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Answer 1 (I). There are three indicators that have been

Added on - 21 Sep 2019

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Answer 1 (I)There are three indicators that have been considered here, namely, current account balance,industry and services value added, and cash surplus/deficit. The current account balance isthe difference between the export and the import of a country. If the given data is analysedfor Colombia, then it can be found that the current account balance has decreasedcontinuously. In 1990 it was 1.0, in 2000 it went to 0.9, and then the sharp decline can beseen in the year 2014 with -5.2. This indicates that the import has been in excess in theeconomy than the export. This can be inferred that the production of goods has reduced overthe years, or the export of the goods and services have been decreased due to the likelydevelopment of local market. Another indicator, cash deficit shows that the company isfacing challenges in generating enough revenue than it is expected to invest which might be achallenging aspect as it is likely to raise the interest rates which might reduce the investment.This might also lead to the inflationary situation. The third indicator, value addition from thegoods and services, has remained nearly same and no change has been viewed in the past 25years.Answer 1 (II)I have considered a company from the service sector. If the data on the value addition fromthe service sector is to be considered then it can be stated that there is some chances ofpositive return. The service sector has grown from 45% of GDP contribution to 55% GDPcontribution. Though it reduced hugely from 62% contribution in the year 2000, but overallin the 25 year period, 10% growth has been observed. Therefore, if the company is willing tomake the foreign direct investment, then it should prefer the service sector considering theoverall growth. Moreover, the stagnant contribution to the GDP of the goods sector and therising contribution of the service sector show that the service sector is the lucrative sector forthe investment as it is showing some promise for growth. The FDI into service sector isattractive and, therefore, suggested.Answer 2 (a)Mercantilism was an economic theory. Through the implementation of this economic theory,the governments try to increase the wealth of the country. The principle behind themercantilism was developing the situation of the nation by increasing the overall wealth.Initially, when mercantilism came into existence, the wealth was based on the holdings ongold. The concept favours the understanding that the increasing the exports and decreasingthe imports is the right method for the national prosperity. The 16thcentury and the late 18thcentury witnessed many countries using this economic theory. The initial benefits of thisorientation were that it helped eliminate the barter trade system to the bullion-based monetarysystem. The challenge is that it gave rise to the conflict among the countries as the countriesstarted to move towards trade protectionism. Moreover, the orientation towards trade
monopolies was also observed in abundance. There are other limitations also such asinefficient production, increase in the inflation, increase in the brain-drain, and theunfavourable movement of production factors. However, the orientation has changed fromthe conventional mercantilism due to reasons such as running behind gold and less focus onpeople of the country, hunger for power in terms of wealth, colonial activities, one wayorientation of trade, and interference of states in the human rights. Now, the orientation hasbeen towards neo-mercantilism which is the limited usage of mercantilism. The neo-mercantilism allows reliance on currencies rather than gold and comparatively more liberalattitude.Answer 2 (b)The neo-mercantilist agenda emphasises on the currencies instead of reliance on the gold (themercantilist orientation). However, the core principle has not changed, that is self-sufficiencyand export. China has emphasized exporting more goods then importing over the past fewdecades and has kept strict consideration on the overseas investment within the country. Theorientation of the government has been somewhat liberal which is comparatively appreciableif the conventional mercantilist view is considered. However, even if there is theconsideration of the liberalism, the local favouritism is still observed in the Chinesegovernment. Moreover, exports are still favoured over imports. If the economic benefit of thisorientation is observed, then it can be stated that none of the country is doing better thanChina at present. The exported products from China have various parts of the world such asUnited States, India, and various European countries. The low priced Chinese products havecaptured most of the markets fast in the past decade. Considering the current globalorientation, it can be stated that the existing trade policy might not be successful in the longerrun. The first challenge was that the domestic consumers fail to see new industries in thecountry. Moreover, the customers rarely get to use the imported products. The politicallycentred orientation leaves limited opportunity for the private and public players to spread itswing and work effectively. It restricts the strategies available to decision makers.Answer 3In simple terms, the absolute advantage refers to the ability to produce more goods with theuse of fewer resources in comparison to the competitors. The comparative advantage refers tothe capability of a country to produce specific goods or services at lower marginal cost incomparison to another country. The third aspect, mercantilism refers to the inward orientationof the economy where the government focus more on exporting than importing. The absoluteadvantage is about comparing the productivity of the countries. The country that is able toproduce goods with the use of minimal inputs is considered to be having absolute advantageover the country that is unable to do so. As for example, if the country A is producing sixunits of food and three units of cloth in one year, and the country B produces one unit of foodand two unit of cloth in one year, then it can be observed here that the country A used lessresource (time) in comparison to the country B to produce more number of goods. Therefore,here the country A is in absolute advantage in comparison to country B. This aspect benefits
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