www.businessdictionary.com/definition/body-language.htmlhttp://www.businessdictionary.com/definition/word.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.businessdictionary.com/definition/exchange.html


13/22

Religion: Religion provides the best insight into a society's Religion can affect marketing in anumber of ways: religious holidays - Ramadan cannot get access to consumers as shops areclosed. consumption patterns - economic role of women - Islam caste systems - difficulty in getting to different costs for segmentation/niche marketing

joint and extended families - Hinduism and organizational structures; institution of the church - Iran and its effect on advertising, "Western" images market segments - Maylasia - Malay, Chinese and Indian cultures making market segmentation.Sensitivity is needed to be alert to religious differences

Geert Hofstede, Franke and Bond in their research entitled "Cultural Roots of EconomicPerformance". hypothesized that differences in cultural values, rather than in material andstructural conditions (the private and state control) are ultimate determinants of humanorganization and behaviour, and thus of economic growth. They defined the "cultural variables".Of different countries as follows:

"Power distance"- Power distance Index measures the extent to which the less powerfulmembers of organizations and institutions (like the family) accept and expect that power is

distributed unequally. For example, Germany has a 35 on Compared to Arab countries where thepower distance is very high (80) and Austria where it very low (11), Germany have a strongbelief in equality for each citizen. the power distance in the United States scores a 40 andexhibits a more unequal distribution of wealth compared to German society.

"Individualism" - The tendency of individuals primarily to look after themselves and theirimmediate families and its inverse is the integration of people into cohesive groups

"Masculinity" - Masculine traits include assertiveness, materialism/material success, self-centeredness, power, strength, and individual achievements. For example, Germany has amasculine culture with a 66 on the scale (Netherlands 14). The United States scored a 62 Manhas designed tricycles, bicycles, motorcycles, cars, buses, trucks, trailers, tractors, jet-skis,

passenger ships, cargo ships, barges, tankers, aircraft carriers, battle ships, helicopters, fighterplanes, airliners, and so forth. Each vessel is designed to fulfill a need. A woman lives in threeworlds. The World of Children, the World of Women, and the World of Men. A woman'srelationship to man at man's level is mostly superficial with few exceptions. . A woman has needfor asking questions, and by nature she will do so Conversely, a man has the obligation to givesound answers to a woman. Woman is more easily guided, even controlled, by emotion. Man ismore apt to be guided by reason

"Uncertainty Avoidance"-peoples attitude towards the ambiguity and unpredictability of life.placegreater emphasis on laws, rules and procedures. low uncertainty avoidanceplaceappreciate flexibility and have a greater tolerance for differencesfor India40, USA46,Uruguay100, Argentina86, Mexico, 82, Brazil76 Taps a feeling of discomfort in

unstructured or unusual circumstances whilst the inverse show tolerance of new or ambiguouscircumstances

"Confucian Dynamism"- Is an acceptance of the legitimacy of hierarchy and the valuing ofperseverance and thrift, all without undue emphasis on tradition and social obligations whichcould impede business initiative. Regarding himself, Confucius states in the Analects 2, 4:


14/22

At 15, I bent my mind on learning; at 30 I stood firm; at 40, I was free from doubts; at 50, Iunderstood the way of Heaven; at 60, my ear was an obedient organ for the reception of truth; at70, I could follow the desires of my heart without transgressing what was right.

"Integration" - Degree of tolerance, harmony and friendship a society endorses, at the expenseof competitiveness: it has a "broadly integrative, socially stabilizing emphasis"

"Human Heartedness" - Open-hearted patience, courtesy and kindness.

"Moral Discipline" - Rigid distancing from affairs of the world.

Personal space

German Appearance

Business dress in Germany is very conservative.

Businessmen wear dark suits; solid, conservative ties, and white shirts.

Women also dress conservatively, in dark suits and white blouses.

Chewing gum while talking to someone is considered rude.

Don't be surprised if occasionally you see a fashion statement with white socks being worn witha dark

German Communications

Approximately ninety-nine percent of the population speaks German. However, there areseveral different dialects in the various regions.

Germans love to talk on the telephone. While important business decisions are not made overthe phone, expect many follow up calls or faxes.

Germans guard their private life, so do not phone a German executive at home withoutpermission.

Titles are very important to Germans. Do your best to address people by their full, correct title,no matter how extraordinarily long that title may seem to foreigners. This is also true whenaddressing a letter.

American Society Japanese Society

Dignity of Individuals In the same boat concept

Dignity of individuals Human relation oriented

Individuals work ethic Dependence on the groupGreat individuals freedom Lack of individuals freedomRespect for rules Low regard for rulesopen/transparent society close societyMulti-cultural society Mono-cultural societyexcelling in creativity An orderly and uniformand versatility societyIndividual decisions over Dependence on consensus


15/22

consensusA society which pursue A society which pursue harmonythat ideal with reality

FDI:In recent years, FDI has been used more as a market entry strategy for investors,

rather than an investment strategy.

There are four main working pillars of FDI. They are financial collaborations, technicalcollaborations and joint ventures, capital markets via Euro issues, and private placements orpreferential allotments.

There are two types of FDI, one is inward FDIand second is outward FDI. Ongoing newssuggests that largest retailer Wal-Mart has demanded for 51% of international dealings in FDI inIndian markets which had called nationwide strike. From positive and negative aspects FDI hasits own advantages and disadvantages.

Advantages

Increase economic growth by dealing with different international products

1 million (1 Crore) employment will create in three years - UPA Government Billion dollars will be invested in Indian market

Spread import and export business in different countries

Agriculture related people will get good price of their goods

Disadvantages

Will affect 50 million merchants in India

Profit distribution, investment ratios are not fixed

An economically backward class person suffers from price raise

Retailer faces loss in business Market places are situated too far which increases traveling expenses

Workers safety and policies are not mentioned clearly

Inflation may be increased

Again India become slaves because of FDI in retail sector.

Since foreign firms will bring new technologies and money with them which would resultin lot of small businessman and domestic companies going out of business as foreigncompanies have advantage of scale of operations and also top talent with them. Theproverb big fish eat little fish scenario may happen due to foreign direct investment.

Since these companies will also have more technology and they will use capital intensivemethods, it will affect the jobs of many people because eventually after some time theymight not be needed.

Chances of these foreign firms becoming monopolies due to their large size and thencharging exorbitant rates from consumers cannot be ruled out and therefore governmentshould ensure that they have proper policies and systems in place to keep a check on suchpractices.


16/22

Major sectors of the Indian economy which have benefited from FDI in India are -

Financial sector (Banking and Non-Banking). Insurance Telecommunication Hospitality andtourism Pharmaceuticals Software and Information Technology

Ricardo's Theory of Comparative Advantage David

Ricardo stated a theory that other things being equal a country tends to specialise in and exportsthose commodities in the production of which it has maximum comparative cost advantage or

minimum comparative disadvantage. Similarly the country's imports will be of goods having

relatively less comparative cost advantage or greater disadvantage.

1. Ricardo's Assumptions :-

Ricardo explains his theory with the help of following assumptions :-

There are two countries and two commodities.

There is aperfect competitionboth in commodity and factor market. Cost of production is expressed in terms oflabouri.e. value of a commodity is measured in

terms of labour hours/days required to produce it. Commodities are also exchanged on the

basis of labour content of each good.

Labour is the onlyfactor of productionother than natural resources.

Labour is homogeneous i.e. identical in efficiency, in a particular country.

Labour is perfectly mobile within a country but perfectly immobile between countries.

There is free trade i.e. the movement of goods between countries is not hindered by any

restrictions.

Production is subject to constant returns to scale.

There is no technological change.

Trade between two countries takes place on barter system.

Full employment exists in both countries.

There is no transport cost.

2. Ricardo's Example :- On the basis of above assumptions, Ricardo explained his comparativecost difference theory, by taking an example of Englandand Portugalas two countries & Wineand Clothas two commodities.

As pointed out in the assumptions, the cost is measured in terms of labour hour. The principle of

comparative advantage expressed in labour hours by the following table.
http://kalyan-city.blogspot.com/2010/11/perfect-competition-meaning-and-main.htmlhttp://kalyan-city.blogspot.com/2010/11/perfect-competition-meaning-and-main.htmlhttp://kalyan-city.blogspot.com/2010/11/perfect-competition-meaning-and-main.htmlhttp://kalyan-city.blogspot.com/2010/11/what-is-labour-and-labourer-meaning-and.htmlhttp://kalyan-city.blogspot.com/2010/11/what-is-labour-and-labourer-meaning-and.htmlhttp://kalyan-city.blogspot.com/2010/11/what-is-labour-and-labourer-meaning-and.htmlhttp://kalyan-city.blogspot.com/2010/11/4-factors-of-production-land-labour.htmlhttp://kalyan-city.blogspot.com/2010/11/4-factors-of-production-land-labour.htmlhttp://kalyan-city.blogspot.com/2010/11/4-factors-of-production-land-labour.htmlhttp://kalyan-city.blogspot.com/2010/11/4-factors-of-production-land-labour.htmlhttp://kalyan-city.blogspot.com/2010/11/what-is-labour-and-labourer-meaning-and.htmlhttp://kalyan-city.blogspot.com/2010/11/perfect-competition-meaning-and-main.html


17/22

Portugal requires less hours of labour for both wine and cloth. One unit of wine in Portugal is

produced with the help of 80 labour hours as above 120 labour hours required in England. In the

case of cloth too, Portugal requires less labour hours than England. From this it could be argued

that there is no need for trade as Portugal produces both commodities at a lower cost. Ricardo

however tried to prove that Portugal stands to gain by specialising in the commodity in which it

has a greater comparative advantage. Comparative cost advantage of Portugal can be expressed

in terms of cost ratio.

The theory of comparative costs has been criticized on the following grounds:

(i) Unrealistic nature of the labour immobility assumption:The theory assumes that labour ismobile within the country but immobile between countries. This is not a realistic assumption.The migration of labour from one country to another has an important bearing on the tradedgoods.

(ii) Unrealistic assumptions of constant cost:The assumption of zero transport cost andconstant cost is also not valid. It does not accord with facts.

(iii) Unrealistic assumption of perfect competition:The theory assumes perfect competition.But in the actual world, it is imperfect competition which prevails. The theory thus has no

practical utility.

(iv) Labour differs in efficiency:The theory assumes that all labour is of the same quality. Thefact, however, is that the efficiency of labour varies from person to person.

(v) Based on labour theory of value:The theory of comparative cost was based in terms oflabour theory of value; while in reality labour is only one element of total cost.

(vi) Neglects the effects of elasticity of demand:The theory neglects the part played bydemand in the determination of prices of trades goods. It takes only the supply conditions forexplaining the prices costdifferences of goods entering in international trade. The analysis of the

cost theory is thus incomplete.

(vii) Based on the assumption of static conditions:Bertil Ohlin has severely criticized theassumptions of the principle of comparative cost theory. He has regarded it as a static theorywhich has no relevance to the complex situations of the dynamic world.


18/22

Advantages and disadvantages ( or effect of) of single market and single currency within

European Union.

The Maastricht Treaty is the second attempt to bring about monetary union within the EC.Originally the Werner Report of 1970 advocated monetary union by 1980. But because of the

world oil crisis, during which the price of oil quadrupled, and inflation and unemployment rosesharply, the focus shifted away from monetary union, and the plans were dropped. This time theEC is determined to succeed driven as much by the logic of federal integration, which led to theMaastricht Treaty, as by purely economic considerations.

Advantage of

1. Transaction costs eliminated.For instance, UK firms currently spend about1.5 billion a yearbuying and selling foreign currencies to do business in the EU With the EMU this is eliminated,so increasing profitability of EU firms.

2. Price transparencyEu firms and households often find it difficult to accurately compare the

prices of goods, services and resources across the EU because of the distorting effects ofexchange rate differences.This discourages trade. According to economic theory, prices should act as a mechanism toallocate resources in an optimal way, so as to improve economic efficiency. There is a far greaterchance of this happening across an area where E.M.U exists

3,Uncertainty caused by Exchange rate fluctuations eliminatedMany firms become wary when investing in other countries because of the uncertainty caused bythe fluctuating currencies in the EU. Investment would rise in the EMU area as the currency isuniversal within the area, therefore the anxiety that was previously apparent is there no more.

4.Single currency in single market makes senseTrade and everything else should operate more effectively and efficiently with the Euro. Singlecurrency in a single market seems to be the way forward.

5. Rival to the "Big Two".If we look out in the world today we can see strong currencies such asthe Japanese Yen and The American $. America and Japan both have strong economies and havemillions of inhabitants. A newly found monetary union and a new currency in Europe could be arival to the "BIG TWO".EMU can be self-supporting and so they could survive without trading with anyone outside theEMU area.

6..Prevent warThe EMU is, and will be a political project. It's founding is a step towardsEuropean integration, to prevent war in the union. It's a well known fact that countries who tradeeffectively together don't wage war on each other and if EMU means more happy trade, then thismeans, peace throughout Europe and beyond7.Increased Trade and reduced costs to firmsThere is also a political agenda to European bank (the European System of Central Banks -ESCB), the complete removal of national control over monetary policy and the partial removalof control over fiscal policy. Individual nation states will lose sovereignty (i.e. the ability to


19/22

control their own affairs). It will be a considerble step down the road towards political union.There are many in the EU who faviour economica dn political union and they are very much infacour ot EMU.8. The Political agendaThere is also a political agenda to European bank (the European Systemof Central Banks -ESCB), the complete removal of national control over monetary policy and the

partial removal of control over fiscal policy. Individual nation states will lose sovereignty (i.e.the ability to control their own affairs). It will be a considerble step down the road towardspolitical union. There are many in the EU who faviour economica dn political union and they arevery much in facour ot EMU.9. Inflation: From the mid-1980s onwards, there were a number of economists and politicianswho argued that, for the UK at least, EMU provided the best way forward to achieve lowinflation rates throughout the EU. During the first half of the 1980s high inflation countries, suchas France and Italy were forced to adopt policies which reduced their inflation rates to somethingapproximating the German inflation rates to something approximating the German inflation rate.

1. The instability of the system

Throughout most of the 1980s the UK refused to join the ERM (Exchange rate mechanism). It

argued that it would be impossible to maintain exchange rate stability within the ERM,especially in the early 1980s when the pound was a petro-currency and when the UK inflationrate was consistently above that of Germany

2.. Over estimation of Trade benefits.

Some economists argue that the trade and cost advantages of EMU have been grossly overestimated. There is little to be gained from moving from the present system which has somestability built into it, to the rigidities which EMU would bring

3. Loss of Sovereignty

On the political side, it is argued that an independent central bank is undemocratic. Governments

must be able to control the actions of the central banks because Governments have beendemocratically elected by the people, whereas an independent central bank would be controlledby a non elected body. Moreover, there would be a considerable loss of sovereignty. Powerwould be transferred from London to Brussels. This would be highly undesirabel becausenational governments would lose the ability to control policy

4. Deflationary tendencies

Perhaps the most important economic argument relates to the deflationary tendencies within thesystem. In the 1980s and 90's France succeeded in reducing her inflation rates to German levels,but at the cost of higher unemployent, For the UK, it can be aruged, that membership of theERM between 1990 and 1992 prolonged unnecessarily the recessional period. This is because theadjustment mechanism acts rather like that of the gold standard. Higher inflation in one ERMcountry means that it is likely to generate current account deficits and put downward pressure onits currency.

regional strategy failed for the same reasons as the underlying national import-substitutionpolicies2: (i) national markets were too small and too poor; (ii) high input costs adverselyaffected transformation and export, causing foreign exchange shortages and overvalued


20/22

currencies; (iii) domestic monopolies and trade protection contributed to powerful rentseekingand nationalistic lobbies, biased and organized against regional as well as global trade; (iv)nationalistic governments with spoken interest in regional cooperation gave token support toregionalorganizations, broke their regional commitments and implementation lapsed; and (v) there was

excessive emphasis on joint public investments as opposed to creating a truly unified markets forprivate operators.

Regional integration can be defined along three dimensions:

(i) geographic scope illustrating the number of countries involved in an arrangement (variablegeometry), (ii) the substantive coverage or width that is the sector or activity coverage (trade,labor mobility, macro-policies, sector policies, etc.), and (iii) the depth of integration tomeasure the degree of sovereignty a country is ready to surrender, that is from simplecoordination or cooperation to deep integration.

1. Since a regional common market obviously provides a much larger market than that offered bythe domestic market of a single country, economies of scale, both internal and external, becomepossible with the widened size of the market.

2. Secondly, the large market so created would permit a hight degree of sophistication andspecialisation of products conducive to furtherance of modern industrial development. Moreover,the possibility of specialisation for regional trade would encourage the flow of investment intoindustries which have a comparative cost advantage, so that gains from international trade wouldrise.

3. Apart from an increase in the volume of total trade as a result of such an integration, afavourable change in the cost and price structure may also be effected along with, the desirable

change in the structure and composition of foreign trade.4. Furthermore, this may facilitate the realisation of the optimum allocation of resources, andthus, lead to an increase in efficiency in production.

5. Above all, the increased possibilities of competition in a regional common market wouldensure that all benefits accruing to the producers from the existence of a large market would bepassed on to the consumer.

6. In fine, thus, there can be an increase in the general welfare due to better production andenchanced consumption, and a rise in real income generated by the overall growth anddevelopment.

7. usually create institutions to streamline economic cooperation- is followed by political

integration as well. For example, today's European Union is a product of the EuropeanCommunity, which itself was a product of the European Coal and Steel Community of 1954, alargely economic regime that eventually led to evolution towards political integration with thelatter two.

In short, thus, it has been conceived that, as a factor in the development of the less developedcountries, a regional common market is economically far superior to the relatively small nationalmarket sheltered behind a protectionist tariff wall.


21/22

Disadvantages:1.Economic problems might affect participants unequally, such that some stateswill be net recipients of some form of aid while others will be net lenders of aid. One might lookat NATO as an example of a multi-state institution where one major participant- the UnitedStates- is the primary donor of aid while most other states within NATO are recipients of that aid(principally economic and military).

2.Perhaps the most prominent collective goods problem may be regarded as the "free rider"problem: states, because inducements to cooperate or threats to punish may be low, fail toprovide for the collective benefit, therefore essentially "passing the buck" to other states, andmost frequently to the most economically powerful participants. Citizens of large states likeFrance, Great Britain, and Germany frequently complain that smaller states are not paying their"fair share" of the costs of the European Union. Meanwhile, smaller states may complain thatthey are overlooked or even disregarded because of their economically weaker status.

3.Beyond economics, political integration might give rise to a whole new set of problems,including:

4.-Political integration is more problematic on some levels than economic integration, as it

necessitates some form of coordination and uniformitization/standardization among states withdisparate cultures and languages. It is frequently more advantageous that the participants arehomogeneous, preferaby on economic as well as political-cultural levels.

5.If obtained, economic integration might streamline economic processes by employing theclassical Ricardian notion of comparative advantage: states that are most efficient in certainprocesses can trade with those in which they are comparatively less efficient. This ensures thatparticipants specialize principally in those goods and services where they are most efficient. Thisis not only advantageous within the zone of integration- as it helps lower costs to consumers- butalso outside the zone. Participants can coordinate economic activity- at least in theory- as topromote gains for the zone abroad.

6.On many levels, for example, we consider the European Union as an independent, singular

entity even though, of course, it consists of politically independent and sovereign units.Therefore, one must always keep in mind that, unlike an integrated "model" such as the UnitedStates, where the central authority is supreme by law, regional zones and institutions consist ofparticipants who are not strictly bound by law. It is always a possibility that in the future amember will secede permanently. In this sense, one can view each state's participation as bytreaty and not by law.


22/22

Documents

IB Culture (Autosaved)