Questions in International Business

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1. Will globalization continue to expand in the future? Why or why not?
Even well before the events of September last year there were several indications that
the rapid globalization of economic activity experienced during the 1980s and the
1990s may have begun to stall. The rate of growth of the US economy was slowing,
Japan's intractable economic problems were no nearer solution, and there was unease
in Europe about its future economic prospects as the adoption of the single currency
loomed and growth faltered. But these essentially cyclical uncertainties were being
bolstered by some potentially longer-term structural changes. Thus the world may be
experiencing the final years of one of those periodic explosions in internationalization
that throw so much into confusion and seem to herald the complete transformation in
the way societies are organized. There is beginning to emerge a serious questioning of
the ability of the global economic system to sustain its seeming rapid integrationist
trajectory.
We ask the question 'Are there any limits to
economic globalization?' The strong globalization thesis would seem to imply an
ever-expanding universe of economic interdependency and integration between
national economies, so that the significance of national borders for economic activity
eventually disappears. The issues for us here are first, why should this be the case?
and, secondly, is it happening?
The strong globalization thesis
contends that macroeconomic and industrial policy intervention by national
governments can only distort and impede the rational process of resource allocation
by corporate decisions and consumer choices, which are now made on a global scale.
All corporate players need to do to prosper is to shake off their nationally orientated
bureaucratic style of management, and the government intervention that goes along

with it, and enter the new world of open global marketing and production networks.
International markets provide coordinating and governance mechanisms in and of
themselves: national strategies and policy intervention are likely merely to distort
them. The era of effective national economies, and state policies corresponding to
them, is over. The market will, and should, decide.
Now, we have challenged this conception and we do not think the international
economy looks anything like this, but it offers a
powerful imagery and should not be ignored. It is thus worth confronting it in its own
terms.
2. Econoland runs a current account deficit of $100 billion in a given year. Explain what must have happened to the financial account and Econoland's international investment position. Specifically explain how the financial account and Econoland's international investment position are related.
Econoland must have fared low on the financial account. Usually such countries have a large deficit because they must spend a lot on developmental costs. However, this must have led to a fall in the currency of Econoland that would reduce the real repatriation made from investments in the country. This leads to lower investments in the country as well as movement of capital away from the country leading to a further increase in the current account.
The deficit in the financial account of Econoland leads to the devaluation of the currency and this leads to lower investments in that country as well as reductions in investments. Even ongoing investments are delayed and the result is that the international investment in that country goes down. In addition, there are further fears of devaluation ...