Global Economic Governance

Essay Question 1: Institutions of global governance and the world’s poor

Institutions of global governance such as the IMF and the World Bank have had adverse effects on the economies of the poor states. The purpose of these systems was to govern the global economy and ensure that countries do not suffer from inequalities and precariousness. However, this is not the case since inequality has been on the increase despite the existence of these institutions. The gap between the wealthy and the have-nots countries continue to expand over the years. In fact, research indicates that inequality among countries is increasing even excluding China and India whose population accounts 40% of the world’s population.  The trend is, even more, worrying in African countries which are mostly due to increasing in commodity prices which channel windfall gains to a small number of oil and commodity producers (Nana, 2007). International monetary, regulatory institutions such as the IMF and the World Bank have the responsibility of providing policies that promote equality and poverty reduction, but they failed terribly.

The poor countries have been the greatest loser resulting from the inadequacies of these global institutions. This is because the governance of these establishments suffers from the lack of equity and inclusiveness. The developing countries are less represented and hence their concerns are not adequately addressed. Previous studies indicate that Western nations, especially America and Europe, are highly favored by the IMF. These developed countries account for over 70% of the institution’s voting rights while the developing countries are only left with 29% of the right to vote. This imbalance makes it difficult for the developing countries to voice their concerns. The input of developing nations is ignored while the US and other Western powers are significantly involved in making major decisions (Langmore and Fitzgerald, 2012). This has adversely affected the developing countries since these developed states are always preoccupied with their problems. Additionally, most of the policies from these institutions highly favor the developed countries at the expense of developing countries.

The 2008 global economic crisis is another indicator of how institutions of global governance have failed the poor countries. This brought about major upheavals in economic and social policy arrangements, and the developing countries were the greatest of casualties. Although the recession had a global impact, the developed countries recovered a bit faster while the developing countries are still in high poverty levels, high unemployment and ballooning budget deficits.  These institutions have also failed to put in place macroeconomic policies aimed at promoting equity between developed and developing countries. As a result, the developing countries are always suffering from huge debts to finance structural adjustment programs. This has led to high-interest rates and inflation amongst the developing countries and consequently poor economic performance characterized by unsustainable fiscal and external deficits. IMF and World Bank have consistently offered loans to these developing countries thus making them spend their budget financing loans rather than in poverty eradication and development projects (Nana, 2007). In essence, institutions of global governance have brought about inequality in global arrangements, and they are doing little to mitigate the problem consequently the gap between the rich and the poor continues widening.

Essay 2: The advantages and disadvantages of regional economic integration

Economic integration has been on the rise over the years and has come with numerous benefits. To begin with, economic integration leads to the elimination of trade barriers. Lower tariff and non-tariff barriers lead to trade creation. Additionally, trade creation leads to enhanced consumer choice since consumers have a variety to choose from. The quality of goods and services will also improve as a result of increased competition in free trade. On the other hand, the producers will also benefit from regional integration since there would be increased the market for their products. There will also be enhanced innovation and creativity where regional integration thrives.

Another advantage associated with regional integration is increased employment opportunities. Economic integration leads to a reduction in restrictions on labor mobility and consequently leads to an expansion of job opportunities. Also, members’ states in an economic bloc can build cross-border production chains by leveraging each other’s comparative advantages and consequently exporting finished products outside such regions (Serena, 2012). This means that the members can have more economic gain as a result of economic integration. Additionally, regional integration also helps member states to strengthen their economic and political institutions. Lastly, the economic integration enhances regional understanding and cooperation since it is much easier to agree with a small number of countries.

Nevertheless, economic integration has its shortcomings. Trade diversion is a good example of demerits associated with economic integration. It is the opposite of trade creation and refers to a situation whereby member countries trade more with each other than with nonmember nations. Adverse effects of trade diversion are felt when there is an increased trade with less efficient or more expensive producer simply because they are a member of the economic bloc. Also, employment shifts and reductions is another shortcoming associated with economic integration. This occurs when countries move production to cheaper labor markets in member countries. On the same note, workers may move to have access to better jobs and wages in member states. This will consequently lead to the lack of manpower in some member countries.

Another disadvantage of regional integration is that there is increased the loss of national sovereignty. It is prudent to note that each round of discussions and agreements on the formation of an economic bloc, nations will always find themselves giving up more and more political and economic rights. Additionally, there has been a growing concern regarding asymmetry or disparity among member states. For instance, in the Eurasian bloc, Russia has the largest economic size compared to other members such as Kazakhstan and Belarus (Serena, 2012). This is a major hindrance to the formation of powerful trading bloc since some member countries may feel superior to others. It is also worth to note that, if the trading bloc is mainly of commodity exporters or purely importers, then it will be difficult to realize the benefits of regional integration. It is, therefore, prudent for policymakers to ensure that they put in place measures that will enable leverage the benefits of economic integration.

 

References

European Bank for Reconstruction and Development, Transition Report 2012: Integration Across Borders (Oct. 2012), pp. 65-67, available at:

http://tr.ebrd.com/tr12/images/downloads/TR12_EN_web_bookmarks3.pdf

John Langmore and Shaun Fitzgerald, “Global Economic Governance”, in Ralph Pettman (ed.), Handbook on International Political Economy (Singapore: World Scientific Publishing, 2012), pp. 42-43, and 45.

Nana K. Poku, “HIV/AIDS in a Globalized World: An Uneven Pandemic in an Unequal World”, in Anthony McGrew and Nan K. Poku (eds), Globalization, Development, and Human Security (Malden, MA: Polity Press, 2007), p. 158

Robert J. Barro and Jong-Wha Lee (eds), Costs and Benefits of Economic Integration in Asia (New York: Oxford University Press, 2011), “Introduction”, pp. 4-5.

Serena Garelli, “The European Union‘s Promotion of Regional Economic Integration in Southeast Asia: Norms, Markets or Both? Bruges Political Research Papers / Cahiers de recherche politique de Bruges No 25 (May 2012), pp. 23-24.

 

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