Tutorial+solutions+Week+3 - Chapter 2 World Trade and the...

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Chapter 2 World Trade and the International Monetary System Answers to Conceptual Questions 2.1 List one or more trade pacts in which your country is involved. Do these trade pacts affect all residents of your country in the same way? On balance, are these trade pacts good or bad for residents of your country? Figure 2.1 lists the major international trade pacts. The World Trade Organization (WTO) is a supranational organization that oversees the General Agreement on Tariffs and Trade (GATT). Important regional trade pacts include the North American Free Trade Agreement (NAFTA includes the U.S., Canada, and Mexico), the European Union (EU), and the Asia- Pacific Economic Cooperation pact (APEC encompasses most countries around the Pacific Rim including Japan, China, and the United States). Trade pacts are designed to promote trade, but industries that have been protected by local governments can find that they are uncompetitive when forced to compete in global markets. 2.2 Do countries tend to export more or less of their gross national product today than in years past? What are the reasons for this trend? Most countries export more of their gross national product today than in years past. Reasons include: a) the global trend toward free market economies, b) the rapid industrialization of some developing countries, c) the breakup of the former Soviet Union and the entry of China into international trade, d) the rise of regional trade pacts and the General Agreement on Tariffs and Trade, and e) advances in communication and in transportation. 2.3 How has globalization in the world’s goods markets affected world trade? How has globalization in the world’s financial markets affected world trade? Some of the economic consequences of globalization in the world’s goods markets include: a) an increase in cross-border investment in real assets (land, natural resource projects, and manufacturing facilities), b) an increasing interdependence between national economies leading to global business cycles that are shared by all nations, and c) changing political risk for multinational corporations as nations redefine their borders as well as their national identities. The demise of capital flow barriers in international financial markets has had several consequences including: a) an increase in cross-border financing as multinational corporations raise capital in whichever market and in whatever currency offers the most attractive rates, b) an increasing number of cross-border partnerships including many international mergers, acquisitions, and joint ventures, and c) increasingly interdependent national financial markets. 2.4 What distinguishes developed, less developed, and newly industrializing economies? Developed economies have a well-developed manufacturing base. Less developed countries (LDCs) lack this industrial base. Countries that have seen recent growth in their industrial base are called newly industrializing countries (NICs).
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