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regional international institutions, International Monetary Fund, World Bank, United Nations, World Trade Organization, a financial institution. Select countries apply traditional international trade theories, absolute advantage, comparative advantage, factor endowment, enhance participation international trade.
International Trade Participation
The interaction between countries is a complex process that is strongly influenced by economic, political, and cultural factors. The need for this interaction is based on the resources that can be provided with smaller efforts by some countries to countries that need them. The need for resources has determined countries to involve in military, economic, and biological wars, or to involve in influence relationships where several countries support a larger community that can polarize greater power in the attempt to counteract the influence of other powerful countries. This is the case of the European Union that was developed in order to join the efforts of European countries so that they could balance the power between the U.S. And Europe.
In order to be successful, relationships between countries must be regulated by international organizations that monitor relationships and ensure that they are in accordance with agreements established between countries. The most important international organizations are The International Monetary Fund, the World Bank, the United Nations, the North Atlantic Treaty Organization, the World Trade Organization, and others. Some of these organizations focus on providing financial aid to countries in need, while setting up sets of strict rules that these countries must accept in order to ensure that they can refund the loan, others focus on ensuring security of member countries, and other focus on improving trade relationships between countries.
The process of globalization has intensified international trade and relationships between countries. This can be observed on company level, where many companies outsource some f their processes and activities to countries that provide cheaper workforce. This has also increased countries' need for fair trade. Trade organizations have developed rules and regulations, while countries have formed international trade agreements.
The World Bank
The World Bank is an international bank established with the purpose of helping countries in need of financing. The group is based on several organizations: the International Bank for Reconstruction and Development that lends to governments of middle income and creditworthy low income countries, the International Development Association that provides interest free loans and grants to low income countries, the International Finance Corporation that focuses on the private sector by investing capital in international financial markets, the Multilateral Investment Guarantee Agency that focuses on foreign direct investment in order to reduce poverty, and the International Center for Settlement of Investment Disputes that provides counseling and arbitration services in cases of investment disputes.
As it can be observed, the World Bank group organizations address the different sectors that require international focus, from government loans to private investments, and disputes between investors. The objectives of these organizations rely on developing an international environment that can help countries improve their economic situation, benefit from the financial resources they require, and develop a strong private sector. These objectives require that companies increase their international trade efforts.
The most important international trade institution is the World Trade Organization. The most important role of the WTO is represented by developing international commerce rules and mediating trade disagreements between members of the organization. This objective is reached by helping member countries to participate in negotiations and to agree on sets of rules that focus on the promotion of competition and the liberalization of international trade of products and services (ICT, 2012).
Therefore, WTO and similar international trade organization play an important role in developing the trade activity in different regions of the world. Their importance can also be observed in these institutions' efforts in ensuring equal access to developing markets to countries interested in expanding their activity to such regions. However, the role of these organizations is significantly reduced in the case of countries that develop regional trade agreements. In these situations, the WTO cannot influence the trade rules developed by members of such agreements.
Another important role of international trade and financial institutions is represented by ensuring that companies and countries that are involved in international trading activities follow international rules on fair competition. This problem is approached by institutions of the European Union that focus on identifying disloyal competition practices. In addition to this, such institutions intensify their efforts into determining members of the organization to reach agreement on international trade practices. The reason behind this strategy relies on improving relationships between countries by facilitating the international trade activity. In addition to this, the WTO is working on determining these countries reach agreement on trade in services. These efforts are determined by the increased importance of the services sector within national economies, and the importance of outsourcing services.
The International Monetary Fund
This organization was developed in order to collect financial resources from world countries and allocate them to countries in need, as loans. The IMF has the right to influence economic and fiscal policies of these countries in order to ensure they can repay the loan. Agreements between countries' governments and the IMF allow the organization to determine the tax level in these countries. In addition to this, the International Monetary Fund must ensure monetary and currency exchange stability, encourage current account and exchange liberalization, reduce payment imbalances, and others.
International Organizations' Influence on Trade Liberalization
The issue of trade liberalization is an important objective for international organizations like the International Monetary Fund, the World Bank, and the World Trade organization. The World Trade organization deals with global rules of trade between countries. The main objective of this organization is to ensure that international trade develops freely, by establishing an environment that regulates trade between countries.
The International Monetary Fund also focuses on such issues. Its objectives also refer to facilitating the development of international trade. This objective is revealed by the different policies established by the IMF. The organization helps trade, while international trade helps the organization. Basically, trade liberalization is one of the central issues regarding the IMF's fund supported programs that involve trade liberalization.
The International Monetary Fund can have a moderate influence on international trade by balancing income by not increasing the ratio of trade to income. The IMF's influence is indirect, but it influences most national economies. The interest that the IMF has on trade liberalization is revealed by establishing this issue as a condition for loans.
The theory of absolute advantage refers to countries' ability to produce a good at a lower cost per unit in comparison with the cost at which other countries can produce it. This is the case of Russia producing gas. The large gas resources that Russia possess make it easier for the country to extract it, manufacture and sell gas in comparison with other countries that have reduced gas resources and that do not benefit from the advanced gas production infrastructure that a country with a tradition in this industry benefits from, like Russia.
Therefore, Russia can produce cheaper gas and sell it at whatever price it wants to sell it, because the country is one of the few world gas providers. The large gas resources that Russia has allow the country to have a strong advantage over countries with lower gas resources. This is because countries that import gas are interested in purchasing large quantities. They need to know they can rely on a supplier that can satisfy large gas demand. In addition to this, Russia can provide discounts to countries in accordance with the trade relationship it has with each country. These factors put Russia in an absolute advantage situation on the gas market.
The theory of comparative advantage refers to the ability of countries or companies to produce goods at lower opportunity costs in comparison with other companies. These goods can be sold at lower prices than those of competitors, providing stronger sales margins. This is the case of Japanese automotive companies. Japanese cars are some of the cheapest cars on the market (Investopedia, 2014). Companies in Japan can produce cheaper cars because of the cheaper skilled workforce they benefit from. In addition to this, they have strong demand from neighboring countries. Their success on such countries has allowed them to address European and U.S. markets also.
The factor endowment theory focuses on factors of production like workforce and capital. Certain countries are rich in capital. Workers in these countries benefit from machinery and equipment intended to facilitate their work. Such economies usually provide high level salaries. Therefore, the goods produced in these countries are more expensive in comparison with other countries.
Products that require a lot of capital and little workforce are relatively inexpensive in countries with increased levels of cheap capital. This is usually the case of automobiles. The theory states that these countries should focus on producing goods that require a lot of their cheap capital in order to export them and pay for imports of workforce intensive goods. In other words, this should be the basis of successful trade: exporting…[continue]
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