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Economic Growth & International Trade

A global economic boom, unprecedented in modern economic


history, is underway as the drive for efficiency, productivity, and
open, unregulated markets sweep the world. Richman-Fortune.
he statement describes the current global marketing situation, in
which it is less and less possible for businesses to avoid
internationali!ation.
At no time in modern economic history have countries been more
economically interdependent, have greater opportunities for
international trade e"isted, or has the potential for increased
demand e"isted than at the opening of the twenty-first century.
The New World Economic Order
he rapid growth of war-torn economies, and previously under-
developed countries, coupled with large-scale economic
cooperation and assistance, has led to new global marketing
opportunities.
Rising standards of living and broad-based consumer and industrial
markets abroad created opportunities for companies to e"pand
e"ports and investment abroad.
American companies having grabbed these initiatives, some
authors have described the scenario as
the business of American business is international business.
#
$any %.&. companies that had never marketed outside the %nited
&tates began to e"port, and others made significant investments in
marketing and production facilities overseas.
'rowing domination of %.&. multinationals in (urope and )atin
America ushered in an era of restrictive trade practices, despite the
initiatives by 'A towards international cooperation.
rends already underway in the decade of *ineties are destined to
change the patterns of trade for decades to come.
(conomies of the industriali!ed world have begun to mature and
rates of growth will not only be more modest in the future, but will
shift to the newly industriali!ed countries or developing countries.
+hina has already replaced ,apan as the world-s second largest
economy after %&A.
+ompanies are looking for ways to become more efficient,
improve productivity, and e"pand their global reach, while
maintaining an ability to respond .uickly to deliver a product the
market demands.
Global Economic Reali!nment
(conomic power and potential have become more evenly
distributed among countries, and %.&. domination in world trade is
now shared with other countries.
Although %&A still maintains its position as the richest country of
the world in terms of '*/, its share of world '*/, using market
e"change rates, has been fluctuating, from 012 in #134 to 502 in
5444 and rising again to 562 by 54##. he %& share of world
'7/ has also been constant for the last 84 years, being 59.02 in
#163 and 59.62 in 5441. :&ource; <orld =ank reports>.
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?owever, number of %.&. multinationals fell from 96 in #190 to 58
in #119, while ,apanese and @orean multinationals have emerged
on the economic scene.
'lobal companies are not the only ones seeking new market
opportunitiesA smaller companies are also using novel strategies to
capture world markets.
"ri#ers of $han!e
+apital movements rather than trade have become driving
force of the world economy.
/roduction has become uncoupled from employment.
<orld economy emerges as the dominant economic unit.
he 63 year struggle between capitalism and socialism is
over.
%ar&etin! and Economic "e#elo'ment
wo views have been offered;
Field of marketing is relevant only to the conditions that
apply in affluent, industriali!ed countries where maBor
problem is one of directing society-s resources into output to
satisfy a dynamic market place.
Cn less developed countries, the maBor problem is the
allocation of scarce resources toward production needs.
he economics literature places a great deal of reliance on the
role of marketing in economic development.
0
"eterminants of Economic "e#elo'ment
he political, economic, and legal systems of a country can have a
profound impact on the level of economic development and hence
on the attractiveness of a country as a possible market andDor
production location of a firm.
(e#el of Economic Acti#it)
he GN* is often regarded as a yardstick for the economic activity
of a country.
,apan, &weden, %.&.A. and &wit!erland are considered to be the
richest countries, while +hina and Cndia rank among poorer
countries.
he GN* figures tend to be misleading. A more realistic
comparison is made by adBusting '*/ per capita by purchasing
power, referred to as *urchasin! *ower *arit) adBustment.
"efinition of *urchasin! *ower *arit)
/urchasing power parity E///F is an economic theory that states
residents of one country should be able to buy the goods and
services at the same price as residents of any other country over
time. =asis of /// is the )aw of Gne /rice.
According to this theory, e"change rates between currencies will
be in e.uilibrium when their purchasing power is the same in 5
countries.
hus, /// is a function of cost of living, inflation and variation in
e"change rates.
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En!ines of Growth
$aBor drivers have been
Inno#ation
Entre'reneurshi'
=oth are based on the assumption of a %ar&et Econom), as
distinct from a $ommand Econom) or a %i+ed s)stem.
A study of #45 countries between #163 and #113 established a
strong relationship between economic freedom and economic
!rowth.
A #116 study by ,effrey &achs E?arvard %niversityF adds
geography and education also as driving factors.
=y virtue of more favorable geography, certain societies are more
likely to engage in trade than others, and are thus likely to be open
to and develop market-based economic systems.
$urrent Trends in Global Growth
'lobal growth is proBected to remain subdued at slightly above 0
percent in 54#0, almost at the same level as in 54#5.
he pattern of past growth and proBections for world and region
wise growth are shown below, as estimated by C$F;
3
Economic !rowth rates ,-.
Re!ion /001 /002 /003 /004 /050 /055
/05/
,est..
/056
,est..
<orld 3.# 3.5 0.4 -4.3 3.0 0.1 0.3 0.1
Advanced
economies
0.4 5.6 4.9 -0.8 0.5 #.9 #.8 #.1
(uro !one 5.1 5.6 4.6 -8.# #.1 #.3 -4.0 4.6
%&A 5.6 5.# 4.8 -5.9 0.4 #.6 5.4 5.0
7eveloping
countries
6.1 H.0 9.4 5.H 6.3 9.5 3.9 3.1
Reasons for slow !rowth
<eaker domestic demand and slower growth in key
emerging market economies.
Protracted recession in the Euro area.
<eaker growth of the %.&. economy.
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Anticipated withdrawal of monetary policy stimulus in %&A,
leading to sustained capital flow reversals.
hreatened sovereign defaults in (urope, coupled with lack
of policy initiatives.
7isible conse8uences
Iolatility in global financial markets in $ay-Aug, 54#0.
+apital outflows from emerging markets. Ct is estimated, that
during this year :Aug 54#0>, J13 =illion have flowed into
%.&. e"change-related funds, with JH.8 =illion having been
withdrawn from developing countries. :=loomberg>.
7epreciation of currencies in &outh-(ast Asian markets,
especially in Cndia which has witnessed depreciation of 54%
from Jan-Aug. 2013.
+onse.uent strain on the economies of emerging markets
leading to lack of growth and weaker exorts.
G"* of *rominent World Economies 9/055:
!ountr" #$P in % &rillion
Cndia #.H60 :'7/ per capita J#34H>
Russia #.H3H
=ra!il 5.866
+hina H.0#H
%&A #8.114
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Growth of Indian Economy

Reasons for Slower Growth
?igh +urrent Account 7eficit
?igh inflation rates in the past 8 years
?igher domestic consumption caused by increased standards
of living.
+onse.uent tightening of monetary and fiscal policies.
<ithdrawal of li.uidity from the financial markets.
7isappointing inflows of F7C.
)ack of economic reforms caused by /olicy uncertainty.
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