Analysis of Economic Indicators, Service Sector Growth, Mercantilism, Strategic Alliances


Added on  2019-09-21

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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 is the difference between the export and the import of a country. If the given data is analysed for Colombia, then it can be found that the current account balance has decreased continuously. In 1990 it was 1.0, in 2000 it went to 0.9, and then the sharp decline can be seen in the year 2014 with -5.2. This indicates that the import has been in excess in the economy than the export. This can be inferred that the production of goods has reduced over the years, or the export of the goods and services have been decreased due to the likely development of local market. Another indicator, cash deficit shows that the company is facing 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 the goods and services, has remained nearly same and no change has been viewed in the past 25 years. Answer 1 (II)I have considered a company from the service sector. If the data on the value addition from the service sector is to be considered then it can be stated that there is some chances of positive return. The service sector has grown from 45% of GDP contribution to 55% GDP contribution. Though it reduced hugely from 62% contribution in the year 2000, but overall in the 25 year period, 10% growth has been observed. Therefore, if the company is willing to make the foreign direct investment, then it should prefer the service sector considering the overall growth. Moreover, the stagnant contribution to the GDP of the goods sector and the rising contribution of the service sector show that the service sector is the lucrative sector for the investment as it is showing some promise for growth. The FDI into service sector is attractive 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 the mercantilism 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 on gold. The concept favours the understanding that the increasing the exports and decreasing the imports is the right method for the national prosperity. The 16th century and the late 18thcentury witnessed many countries using this economic theory. The initial benefits of this orientation 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 countries started to move towards trade protectionism. Moreover, the orientation towards trade

monopolies was also observed in abundance. There are other limitations also such as inefficient production, increase in the inflation, increase in the brain-drain, and the unfavourable movement of production factors. However, the orientation has changed from the conventional mercantilism due to reasons such as running behind gold and less focus on people of the country, hunger for power in terms of wealth, colonial activities, one way orientation of trade, and interference of states in the human rights. Now, the orientation has been towards neo-mercantilism which is the limited usage of mercantilism. The neo-mercantilism allows reliance on currencies rather than gold and comparatively more liberal attitude.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 few decades and has kept strict consideration on the overseas investment within the country. The orientation of the government has been somewhat liberal which is comparatively appreciable if the conventional mercantilist view is considered. However, even if there is the consideration of the liberalism, the local favouritism is still observed in the Chinese government. 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 than China at present. The exported products from China have various parts of the world such as United States, India, and various European countries. The low priced Chinese products have captured most of the markets fast in the past decade. Considering the current global orientation, 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 the country. Moreover, the customers rarely get to use the imported products. The politically centred orientation leaves limited opportunity for the private and public players to spread its wing 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 the use 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 in comparison to another country. The third aspect, mercantilism refers to the inward orientationof the economy where the government focus more on exporting than importing. The absolute advantage is about comparing the productivity of the countries. The country that is able to produce goods with the use of minimal inputs is considered to be having absolute advantage over the country that is unable to do so. As for example, if the country A is producing six units 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 less resource (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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