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Status of the Emerging Economies - Coursework Example

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The paper "Status of the Emerging Economies" is a good example of a macro and microeconomics coursework. The global economic trend witnessed in the previous years has led to the development of most countries as economies become more integrated. Such progress involved various developing nations economies rapidly converge with the economies of the well-developed countries…
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EMERGING ECONOMIES Name: Course Professor University Affiliation City and State Date of Submission: Introduction The global economic trend witnessed in the previous years has led to the development of most countries as economies become more integrated. Such progress involved various developing nations economies rapidly converge with the economies of the well-developed countries. The main powers involved in the phenomenon was the development of the markets of the leading emerging economic countries namely, Brazil, India, China, and Russia, commonly regarded as the BRIC (Rozhnov, 2010). The main world’s developing players were getting at per or overtaking their counterpart nations in the first world. The review assesses the status of the emerging economies and the economic situations of such nations. Further, the article assesses the economic crisis that affected the progression of the economies of the superpowers and the reasons why the emerging economies might have surpassed the established economies. Status of the Emerging Economies China as the number one emerging nation has witnessed increased rate of growth which has somehow seen it surpass a dwindling economic growth of the United States and other industrial countries. Indeed various indication proved that China was surpassing America as the biggest economy in the world. Such a perception was held by close to half of the American population (Eprints.hud.ac.uk, 2016). Strong institutions like the International Monetary Fund (IMF) whose predictions have been based on the purchasing power have also affirmed that the progress of China would still continue and overtake the US as the world economic powerhouse. The economic breakthrough of China has never been kept to a halt as predicted by the author of the article. In fact, the role of China in the political economy of the world took a reenergised level in 2005 when it began exporting capital (Jain 2006, 78). The country is regarded as the biggest foreign currency reserve holder in the world. From the 2008 global financial crisis, China has been able to account for over 35 percent of the entire global economic progress. China surpassed the United States as the biggest receiver of foreign direct investment (FDI) in the world as indicated in 2012 financial year (Odell, 2014). Within that time, the nation attracted 59.1 billion USD in foreign investment in comparison to the FDI flow of the US estimated at 57.4 billion USD. Consequently, such was an indication that there is still a huge attraction for investors in the larger markets of China. The argument that the growth of the economy of China is sharply dropping to 7 percent from double digits rates due to the world economic crisis which began in 2009 remains a fallacy. Currently, China has been tremendously investing in Eastern and Central Europe. The tour of Europe in 2012 which was done by Wen Jiabao enhanced economic and bilateral relations of trade between the country and Poland, Sweden, Germany and Iceland (O'neill 2001, 37). Europeans and Chinese viewed the tour as an indicator of the willingness of China to assist in the alleviation of the European crisis of debt. Accredit line to a tune of ten billion USD was established to enable China’s investment in infrastructure, renewable energy, and technology in Central Europe during the forum involving China, central Europe, and Poland. As an emerging and a continuously rising economic giant, the economic priority of China has been to ensure accessibility of its products, expansion of the outside investment and the consolidation of its status as a global and regional hub of highly advanced networks of production. China has vigorously maintained an aggressive FTAs which is attached to two goals. The first aim being in ensuring sustainable energy supplies and formation of the sources of some other natural resources needed for the exports manufacture. The second objective has been in expanding the market of China to varying regions to ensure its continued growth. China as an economic giant has kept 14 partners of FTA which consist of 31 regions and economies such as Latin America, Africa, European Union, Asia-Pacific and Oceania (Jain 2006, 79). Brazil as a member of the BRICs remains a global economic power (Keukeleire and Hooijmaaijers 2014, 583). The economy of this country is considered as the ninth biggest market in the purchasing power parity (PPP) in the globe. Additionally, it is the largest in South America and the second in the western region just after America. The principle of liberal market economy which catapulted the economy of Brazil to the top remains followed and can never be obsolete. Such an approach continuously offers the country tremendous opportunities regionally and globally. Brazil remains in the race of outmatching many established economies. Indeed, the endowment of Brazil with different natural resources and its continuous engagement in various international agreements makes Brazil remain on the global map as a force in the region. Such instances have included negotiations with Venezuela and Argentina to expand the regional business. Brazil also actively engaged in the establishment of South American Union. The role of the country in Free Trade Area of America (FTAA) of WTO and its economic association with BRICs increases its global engagement and development. Contrary to Sharma’s opinion, Brazil, like all the BRIC members has properly utilised its size advantage and its natural resources in gearing up an industrialised and economy oriented to exports. The natural resources of the country are a primary contributing factor to its booming manufacturing, mining, agricultural, industrial and service sectors. The country is still able to balance its export and imports consequently contributing to its high chances for ensuring the growth of new business professionals. Brazil indeed is among the countries which caught up with the west. However, the country is not dependent on oil as stated by Sharma that only oil-dependent nations of the Gulf merged in development (Sharma 2012, 4). In fact, the proper utilisation of its other natural resources apart from oil have significantly facilitated the growth of its GDP. Brazil natural resources such as Manganese, granite, gold amongst others have greatly influenced its rise in the international politics. The diversification of the economy also remains a factor which will continuously drive the country into constant economic growth. Water and agricultural resources and ethanol are all equally contributing to the strengthened economy of Brazil. As a member of the BRIC, the advantage of Brazil over other members is her greater capacity of controlling the service and manufacturing sectors and her unlimited ability to supply resources to other member nations such as India, Russia and China. Even though the United States is the biggest economy in the world, it greatly depends on the network of some economies closer to it. Despite Brazil’s potential for further economic growth, it faces various challenges like political instability and endemic corruption cases. One of the strength of Russia as an emerging economy is its vast agricultural lands. The main industries that have always driven the economy of Russia include the equipment manufacturing, tractors and other agricultural machinery (Filatotchev, Buck, and Zhukov 2000, 287). The country remains a power in machine building including space vehicles, high performing aircraft and equipment of communication. The country has also properly utilised its gas, oil, metals, chemicals, handicrafts and foods stuff. The economy remains a power in medical equipment, electric generation and transmission of power, as well as rail and road transport. Russia is one of the countries is with an excellent system of education. Close to 43 percent of the adults in the country are college graduates. The country has the highest rates of literacy in the world hence most citizens often work in the modern economy. Moreover, Russia remains one of the world’s largest gas and oil producer hence its economy is less likely to fall as predicted by Sharma in his article. The country for a long time has possessed a rich soil of agriculture hence remains a great exporter of timber and grain. Consequently, Russia has often sustained its people and provides material and food to various other countries. In addition, as a member of BRIC, growth in India and China has always created a huge demand for Russia’s resources. After the default of 1998, the country had a complete economic restructuring characterized by Russians laying emphasis on strengthening their system without the foreign investors. The hard-line stands of banks on risks made Russia succeed in the global financial crisis of 2008 with a lot of ease. Even though Sharma argues that the emerging markets quickly developed due to the opening up of their stock markets to the foreign investors, Russia had little faith in such approach, and it put a ban on it immediately after embracing it. However, it is agreeable that Russia is a major producer of energy and obtains a significant benefit from the raised prices of energy. Another emerging country and a member of BRIC, India, is the second most populous country globally with an average of 50 percent of its population being under 25 years. The country has hugely taken advantage of its young population by using its young and a large working force to drive its economy. Regarding its young population, while some of the developed countries such as the United States entered the demographic window in 1970, China in 1990 India just entered its window in 2010, and this is projected to last until 2050. The young Indian population is quite entrepreneurial and places vital importance on the value of education. The country also boasts of renewable and fusion power energy. The nation exists in the tropical belt which receives ample sun. Hence the subcontinent is likely to reap from the enormous potential of renewables. This remains a possibility since India owns a suitable combination of large density of consumer base and higher insolation of solar. The country has also taken advantage of its thorium resources to advance economic growth. Nonetheless, India has a lower GDP that is half of China’s GDP and a third of the GDP of Brazil. However, the lower prices of oil which crippled the economies of oil producing countries economy such as Venezuela is India’s due advantage since it is involved in the importation of close to 80 percent of the oil it consumes. India is hugely disadvantaged by the increase in the prices of oil, which is its primary challenge. In contrast with other BRIC emerging economies such as Brazil and China, these countries majorly produce oil hence benefit a lot from inflated prices of oils. The very rich culture of India has also worked for its soft power. As a consequence, India has been increasingly persuading various countries in regards to its international relationships. Up to now, the stock market of India has been growing steadily. The rupee has been quite firm, and the economy has remained stable for a while. Problems in the Emerging Economies In line with Sharma’s argument, sustaining a rapid economic growth for over one decade is a challenge. The recession which occurred from 2008 had a great impact on all the BRIC economies and reduced the flow of foreign money that was circulating in these countries (Gammeltoft, Filatotchev, and Hobdari 2012 180). Despite the encouraging economic progress, China can still not be able to rule the globe the way America has been doing. Since the categorization of these economies as emerging markets, very little progress has indeed been reported to term them as developed markets. Such countries are likely to remain in the same states due to burgeoning economic challenges. At some point of development, such countries were reducing their gaps with the developed nations. The per capita income of the advanced and the emerging economies broadened until 2000 from 1950. Only oil states of the Gulf were able to catch up with the western economies. The emerging markets indeed just started catching up after the year 2000. It is disheartening, however, to note that by 2011, the variation in per capita income between the developing nations and the developed countries reverted to the low levels of the 1950s (Stephen 2014, 923). The obvious problems of the larger emerging states are that they have been in a position where they have little control of their economies. Consequently, they have faced an economic temptation of intervening as a response to the political pressures which occur from the vested interests. In the settings of very small states, dense control of networks may lead to the loss of mobile production factors. Contrastingly, it is quite hard for the capital or labour to escape. Internationally, the emerging markets have been trying to establish international laws (Gammeltoft, 2008 6). Often, such powers construct domestic legitimacy on claims of having the ability to shape a larger globe. Such emerging economies have a thinking of being in a position to harness globalisation. These countries have always thought that they have the ability to use their weight to change the rules to favour themselves. Since 2000, the BRIC countries have faced some serious flaws which have afflicted them in significant ways. The first flaw is that the highly populated countries such as India and China need to integrate their less educated and poor underclass when they are engaging with the world markets (Hoskisson et al. 2013, 1296). Besides, Russia and China own systems of finance that is lacking transparency. On the other hand, India and Brazil are suffering from financial underdevelopment which further put their integration into the world economy in a precarious position and increase the prospects of a financial crisis. The Russian economy is already going through an enormous demographic drop as the sick and the elderly population increases. China is also likely to suffer from the demographic down turn which had earlier hit Japan. Such a change in population demography is projected to be visible by the year 2040 due to the adoption of one child policy. It is agreeable that many emerging economies have been unable to acquire any momentum for sustainable growth and the progress of others have stalled following the achievement of the status of middle income. Thailand and Malaysia are a testament to the emerging countries that were thwarted by excessive debts, overpriced currencies, and crony capitalism. Such aspect indeed led to an economic meltdown in Asia from 1997 to 1998 (Neilson, Pritchard, and Yeung 2014, 1). Flaws of the Article Although Sharma’s article has mentioned the inability of the emerging economies to graduate to developed status, the underlying reasons for such difficulties are not mentioned at all. Hence, the article’s major shortcoming. Nations such as Brazil which have been classified as emerging economies for a long time have bureaucratic policies and large burdening taxation system on the domestic earnings which have lead firms to invest in other countries. Countries like China and Russia elicit fear of political instability which could lead to assets expropriation in case investors invest heavily in such countries. While India also has insisted on unfriendly regulations which have often driven away international companies such as Mittal Steel to countries such as Netherlands. Chinese, on the other hand, have regulations which are friendly to the foreign investors but unfriendly to the local investors. China’s government gives preferential treatment to foreigners to attract them, but the disadvantage of the approach is that it is discriminative against the private local firms of China hence they are driven to invest in foreign countries to re-invest in the republic of China as foreign investors to gain from such beneficial preferential treatment given to the foreign investors As mentioned by Sharma, Brazil is not dependent on the exportation of commodities. The article’s mention of Brazil to be dependent on commodity export to drive its growth is also misplaced and untrue. Further, Brazil rarely relies on any exports to China. The exports of China represents 1.9% of the economy of Brazil (Gammeltoft, Barnard, and Madhok, 2010 100; Merke, 2015, 178). The commodity export of Brazil is quite similar and proportionate to the commodity exports of the United States, yet the latter is regarded as being driven by such exports. Instead, the economy of Brazil is being driven the existing internal market, which is 89 percent of the GDP, high employment rate, credit growth and the growth of services. Conclusion Indeed, the emerging economies have made a lot of efforts to reach where they are. The emerging economy countries experience numerous challenges that hinder progression to developed status. Moreover, the acquisition of advanced economy status is dependent on various global factors such as the world peace while the occurrence of financial crisis like the 2008 one has devastating effects on countries’ economic growth. Such factors directly impact such nations to rise to the developed economies. However, to assume that these countries would remain as emerging economies or otherwise drop is not true (Wilson and Purushothaman 2003, 1). Emerging nations would indeed acquire advanced economies status. List of references Eprints.hud.ac.uk. 2016, ‘Will the growth of the BRICs cause a shift in the global balance of economic power in the 21st century?’ University of Huddersfield Repository, viewed 20 April 2017, http://eprints.hud.ac.uk/30970/ Filatotchev, I., Buck, T. and Zhukov, V. (2000). ‘Downsizing in privatized firms in Russia, Ukraine, and Belarus.' Academy of Management Journal, 43, 286-304. Gammeltoft, P., 2008. Emerging multinationals: outward FDI from the BRICS countries. International Journal of Technology and Globalisation, 4(1), pp.5-22. Gammeltoft, P., Barnard, H. and Madhok, A. (2010). Emerging multinationals, emerging theory: Macro- and micro-level perspectives. Journal of International Management, 16, 95-101. Gammeltoft, P., Filatotchev, I. and Hobdari, B. (2012). ‘Emerging multinational companies and strategic fit: A contingency framework and future research agenda.' European Management Journal, 30 (3), 175-188. Hoskisson, R.E., Wright, M., Filatotchev, I., and Peng, M.W., 2013. Emerging multinationals from mid‐range economies: The influence of institutions and factor markets. Journal of Management Studies, 50(7), pp.1295-1321. Jain, S.C. ed., 2006. Emerging economies and the transformation of international business: Brazil, Russia, India and China (BRICs). Edward Elgar Publishing. 78-101. Keukeleire, S. and Hooijmaaijers, B., 2014, ‘The BRICS and Other Emerging Power Alliances and Multilateral Organizations in the Asia‐Pacific and the Global South: Challenges for the European Union and Its View on Multilateralism,' JCMS: Journal of Common Market Studies, 52(3), pp.582-599. Merke, F., 2015, ‘Neither balance nor bandwagon: South American international society meets Brazil’s rising power, International Politics, 52(2), pp.178-192. Neilson, J., Pritchard, B. and Yeung, H.W.C., 2014, ‘Global value chains and global production networks in the changing international political economy: An introduction,’ Review of International Political Economy, 21(1), pp.1-8. Odell, J.S., 2014, ‘US international monetary policy: Markets, power, and ideas as sources of change,’ Princeton University Press. O'Neill, J., 2001. Building better global economic BRICs, 34-39 Rozhnov, K. 2010. BBC News – ‘Bric countries try to shift global balance of power, News.bbc.co.uk’ viewed 20 April 2017, http://news.bbc.co.uk/2/hi/business/8620178.stm Sharma, R., 2012. Broken BRICs: Why the Rest stopped rising. Foreign Affairs, pp.2-7. Stephen, M.D., 2014, ‘Rising powers, global capitalism and liberal global governance: A historical materialist account of the BRICs challenge,’ European Journal of International Relations, 20(4), pp.912-938. Wilson, D., and Purushothaman, R., 2003. Dreaming with BRICs: The path to 2050. Global economics paper, (99), p.1. Read More
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