Economic Impacts on Countries
Growth
In globalisation, there will be international trade. Governments would sign Free Trade Agreements (FTAs) which identify areas of cooperation, open access to selected sectors and lower tariffs in the selected sectors. These agreements could be between countries or even between regional groupings.
Example
- USA and SG signed FTA in 2004
- By 2012, total US investments in SG exceeded the volume of other AP countries
- SG is the number one destination for US investment in Asia
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- Gov cut red tape and make investing between countries easier
- Facilitate more companies to set up plants in other countries
- Investments increase
- Companies gain access to markets
- Closer cooperation and more trade
- Expansion of the economy
Downturn
In the international economy today, the US, the European Union and China are major buyers of whatever the rest have produced. Companies from the US, the EU and China are major sources of foreign direct investments. Since they are major buyers and sources of FDI, economic shocks in either one of them could affect the economies of the world. The impact would be more pronounced in countries or regions with an open economy. That is, countries who rely heavily on them for trade.
Example
- 2008 Global Financial Crisis
- Housing bubble in US burst
- AIG, Fannie Mae and Lehman Brothers and more in a Liquidity Crisis
- Many MNCs focused on selling their current inventory
- Delay capital investment
- MNCs started to inform suppliers that they would be cutting their orders
- Caused a spiralling down reaction
- Companies in the rest of the world were badly hit
- Many European banks had investments in the USA
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- Prone to fluctuations overseas
- "As the US sneezes, the world catches a cold"
- Global Financial Crisis in the US caused all other countries with trade links to the US to be affected
- Slow growth rates and higher unemployment rates