What Is Economic Interdependence Of Countries Economics Essay

In todays significantly multi-polar world, economics issues are gaining in relative significance. It is therefore important to identify and understand the changes occurring in the recent world overall economy, thereby producing appropriate policies that may assure global stability and economic success. Although economic interdependence has always existed to some extent, technological improvements of the last forty years and significantly global mother nature of production have led to a quantitative and qualitative change in the amount of the interdependence. Sustained economic growth is becoming increasingly reliant on freedom to engage in economic exchange and alternative activities across national boundaries.

What is economical interdependence of countries?

Economic interdependence is a romantic relationship between two or more people, regions, countries or other entities where each would depend on the other for various economical parameters such as goods, services, currency, financial tie-ups, etc. Financial interdependence often occurs when all celebrations are customized in the fulfillment of some requirements, and must trade with others for unmet requirements.

This economical interdependence or economic integration centers around the four main economical flows that characterize globalization

Goods and services, e. g. exports plus imports as a percentage of countrywide income or per capita of society: higher the ratio higher is the power of globalization of the country because its shows higher interdependence between this country and other countries (of course, both exports and imports must be high, only imports won't do)

Labor, e. g. world wide web migration rates; inward or outward migration, weighted by people - higher the occurrence of migration, preferably both ways, higher is the interdependence between this country and other countries.

Capital, e. g. inward or outward immediate investment as a percentage of nationwide income or per head of population - the higher is the flow of 1 country's citizens' investment in other countries and vice a versa, the higher is the interdependence among countries in conditions their common curiosity about the development and development of most countries, and for that reason higher is the scope of globalization.

Technology, e. g. international research & development moves; percentage of populations using particular innovations; the more different countries co-operate and collaborate on technological progress and take each other's help on technology version, the greater is the interdependence included in this and higher the level of globalization.

Aspects of Interdependence

Foreign trade

Foreign trade is the oldest indication of international monetary interdependence. However recently, the rapid growth of world trade at a level higher than that of world outcome expansion, and the changes in its relative structure and geographic distribution have added to and reflected the qualitative difference in the type and degree of interdependence which includes occurred over this period.

Foreign Direct Investment

Foreign immediate investment ( FDI) has become an extremely important activity during the last twenty years roughly. The inspiration behind corporate decisions to attempt foreign investment is diverse but can be grouped under both broad types of cost and/or market factors, including trade substitution and transfer barrier evasion. International direct investment has become specifically important in the services sector. Although in preceding generations FDI was focused in raw materials and other most important products, today the key areas are services and technology-intensive creation.

Globalization of Technology

Technological resources and R&D activities remain largely focused in the Triad countries (US, Japan, EC). The dependence of countries outside this group on Triad technology is therefore very large and transfer of the techno-logy, generally through immediate investment by Triad multinational companies, is of primary importance. Within the Triad, the level of technological interdependence is high and increasing further, particularly in the new high-tech areas, prompting the coining of conditions such as "techno globalism".

Transitional Information Moves and Network

Data communication services are one of the most rapidly expanding regions of economic activity. The immediate expansion of these new services can be expected to outstrip the development of voice communications and, over time, they could are more important in total economic terms.

Economic Networking

The developments discussed in the preceding section have been instrumental in promoting the pass on of new varieties of corporate strategies at the international level. These strategies are founded concurrently on assistance and competition between financial operators engaged in various kinds of joint value creating activity. The ensuing interrelationships are usually known as "networking" although some analysts now increasingly speak of the emergence of a "networked economy".

Financial Market

The introduction of a global financial market is the most highly developed and pervasive aspect of monetary interdependence. The advances in informatics and communications technology, within the last a decade, have permitted the development of instantaneous and constant trading in currencies and financial resources around the world, thus creating the most truly global market.

Inter-dependence of India on other countries

India's economical liberalization and export orientation after 1991 has yielded better progress rates compared to the decades before. The new economic policy is regarded as the only technique to cope with the issues of underdevelopment and unemployment over time. Indian authorities is planning to diversify energy imports and find equity essential oil by India's state owned petrol companies.

At present India is the sixth most significant consumer of energy and the third greatest consumer of coal and oil in Asia only after Japan and China. India's main home energy resources are coal, hydro, gas, engine oil and nuclear vitality. All the forecast predict that India's food cravings for energy increase consequently of growing population and speedy industrialization. And by 2030, India's importing oil supplies percentage increase from 70% to 90% and overall import dependence will be around 40% by then.

Cooperation between China and India are the common development of the Yadavaran olive oil domains in Iran. She's also lengthened their cooperation to locations like Africa where Indian and Chinese companies have cooperated in Sudan. Besides China, the quest for energy and essential oil & gas has also intensified India's relationship with Russia and African Countries respectively. Apart from this, Germany and USA established companies are leading luxury car selling companies in India. A lot of the petroleum products of India are brought in from gulf countries. Thus the fluctuation in the petroleum prices in these countries impacts the prices of petroleum products in India.

This needs of energy by India echo the new constraints of interdependence that India is confronted with in the period of globalization. On one part it shows India's new financial and political strength in international affairs, on the other side one sees India's new dependences and vulnerabilities as a result of linkage with many security issues. However India will probably take advantage of the new interdependence though it will bring in new constraints on her foreign policy. This way India's growing financial interdependence will change the discourse in the long term perspective. This plainly shows the dependence of India on other countries because of its resources.

Challenges of increasing monetary interdependence on each other

A Steady and Open up World Economy

The various types of international economic constitute a rigorous and intricate system of global interdependence. The interlink age groups between individual economies are too strong and the momentum of globalization too great for the process to be reversed. In such a system, where wealth-creating activities are significantly transnational, it makes sense to assist in these activities by providing an wide open and secure world economical environment. This requires effective insurance policy co-ordination between government authorities, at least of these economies whose size is in a way that they can have a substantial impact on the global market.

Economic liberalization

An open up environment means more than an wide open trade routine. It entails open regimes for overseas immediate investment, for capital flows, for usage of networks as well as for all types of international economical activity.

To address imbalances

Economic interdependence is strongest and most intricate on the list of countries of the industrialized world. It really is by no means limited by these countries. The direct links between western industrialized economies and the 3rd World may be less complex nevertheless they are, nonetheless, significant and two-way.

A closer partnership with the developing world

Involving the developing countries more completely in the international constructions required to control international economical activity will promote their economic progress and assure their politics will to undertake the obligations this entails. At the same time, a more constant effort to reinforce political relationships with these countries, by participating them in a more comprehensive and constructive politics dialogue would help to promote a greater sense of commonality of passions.

Towards a More Global and Broad Regulatory Framework

One effect of the globalisation of financial activity is that it's now more challenging to distinguish between its various forms and the inspiration in it. Its effects are also becoming less clear. As monetary globalisation proceeds, a far more comprehensive plus more coordinated method of international regulation is necesary. The growing difficulty of international economical interconnections means that the present "Compartmentalization" of regulatory issues is now increasingly inappropriate. It really is, therefore, becoming more broadly accepted that international rulemaking will have to cover new regions of monetary activity and address new concerns, as well as moving current types of guidelines from the national to the international.

Issues of Increasing Economic Interdependence

Loss of Flexibility

Regional integration makes it difficult for countrywide governments to build and implement regulations predicated on their own particular needs. This can be problematic when the precise economic conditions within a member country require activities such as modifying the money supply or increasing public debt to be able to fund infrastructure development or entitlements. These procedures, while necessary for one member country, could skew the economies of other member nations. Also, richer member countries may be forced to bail out poorer member nations or risk devaluating their currency and diminishing the complete regional overall economy.

Increasing Political Influence of Corporations

As national economies are more intertwined, the advocates of the free market exercise an unprecedented amount of politics autonomy and effect. By nature to be decentralized due to gain access to to resources including cheap labor, no government can effectively exert affect on a firm of sufficient size. In america, for example, firms finance lobbying entities to exercise their political capital.

Widening Gulf of Wealth

This autonomy of profit-making entities ensures that the bulk of the wealth generated by monetary activity can be given back to the top management of the entities without oversight or controversy. The result, as seen during the economic crisis of 2008 can be an increase in economical inequality, in which a tiny sliver of the world's population has amassed a comparatively gigantic proportion of the world's money where the share of that wealth by the middle and lower classes has actually decreased.

Labor Exploitation

One major result of globalization is that as demand grows for produced goods, the pressure to drive down the costs of manufacturing is manifested. This usually means that labor becomes devalued, income are influenced down and unions are eliminated, discouraged or severely weakened because of the emphasis located on unskilled labor


If one country in a region has resources the other areas lack, these resources rightly or wrongly tend to be seen by others as a politics weapon. Battles have raged in Eastern European countries over the relationships between Ukraine and Russia. Russia has offered a regional integration scheme many times wherein regional expresses such as Armenia and Kazakhstan can show resources and open markets. Ukrainians have responded by accusing Russia of which consists of superior oil and gas wealth to hold the Ukrainian economy hostage. This use of resources as a weapon, real or recognized, can be another consequence of imbalances in regional power agreements.

Observation and Recommendations

Policy designers have to change their thinking and their insurance policies to this trend if they're to succeed in managing economic improvements to the benefit of their societies all together. A static and fragmented method of policy making will fail to look at the growing interlink age ranges and overlap of hobbies which can be eroding traditional principles of so-called nationwide economic passions. A longer-term method of monetary policy-making is more necessary than ever before.

Economic liberalization only will not deal with structural problems such as unemployment or obsolete production infrastructures, but it could be instrumental in creating the entire economic growth that will facilitate the necessary restructuring. The main causes of the problems need to be tackled by appropriate steps to educate and retrain workforces, to encourage investment and modernization of capital bases, to market R&D etc. It's important, therefore, that governments take the local measures essential to assure the political viability of an insurance plan of economical openness. It is self-defeating for specific countries to reduce structural problems by protectionism.

In an interdependent world, the traditional adversarial method of multilateral negotiation or coordination is now increasingly improper. Genuine multilateral assistance calls for a widespread reputation of the

commonality of pursuits engendered by financial globalization, even among rivalling economies. Public awareness of the real passions on the line should be increased. This may in turn enable governments to attempt the multilateral initiatives required to take care of an interdependent world monetary system.


Globalization of economic activity and therefore growing financial interdependence can be an inescapable truth, although its implications aren't always fully regarded or comprehended.

International economical interdependence means that rivalling economies have

a common fascination with assuring macroeconomic stability, an open up world economical system and a multilateral framework of guidelines and institutions to manage global economical activity.

Sustained economic development in the new market economies and the expanding countries, and their integration into the emerging global economical system will advantage the industrialized countries as well. It really is in the interest of the second option to market world-wide economic development.

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