Students are required to work on and complete only ONE of the two topics
Task Description:
Students are required to work on and complete only ONE of the two topics: either from Part A or from Part B. Maximum length of the essay: 4000 words.
Part A Topic:
Discuss the growth in trade and financial flows under globalization since 1992: A Case Study of India.
Sections:
(i) Main features of the growth in world export, import, total trade and in financial flows under globalization from 1992 to 2008.
(ii) Main features of the growth in India’s export, import, total trade and the growth in financial flows to India under globalization from 1992 to 2008.
(iii) The major institutional bottlenecks (both domestic and foreign) that India has been facing in its effort to further expand its export trade and to increase the inflow of global finance in the form of FDI.
(iv) Is it because of these bottlenecks that India is destined to become the world’s knowledge based production hub, whereas China has already become the world’s manufacturing industries hub?
Guidelines
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Introduction
A brief discussion of theoretical issues such as benefits of free trade and financial flows under globalization; trade and capital flow interrelationship (for example better trade outcome requires better FDI arrangement which includes supply of capital goods, technology and management skill etc).
Introduction
World economy prosperity rests on international trade. Benefits of free trade have created a level of competition in the current open market which has lead to continual innovation and inventions which have fostered quality products, opening up of new markets, continued increment in savings and investment. Free trade policies are very beneficial to traders across the world economy since it has enhanced easy flow of goods and services across national borders. Consumers are able to access variety of goods and services at a cheaper price which contributes immensely to improvement in their living standard. Free trade and financial flows help spread value of freedom and enhance economic development in undeveloped countries. Free trade involves risk taking and its rewards are increase in volume of sales, higher profits margin and higher market share. Companies operating in open market where free trade prevails have the opportunity of expanding their operations and venturing into new markets. Better Foreign Direct Investments arrangements have presented substantial benefits to world economy. It has lead to better integration of world economy because it enables businesses to use available scarce resources effectively and efficiently. Incorporation of FDI into world trade stimulates growth in developing and undeveloped countries.
Examine the growth of total world export, import and total world trade in total world GDP and the share of each of these items in total world GDP for 16 years from 1992 to 2008.
The momentum of world export growth experienced in the end of 20th century and the beginning of 21st century is undisputedly attributed by developing countries or outside developed countries. China, India and Asia are some of the demographic giants that have contributed exclusively to the unprecedented scale to the impact of undeveloped and developed countries being integrated into the world economy. According to economic reports, it is predicted that China and India could represent the largest economies in the world.
World export growth has been very progressive throughout the last quarter century as evident by triple growth in Asia. The country’s world export has tripled to 24 per cent in 2007 from 8.2 per cent in 1980. Increase in proportion of world exports is attributed to efforts of both Asian and non-Asian developing countries. The increment in the world exports among developing countries commenced in Asia but the trend ahs become general since early 1990s. Both Asian and non-Asian developing countries have contributed equally to increase in the share of world exports.
The number of developing countries in world exports led to rise in share of world exports.
China, Asia and Japan played huge role in the growth of world exports since 1992 and 2008. China’s share of world exports has grown substantially from 1.0 per cent in 1990 to 10.0 per cent 2008. During this period, China accounted for approximately 60 per cent of the increase in the world export. The country’s exports have surpassed combination of exports of other developing countries.
World trade is growing rapidly and it is more than double the level of GDP growth. The Asian economic crisis experienced in 1997 led to slowdown of economic growth. In 2000, world trade grew by 12.4% but it slowed after September 11th attack of United States which led to share market crash of world major economies. Since 1992, world trade has been growing at an average of 7% but it is predicted that the growth will fall by 10 percent.
Statistics revealed that export growth volumes in developed countries averages 6.45% annually from 2003 to 2007. This is lower as compared to those of developing and emerging economies which grows at an average of 11%. The financial crisis experienced in the last financial year led to reduction in the volume of exports in the developed countries. Imports growth followed same trend which suggest that undeveloped and developing countries was not greatly affected by global financial crisis that hit world economy in the past two years. According to report presented by IMF (2006), advanced economies dominates the largest part of
. . It also reflects the fact that world trade is dominated by the advanced economies. The IMF (2006) found that the richest 15% of nations had 70% of the goods and services exported in the world in 2005. This compared to less than 4% for the poorest 30% of nations. This dominance by the richer industrial nations also tells us that if demand in the industrial economies is slow, so will be the level of world trade growth.
The growth in the trade share of output is one of the most important features of the world economy since World War II. We show that an important propagation mechanism for this growth is vertical specialization. Simply put, vertical specialization occurs when imported inputs are used to produce goods that are then exported. We show that many of the standard trade models – the Ricardian model, the monopolistic competition model, and the international real business cycle models – cannot explain the growth in trade unless very high elasticities of demand and substitution are assumed. We then use case studies and other empirical evidence to demonstrate the quantitative significance of vertical specialization in trade. Finally, we develop a model of vertical specialization that can explain the growth in trade under reasonable elasticities, which suggests that vertical specialization has important implications for the gains from trade.
Main features of the growth in India’s export, import, total trade and the growth in financial flows to India under globalization from 1992 to 2008
Indian economy has grown substantially in the past few decades. Statistic reveals that the country’s economy is the twelfth largest in the world regarding market exchange rates. The economy of the country has improved remarkably and it is ranked fourth largest in terms of purchasing power parity. The country’s economic development was under social-democratic policies until 1991. The economy of the country was governed and control by government where pervasive corruption and slow growth prevailed. Extensive regulation, protectionism and extensive regulation characterized India’s economy during 1970s.
It was in 1991 when Indian government realized great deal of opportunities for businesses which forced the country follow path of economic liberalization. Before this, the current country’s economic prosperity was doom Prosperity in this country gained momentum from July 1992 when the government reduced foreign exchange reserves in order to finance imports for a period of three weeks. Shortage of finances that led to external payment crisis in the country stemmed from large scale fiscal deficits that were experienced in 1980s. This crisis had negative impacts on economic situation and it pushed the country to near bankruptcy in 1990s. The government responded to economic crisis by initiating far-reaching policy reforms which was aimed at reducing excessive government control, liberalizing of trade, encouraging of private investors and gradual introduction of globalization. The reforms were initiated under New Economic Policy (NEP) which transformed country’s latent economical potential. These reforms and the opportunities gave birth to modern India.
The economy was slow but it is one of the fastest growing economies in the world. NEP led to trade liberalization and gave rise to perceptible changes in trade performance of the external sector of the country. According to statistics, the country’s shares in world exports of goods represent approximately 4 per cent in 2008 from 1 per cent in 1992. There have been structural changes in Gross Domestic Product (GDP) as evident by changes in growth of trade in the country in the past decade. Changes in total trade are also attributed to changes in export orientation that the government initiated.
Export growths outwit GDP growth in India as noticed over the past years. Foreign direct investment contributes greatly to faster growth of exports which steadily underwrites the overall growth of country’s economy. Trade numbers of the country are constantly rising as indicated by $ 100 billion of exports in the 2008 fiscal year. According to statistics done by department of commerce in Indian government, merchandise exports realized in 2005/2006 was 25 per cent more as compared to 2004/2005 fiscal year. Critical analysis reveals that exports have become more volatile since exporters have ventured into new markets hence increasing market base. New markets have led to expansion of trade basket. Businessmen have invested so much in the service industry hence greater part of the exports comes from service industry.
Data released showing financial status of shows that the country had a deficit of 460 billion during the first quarter of this year which shows an increment of $20 billion from the previous year. This is attributed to increase in oil imports and fall in exports as experienced in the country in the current financial year. According to official data, imports into country increased substantially during 2007/2008 fiscal year. The country imported $155.0 billion which is much higher than imports of the previous financial year. The country is increasing imports whereas exports are constantly decreasing due to global financial market crisis and economic recession affecting global economy.
The country has experienced a trade deficit that has been increasing in the past decades. India’s deficit has widened by about 35 per as revealed by statistics from department of commerce. According to the statistic from the department, trade deficit increased from $ 59.32 billion in 2006/2007 fiscal year to $80.5 billion to 2007/2008 fiscal year. During 2007/2008 financial year, the government aimed at achieving $ 160 billion but it achieved approximately $ 155.0 billion.
Despite great deal of strengths in private sector such as software, India’s economy is not very strong in terms of competition on international scale.
“Textile and other traditional sectors have not done well … we expect these to do well (in 2008-09) because rupee is relatively stable. From SEZ sector, exports have gone up to Rs.660 billion compared to Rs.320 billion last year,” Pillai added.
For the last fiscal, imports were valued at $235.91 billion as against $185.74 billion registering a growth of 27.01 percent over the same period of last year.
Oil imports during 2007-08 stood at $77.03 billion, up 35.28 percent from $56.95 billion in the corresponding period of last year.
.
The share of trade in GDP increased from
about 15 per cent in 1990 to about 49 per cent in 2007, HYPERLINK “http://209.85.229.132/search?q=cache:NM5enWv6g0EJ:www.unescap.org/tid/artnet/pub/wp6409.pdf+Main+features+of+the+growth+in+India%E2%80%99s+export,+import,+total+trade+and+the+growth+in+financial+flows+to+India+under+globalization+from+1992+to+2008.&cd=2&hl=en&ct=clnk&gl=ke” l “4” 4 and average trade per capita
increased to US$ 389 in 2005-2007 from a meagre US$ 94 in 1990-1992. HYPERLINK “http://209.85.229.132/search?q=cache:NM5enWv6g0EJ:www.unescap.org/tid/artnet/pub/wp6409.pdf+Main+features+of+the+growth+in+India%E2%80%99s+export,+import,+total+trade+and+the+growth+in+financial+flows+to+India+under+globalization+from+1992+to+2008.&cd=2&hl=en&ct=clnk&gl=ke” l “4” 5 Undoubtedly,
India has benefited from the globalization process.
Section 2
For India, estimate (from 1992 to 2008) the growth of export, import and total trade in India’s GDP. Also estimate the net trade surplus or deficit that India accumulated between 1993 and 2008. Then use the 1992 share of export and import in India’s GDP in 1992 as the base year percentages and estimate the gain or loss that India might have experienced in its export income and import payment had the 1992 percentage shares been maintained in subsequent years (from 1993 to 2008). This will give you an idea of how much additional net trade surplus or deficit India would have accumulated during 1993-2008. If this net total surplus appears to be higher than your original estimate, then you can say roughly that India has benefited in trade under globalization. Then the question to be answered is whether India’s total trade and growth outcomes would have been better in the absence of institutional bottlenecks.
Section 3
Here analyse domestic factors such as political system; labour market flexibility; restrictions on FDI entry; average tariff rate; infrastructure bottlenecks such as roads; electricity; port facilities; transport facilities; domestic tax structure; profit repatriation arrangement social institutions; openness to trade.
International factors include tariffs; subsidies; non-tariff barriers maintained by developed countries particularly in regard to agriculture; special deals with some countries such as MFN agreement by USA with China but not with India.
Section 4
Here discuss the impact of these factors on India’s performance in export trade and financial flows since 1992 under globalisation.
Note:
India’s political institution (federal state with a multiparty parliamentary democracy at the centre and at provincial level and the extension of this democracy to the village level) has provided Indians with unparalleled political freedom but acted as a deterent to expansion of economic freedom and activities and of entrepreneurial dynamism. Also India is a country of innovators like Japan was in the 1970s and 1980s and not one of imitators as China appears to be. So China is ahead of India in manufacturing. But India’s unique position in the global economy as the major supplier to the world of high quality human resources, has led India to try to become the global hub of knowledge based goods and services’ production. India’s inflexible labour market has forced it to become the leader in knowledge based products. (Elaborate on this issue.)
References:
1. Parkins et al for theoretical issues.
2. Economic Survey, Government of India, since 1990, (all annual issues are available in the Library)/
3. International Financial Statistics, Year Book since 1999, (annual issues), IMF, Washington, D.C. (Available in the Library).
4. Direction of Trade Statistics Annual Supplement, since 1990, IMF, Washington D.C. (Available in the Library).
5. World Debt Tables, World Bank Washington D.C. Since 1990, Annual issues, (Available in the Library).
6. World Development Indicators (Annual Issues since 1991), World Bank, Washington D.C.
7. World Development Report (Annual) since 1990 World Bank, Oxford University Press (Available in the Library).
8. J.C. H. Chai and K.C. Roy, Economic Reform in China and India: Development in Comparative Perspectives, Edward Elgar, Cheltenham, U.K. 2006.
9. K. C. Roy and J. Sideras, Institution, Globalisation and Empowerment, Edward Elgar, Cheltenham, U.K. 2006.
Part B Topic:
Identify the extent to which there have been winners as well as losers in the globalisation process. What ethical issues do you see in the implementation of globalisation policies?
[See Stiglitz; Mishan; Todaro; recent output re agricultural subsidies; politics in negotiations e.g. re Philippines cattle disbursal project.]
Criteria & Marking:
Both the semester essay and the Final Examination will be graded in terms of two basic criteria:
(i) depth of the students’ knowledge of the course and
(ii) presentation.
