International Economic Growth - Essay Example

INTERNATIONAL ECONOMIC GROWTH What were the main factors which helped create a global economy before the First World War Before the First World War, there were three main factors that helped create a global economy. Global economic integration actually takes place because of increased communication and trade. Before the First World war, even though the people living in the late nineteenth century were relatively poor, transportation costs had suddenly decreased due to improvements in technology. The economies had not undergone industrialization but were still far advanced if compared with their former years. Technological breakthroughs occurred like the invention of telegraph, railroads and steamships. The fall in transportation costs is one of the main reasons that lead to a global economy at the time. The reduction in costs facilitated trade between countries and the shipment of goods to other countries became easier and cheap. It also leads to exchange of services, technology, factors of production and economically useful knowledge. The fall in transportation cost was also accompanied by an increase in the transportation speed. With the combination of fast, cheap and easy transportation, inter-trade between countries grew. Labor became mobile due to introduction of fast ways of travel and migrated to different countries to take advantage of better job opportunities. Moreover, due to increased communication and exchange of technology, a change in lifestyle also occurred in many countries. The use of new technology was adopted by many countries so the lifestyle of people living in these countries became similar also leading to a global economy. To sum up, migration, international specialization, trade and public policies helped create a global economy before the First World War. The First World War took place mainly in Europe between the years 1914 and 1918. The aftermath of the war saw a huge impact on the economies of the countries that fought, (Britain, Italy, U.S, France, Germany, Greece, Japan, Portugal, Turkey and Russia among others) and ultimately, affected the global economy by bringing the process of global economic integration to a halt or at least slowing the process down. 2. 'The First World War represents a turning-point in the economic history of Europe.' Discuss. The First World War is certainly a turning point in the economy history of Europe as it steered the economy in European countries away from moving towards a globally integrated economy. Firstly, it was because world international trade suffered a sharp decline after the war as the United States, Great Britain and France still had some conflicts. The European economy suffered a great financial setback in the war and faced many economic difficulties. Many industries that were opened to support the war had to be closed down and the countries saw a rise in the level of unemployment. The rise in protectionist policies proved to be a barrier to free trade and adversely affected the growth of many countries' economies. Capital movements between countries became restricted and relations between countries weakened further. Also, there was a decline in the level of production and transfer of resources to the production of military goods had to be stopped. To help the country survive in the war, many countries had taken loans which in no way was favorable for their declining economy at that time. As predicted, the economies of many countries had to face an economic crisis. Wealthy people lost their money and there was a sharp fall in the living standards of people. The GDP (Gross Domestic Product) of these countries subsequently fell. In 1918, Britain imposed the system of rationing. However, issues of rising prices, worker's disputes regarding pay and overtime and lack of proper housing arose. It gave way to many strikes and unrest prevailed in European countries. The First World War was indeed a turning point for the economy in Europe as it did not support the great economic growth of the pre-Great war, disrupted lives, industries, production and ultimately almost lead to an economy collapse. 3. Discuss the origins of the Great Depression at the end of the 1920s. The Great Depression that occurred in the late 1920s was an era of social, political and economic crisis in North America, Europe and other industrialized countries. It originated when the stock market prices collapsed in the New York Stock Exchange in October 1929. The stock prices continued to fall, until they were even much less then 50% of their initial value. This meant great trouble to countless investors and many lost their wealth as a result of the stock market crash. The falling stock prices also meant increasing strain for the banks operating in United States at the time and it lead many banks to their closure. By 1993, 11000 out of 25000 banks in United States had gone out of business. Increasing apprehension about the economy and the sudden failure of bank convinced people out of spending and demand for goods and services was pulled back as production was also decreased. The decrease in demand meant the economy could not function at its optimum level and this resulted in an economic slump. Output fell and thus the need for workers in factories and manufacturing companies also declined, leading to a sharp rise in the level of unemployment. The unemployment rate almost reached to 25% in the U.S in 1993. After the World War 1, the U.S emerged as the main creditor for the European countries, and especially Germany. However, the economic slump experienced by the economy of the U.S, caused the outflow of finance to these countries to stop which further endangered the economic growth of the dependent countries. Germany also faced an economic slump and Britain suffered losses in the industrial sector. Almost every country adopted protectionist policies to support their domestic industries and international trade suffered as a result. Thus, the Great Depression of the late 1920s was characterized by reduced spending and economic recession. 4. Examine the various policies adopted by central authorities to ease their countries out of depression during the 1930s. At the time of the Great Depression, President Hoover kept the Federal Reserve away from monetary expansion and the economy fell under his term. Protectionist policies were adopted and the Smoot-Hawley Tariff levied on imports. However, it did little to reduce the effects of Depression as trade only formed a minor part of the huge economy of the U.S. President Roosevelt, however, introduced the New Deal to help U.S come out of the Great Depression. He declared holidays for bank to reduce the strain and formed new federal programs controlled by Alphabets Agencies. The AAA (Agricultural Adjustment Administration) was set up to stabilize farm prices and thus farms were protected. The CCC (Civilian Conservation Corps) attempted to employ countless youths while also working for the betterment of the environment. The TVA (Tennessee Valley Authority) took charge of the electricity and introduced it for the first time in many rural areas and the NRA (National Recovery Administration) was set up to stabilize the prices of consumer goods. Therefore, government spending rose too. Policies of increasing money supply and currency devaluations were followed. Devaluation of currencies allowed countries to expand their money supply regardless of the movements in the exchange rate. Monetary expansion was followed by lowered interest rates and credits became widely available. This encouraged borrowing and ultimately led to more spending by the consumers. 5. What was the impact of the Second World War on international trading patterns The end of The Second World War left the United States and Soviet Union more powerful than the other countries. The U.S had strong ties with Europe, played a dominant part in export markets and had a strong industrial base along with quite advanced technology. However, the U.S implemented Fast Track when it came to trade policy which was characterized by a huge imbalance of trade in the subsequent years. The trade deficit in the U.S increased mainly because it imported large quantities of oil to resolve the energy crisis. Barriers to entry were raised mainly to discourage Japanese imports but Japan started investing in the U.S manufacturing sector. In January 1994, NAFTA (North American Free Trade Agreement) bought Canada, United States and Mexico together for free trade. The agreement raised living standards and bought economic growth to the countries. Europe, Japan and China preferred to take sides with protectionist policies to protect their economy of foreign competitors. Bibliography: Great Depression. (2007). In Encyclopdia Britannica. Retrieved August 6, 2007, from Encyclopdia Britannica Online: http://www.britannica.com/eb/article-234441 Read More