• Internal Code :
  • Subject Code : 6ECON009W
  • University :
  • Subject Name : International Economy

Section (A)

Answer 2:

One of the most challenging situations in front of any economy is whether to implement free trade policy or practice protectionism.  In free trade there is no barrier in trade, trade is free from quotas, restrictions and tariffs and can expand its business and grow naturally. It means you have option whether you can encourage foreign goods into the country by implementing minimum tariffs. The main purpose of free trade policies is to remove the trade barriers. At the same time any international trade consist of lots of risk, the countries are conscious about their eco system and environment and they want to protect the country from any such type of imported goods that may cause damage to their environment. This is the major reason why they have transparent policies in trade negotiation since they are trying to avoid less problematic goods to enter within the national boundaries.  Free trade is desired almost by all the Western countries (Barone, 2019). On the other hand Mercantilism argued that to grow rich, a country has to focus in producing goods within the boundary of the country and reduce its dependency on the foreign imports. In the free trade the government should not interfere with businesses or industries and also cannot force its citizens to buy domestic products only, whereas in the Mercantilism approach government regulates nation’s economy and protect country from rival nations by reducing its expenses and increasing wealth.

Government plays a very important role, by helping local industries to grow such as textile, agriculture and food industries by imposing huge tariffs, which helps to discourage foreign manufacturers. Any country that knows how to provide for itself and is less dependent on any other nation is considered as a strong country. During the seventeenth-and-eighteenth-century the most prevailing thought was that successful nation export more than they import.  There is one more approach known as comparative advantage prevailing in the economy; comparative advantage does not mean being the best at something or everything. Comparative advantage can be achieved through trade. In many cases it has been found that completely unskilled person at something can also have comparative advantage. Ricardo first discovered the term comparative advantage (Ruffin, 2002).

Comparative advantage can be achieved by knowing expertise area and properly allocating scarce resources available in the market (Beattie, 2019). This is the reason why they are very productive. The boundaries of international trade has been widened after the last decade of the fifteenth century, when the oversee discoveries were made. There is a big change in the nature and expansion of the national trade. At present there is a change from local economies to national economy, from feudalism to commercial capitalism.  Now there is an approach from local trade to extensive international commerce. This change in the economy is called as the “Commercial Revolution” by economists (Wu, 2013).

The very first body of thought which is well systematized was presented to international trade is known as “mercantilism”. Mercantilism enters the picture in seventeenth- and eighteenth-century Europe. An outflow of trade related economic issues, particularly in England, started during this time. Many viewpoints can be seen in the literature; many core beliefs are also prevalent and tend to get reshaped over time.  The main objective of trade should be to encourage a commendatory balance of trade stated by many mercantilist theorists. A “favorable” balance of trade can be considered the one in which the value of goods exported to foreign country is more than the value of goods imported from other countries. Any country or region is considered to be profitable in terms of trade is totally depends upon the value of export to the value of import which leads to the balance of trade surplus and helps in adding precious metal and valuable treasure to the national stock. From the above point of view it is clear that mercantilism favors export instead of import.

According to Mercantilist approach any nation possesses a fixed amount of wealth and to maintain it, the nation should keep some amount safe away from the competitive nations. It is a policy of intricate government regulations. On the other hand in free trade policy it is supposed that any nation can survive and grow rich at the other nation’s expenses and the sole purpose of any nation is to earn benefits from all trades, either it can be domestic or foreign. Mercantilist tries to increase nation’s share as a part of world wealth by increasing overseas colonies. 

During the sixteen-and-seventeen-centuries this mercantilism is prevailing in the Great Britain. From 1640 to 1660, Great Britain took the major advantage of mercantilism.

Mercantilism is considered to be of great benefit compare to that of the free trade the main reason being that its main aim is to increase the wealth through under government policies and regulations and taking care of all the commercial interests of the country. The main aim of mercantilism is to focus more on export by applying improved export prices and reducing the import by imposing tariffs (Lahaye, 2019). During the transition period from feudalism to the industrial capitalism mercantilism performed a very important role. 

China criticized implementing mercantilist system. China deliberately keeps the value low of its currency against the U.S. dollar the reason behind this was to sell more goods and services to US. The main reason behind China success was that from the past many years China was exporting their goods and services to other countries on the other hand China also limits its import. This helped China to collect foreign currencies (Atkinson, 2012).  It is clear that trade cause competition among the producers of foreign and domestic goods, which helps the businesses to take advantage of opportunities and expand their businesses by selling abroad and save cost from greater economies of scale. Also it causes the least efficient business to shrink either permanently or temporarily. In the process of trade, individual focuses more on doing things that they consider can perform with expertise, and then exchange their products with other who are similarly concentrating on their own areas of expertise. It leads to higher level of production of goods and services and also efficiently utilization of the resources available. This contains the market as a free market system. The system will end feudalism and bring revolutionary change in the living standard in the modern age.

References

Atkinson, D.R (2012). Enough is Enough: Confronting Chinese Innovation Mercantilism. Retrieved from https://www.nber.org/digest/dec05/w11306.html 

Barone, A. (2019). Free Trade. Retrieved from https://www.investopedia.com/terms/f/free-trade.asp

Beattie, A. (2019). What is comparative advantage?. Retrieved from https://www.investopedia.com/ask/answers/09/law-comparative-advantage.asp

Foreign Trade Policy (2019- 2020). Retrieved from https://dgft.gov.in/sites/default/files/ft17-051217.pdf

LaHaye, L (2019). Mercantilism. Retrieved from https://www.econlib.org/library/Enc/Mercantilism.html

Ruffin, R. (2002). David Ricardo's discovery of comparative advantage. History of political economy, 34(4), 727-748. Retrieved from https://muse.jhu.edu/article/37770/summary 

Wu, Y.C.(2013). Mises daily article: Mercantlilism vs. Free Trade: The early years. Retrieved from https://mises.org/library/mercantilism-vs-free-trade-early-years

Answer 4:

Economics comprises two parts: microeconomics and macroeconomics. There is a clear difference between macroeconomics and microeconomics. On one hand microeconomics focuses only on the small factors like decision of any individual or a company whereas macroeconomics covers a broad area. But they both are influenced by one another. Macroeconomics, as the name suggests focus on a broader picture of economics. It helps to understand how different sectors of economy relate to one another and function in synchronous. Macroeconomics is the branch of economics which helps in describing the overall performance of the economy. The policies in macroeconomics are difficult and complex. They help companies in making decisions about production, export and import, hiring the workers and many similar activities. With the help of macroeconomics companies are able to take major household decisions based on consumption, savings, and also help government in making decisions about investments in education, development and infrastructure (Pereira, Carlos & Lima 1996). Macroeconomics includes variables like unemployment, inflation and gross domestic product. There are many models developed by economists that explain the relationship and give an understanding about these variables. These models provide aids to the government institutes in making major decisions, plan strategies, forecast production and sales, and helps in formulation and evaluation of economic policy etc (Carlin & Soskice, 2005). 

Macroeconomics covers vast area which includes taxes, exchange rate determinants, credit rules, monetary rules.  The main aim of implementing macroeconomics is to reduce the risk as much as possible. A well defined and systematically processed macroeconomics policy helps any nation to improve the living standard in the country. A systematic approach to macroeconomics will provide you information and understanding about long-term consequences of any decision. Also macroeconomics helps businesses to know your investors and what motivates them to invest in your business and how to utilize the scarce resources in a better way.

To avoid market failure, government should participate actively in the economic decisions. To overcome such situations where market cannot maximizes its value, government interference is required. Many societies know the importance of government in capitalist’s economy. Under macroeconomics there are many goals like: non-inflationary growth, low inflation, low unemployment or full employment, fair distribution of income and equilibrium in balance of payment, these all can be achieved by the government interventions in making decisions. Any sound macroeconomic policy helps to enhance the credibility of the government which is required in economic stability and making long term decisions.

The key roles of government in macroeconomics-

  1. To discuss recent tax issues and distinguish regressive, progressive and proportional taxes

  2. To analyze and estimate the revenue and expenditure of state, federal and local government.

  3. Establishing the relationship between fiscal policy and federal budget

  4. Introduce crowding out

  5. Determine national debt and know the financing size

  6. Know the burden on the taxpayers

  7. To find out the difference between automatic and discretionary policy.

To impact the economy in a positive way government use fiscal policies. Fiscal policies provide information to the best implementation of the tax and government spending. Fiscal policy involves expansionary and contractionary measures. They are used to speed up or slow down the spending of the government. There can be passive and active fiscal policies. Automatic stabilizer is the passive fiscal policy whereas the discretionary fiscal policy is the active fiscal policy (Aldama, & Creel, 2018). With the help of fiscal policy, government is able to maintain an adjustment between its spending and tax rates that influence the national economy. Fiscal policy is considered to be a sister policy of monetary policy (Da, Warachka & Yun, 2018). National money supply is influenced by the monitory policy. To attain countries goals economists implies these two policies in different combinations.

To fight against inflation the central bank is taking help of their monetary policy tools, this is known as contractionary monetary policy. Inflation represents an overheated economy. At this point, the bank needed to slow down its economic growth. In such cases banks need to raise their interest rates to make lending expensive. Increasing fed funds rate will leads to decrease in the money supply. To compensate higher fed fund rate, bank also started charging higher interest rate on loans. As a result the businesses are not able to borrow loans, also hire fewer workers and spend less. When workers have less income they demand less and also spend less. The falling prices decrease the inflation. Contractionary monetary policy is also known as restrictive monetary policy.  For instance the central bank of U.S. is the Federal Reserve which has a target inflation of 2%. Whenever the inflation is more than 2%, it shows that the economy is overheated and they try to slower down it to 2% again (Kartashova & Zhou, 2019). 

The main objective of contractionary fiscal policy is to reduce the economic growth level which is considered to be between 2 and 3% a year. Any economy that grows more than 3% will create negative effects; these effects are as follow-

  1. It cause inflation, because higher prices quickly swallowed savings and harm the standard of living.

  2. It created asset bubble that took place in terms of stocks, oil and gold.

  3. If there is an unsustainable growth than it will leads to recession. It causes because of the asset bubble and is a part of business cycle.

  4. It also lowers the unemployment that cannot be expected, which is below the natural rate of unemployment. Employers are not able to find enough workers.

In contrast to the contractionary monetary policy expansionary fiscal policies are the ones that help to expand any economy (Kartashova & Zhou 2019). In the expansionary monetary policy the central bank tries to increase the money supply. This can usually be done by lowering the interest rate, which in turns stimulates the economy. By this the aggregate demand increases and the growth improves. Expansionary monetary policy lowers the value of money and decrease the exchange rate.  

The expansionary policies are implemented by U.S. Federal Reserve to lower down its federal fund rate. It reduces the reserves required for the banks to buy treasury bonds. Another form of expansionary monetary policy is also known as quantitative easing.  Many economies were slowed down during the period from 2014 to 2016 when there was a decline in the prices of oil. Canada’s one third of the economy is based on the energy sources and was very much affected.

References:

Aldama, P., & Creel, J. (2018). Fiscal Policy in the US: Sustainable after all?. Economic Modelling. Retrieved from https://doi.org/10.1017/S0022109017000977

Carlin, W., & Soskice, D. (2005). Macroeconomics: imperfections, institutions, and policies. OUP Catalogue. Retrieved from https://ideas.repec.org/b/oxp/obooks/9780198776222.html

Da, Z., Warachka, M., & Yun, H. (2018). Fiscal Policy, Consumption Risk, and Stock Returns: Evidence from US States. Journal of Financial and Quantitative Analysis, 53(1), 109-136. Retrieved from https://doi.org/10.1017/S0022109017000977

Kartashova, K., & Zhou, X. (2019). Mortgage Rate Refinancing and Household Balance Sheets: Evidence from Expansionary and Contractionary Monetary Policy Episodes. Available at SSRN 3381251. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3381251

Pereira, B., Carlos, L., & Lima, G. T. (1996). The irreductibility of macro to microeconomics: a methodological approach. Revista de economia política, 16, 2. Retrieved from http://www.rep.org.br/pdf/62-3.pdf

SECTION (B)

Ans:8 With the fourth industrial revolution comes the technological advancement. Advances like Artificial intelligence gives rise to new opportunities for social development and economic growth in developing countries like India and Bangladesh. There is a considerable difference between capacity and capability. In developing countries, industries have very limited knowledge about alternative technologies. To search for a newer technology is a costly and difficult method. Any industry acquires new technology than it is important to master the tacit elements of that technology. This requires developing new skills and knowledge. Tacit elements depend upon the complexity of that technology. There are some technologies in which the learning process is risky, costly and prolonged also we cannot predict the outcome and involves serious externalities problems (Lall, 2000). At the same time these new technologies enter with risks that are dominating specially in the developing countries. The major risks associated with advancement of technology are, problem of unemployment, improved concentration of wealth and economic power and many similar challenges. One of the biggest challenges faced by developing countries is that advancement in technology leads to job losses. The new technology will replace the workers. But historically it was found that new technologies also give rise to new jobs by replacing the automated ones (Archibugin & Coco, 2004).  . 

The new technologies are restructuring the entire workplace and enabling the disruption. One of the best examples is Uber. In countries like India and Bangladesh the labor cost is very low which means that investing in technologies that are replacing jobs will also be lower.  The positive aspect of new technology is that, they reduce the production cost of goods and services. New technologies also help in creating innovative and improved products. These products benefit the consumers irrespective of the countries they are living in.  There are many cases when technology helps the people in developing countries to grow and earn better.  But for a sustainable development, it is important that technology must not only deliver cheaper and quality products but also increases the number of well-paid jobs (Guizzo, 2018). Sustainable development is a long-term idea about how to plan the progress for future without causing any harm to the environment and developing a safe place for living for the upcoming generation.

For countries, those are in their early stage of development, labor-intensive technologies replaced by automation. This change is very fast in industries like textile, specifically in the sewing trades. Sewing trades are considered to be less vulnerable and give better margin. 

One of the most talked about topics in the recent weeks is the implementation of sewbots that put an end to the requirement of human in performing certain tasks in garment industries. Automation is a method through which work is done by automated machines in place of human operators. At present in many areas like engineering, supply chain, distribution, manufacturing industries, medicine etc automation is widely implemented. There are many examples, in which people are downsized because of some new technologies. According to a report around 9 million people are working in garment, footwear and apparel industries, out of which the majority is of women, who are totally dependent on these industries. These women are from developing countries like Malaysia, Cambodia, Thailand, and Bangladesh. The ILO found these workers to be more prone of losing their jobs because the human workforce is being replaced by automation and highly skilled robots (Hoskins, 2018).

 According to a campaign organized by Clean Clothes as the automation is adopted by the garment industry around 27 million jobs could be in risk. According to the financial times data around 2.5% of Bangladesh’s population is working in garment industry (CCC Report, 2016). 

Fast fashion industry like apparel production needs automated machineries those are real expensive and also reduce the cost of manufacturing. Companies are more willing to invest in these machineries than paying big fat amount to workers.  In apparel manufacturing industry the challenge is to manufacture garments with new style according to the trend prevailing in the market in a very small time.  The introduction of sewbots or sewing robots will definitely reduce manufacturing costs, cut the lead time and improved the product quality. Sewbots are robots installed in apparel industries that improved the production techniques. Sewbots are developed in a way that they design apparel in multiple styles. Also the human needs break from work whereas the sewbots do not need any break and also produce least error products. 

But there is one more side, which cannot be ignored, automation has definitely solved many stated and unstated problems but it also eliminates the workers from the apparel industry. Because of the automation many workers who support their family from this occupation will all of a sudden were laid-off. The automation in apparel industry began at Georgia Tech’s Advanced Technology Development Centre around a decade ago. But the adoption of technology started after the collaboration with Walmart Foundation (Islam, 2014). 

To know the labor market situation of any nation, unemployment is an important indicator. In developing countries like India and Bangladesh, open unemployment does not generate a clear picture of the labor market. There are many reasons prevailing in these countries for this uncertainty. The first reason is that unemployment rates are generally very low in developing countries. The definitions and measurements are very ambiguous.  Those workers who have not worked for an hour only are considered to be under unemployed category. In developing countries like India and Bangladesh where poverty is all around, there is no social safety provided by the government neither there is any unemployment benefits. In developing countries a very few people can live without work. These are the reasons why the unemployment rates are not very low in the developing countries. In Bangladesh the unemployment rate remain between 4 and 5 per cent. But because of the technology adoption in many industries this inched up to 4.5 per cent in 2010 (Islam, 2014). According to NSS labor force survey, unemployment is measured based on time criterion. A person is considered employed if he was occupied at least one day during a reference period (one week) (Krishna, 1973).

There is no certainty about how the technology will impact the workforce in the next few decades. There are many jobs that are under risk because of the automation that were sought by the growing body of empirical work based on the type of jobs.  The studies done on the effect of automation on labor workforce should be done under proper observation and use authentic data sources.

References

Archibugi, D., & Coco, A. (2004). A new indicator of technological capabilities for developed and developing countries (ArCo). World development, 32(4), 629-654. Retrieved from https://www.sciencedirect.com/science/article/pii/S0305750X04000051

Clean Cloth Campaign Annual Report  (2016).Retrieved from https://cleanclothes.org/about/annual-reports/2016-annual-report/view

Guizzo, E. (2018). Your next t-shirt will be made by a robot. IEEE Spectrum, 55(1), 50-57. Retrieved from https://doi.org/10.1109/MSPEC.2018.8241738

Hoskins, T. (2018). Robot factories could threaten jobs of millions of garment workers. Retrieved from https://www.theguardian.com/sustainable-business/2016/jul/16/robot-factories-threaten-jobs-millions-garment-workers-south-east-asia-women

Islam, R. (2014, June). Human Capital and Inclusive Growth: The Challenges for Bangladesh». In workshop on Vision (Vol. 3030). Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.682.5293&rep=rep1&type=pdf

Krishna, R. (1973). Presidential Address: Unemployment in India. Indian Journal of Agricultural Economics, 28(902-2018-2184). Retrieved from https://ageconsearch.umn.edu/record/270808/files/02%20Presidential%20Address-%20Unemplyment%20in%20India.pdf

Lall, S. (2000). The Technological structure and performance of developing country manufactured exports, 1985‐98. Oxford development studies, 28(3), 337-369. Retrieved from https://doi.org/10.1080/713688318

World Trade Organization, 2019. Technological innovation, supply chain trade, and workers in a globalized world. Retrieved from https://d3n8a8pro7vhmx.cloudfront.net/eatradehub/pages/4979/attachments/original/1558512334/Global-Value-Chain-Development-Report-2019.pdf?1558512334

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