Differences Between Europe and China’s Economies

Identify the main differences between the economies of Europe and China in the three centuries before 1800. What factors can account for these differences and what were their implications for economic well-being?

The economies of Europe and China took utterly different paths at the beginning of the early modern period and continued to diverge throughout the next three centuries up to 1800. In this essay, it will look at how a wide range of interconnected factors, ranging from the geographical position and political climate to technological development, interacted with one another to account for different directions each region’s economic development took. By analysing the above factors for both China and Europe, it will compare their effects and connotations to the economic prosperity of each region.

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Political climate

China

First of all, the state exerts considerable influence over the economy. At the beginning of the modern era, China was governed by Ming dynasty (AD1368-1644), whose monarchs lifted the ban on external trade in 16th century, while encouraging trade with other Asian states as well as with further regions (e.g. the Middle East). In fact, as Kang (2012, p.107) stated: “China sat at the center of a vast trading network, and Chinese staple and luxury goods were desired literally around the world”. Furthermore, Chinese internal trade was revived by Ming canal system linking the north and the south (Kang, 2012, p.107). Above-mentioned disproves the Eurocentric stereotype that the Chinese economy was a closed, self-sufficient system, detached from surrounding economies.

After Manchu takeover of China in 1644 and the establishment of Qing dynasty rule, the empire started to expand to inner Asia. Conquering number of resource-rich regions (e.g. Xinjiang and Tibet) provided Qing dynasty with a variety of resources to utilize. However, it also caused an increase in the demand for goods needed for maintaining a large-scale military, i.e. food and clothes. Qing functionaries used trade as a mean to make up for their lack of necessities, trading commodities such as silk and cotton for livestock and edibles (Millward, 1998, p.80).

Moreover, according to Kang (2012, p.107), they conscientiously invested in infrastructure by building the network of roads which connected the east and west, thus improving the overall quality of communication throughout the realm. Consequently, the degree of economic activity was significantly increased, with enhanced economic growth and prosperity as consequences.

Europe

However, Europe was in an economically advantageous position, especially due to the monarchs who financed voyages to the New World. Although the discoveries temporarily disrupted the European economy by increasing the amount of silver and gold in circulation (resulting in high inflation rates), in the long run they empowered European economic growth.

Firstly, a number of formerly unknown herbs flooded into Europe, causing a revolution in the European standard of living. While the majority of the European population previously depended on wheat (which barely provided a living), after the discoveries they switched to maize and potatoes (Nelson, 1998). Those crops yielded on average two to three times more per acre of land than wheat, thus enabling people to feed animals with the residue and eventually regularly eat eggs and meat (Nelson, 1998). By making people richer, so-called dietary revolution allowed them to trade the excess agricultural products. Therefore, overall purchasing power increased, as well as demand for non-inferior goods.

Secondly, European governments saw the opportunity in exploiting their new colonies’ resources. Goods like gold, silver, timber and turpentine were used to fuel the growing industry by providing raw materials for the production of manufactured goods (Nelson, 1998). Aforementioned strengthened Sino-European trading ties, since European manufactured goods were often traded for Chinese goods.

Apart from the discoveries, Europe was in advantageous position (albeit temporarily) by its mercantilist policies. Although the practice is damaging in the long term, for a time it encouraged the use of all natural resources available (Gaille, 2015) within Europe, as well as it increased demand for European raw materials within Europe itself.  Moreover, those policies naturally decreased unemployment rate (Gaille, 2015) by employing workers in the extraction of resources along with employing them in the production of manufactured goods.

Geography

China

The geographic location of China greatly influenced its historical and economic development. Surrounded by the Pacific Coast as well as the Tibetan highlands in the west, and by the mountains of Inner Mongolia together with The Gobi Desert in the north, this vast area of land remained relatively uninfluenced by the outer world for the majority of known history. It was thus unpenetrated by foreign ideas, which allowed it to retain its integrity and unity.

The majority of the population was concentrated in the fertile valleys of Yangtze and Huang He rivers. The fertility of those regions allowed Chinese population to cultivate a variety of crops (e.g. rice) and sustain themselves by consuming and trading those crops. Right until commercial revival in the late Ming dynasty, China’s economy was predominately agrarian (Myers, 1980, p.6), which made population reliant on the weather for the living. The few urban and commercial centres that existed were concentrated, as Von Glahn (2016) stated, along the two major canals of interregional trade, the Yangzi River and the Grand Canal. It could be suggested that this dense concentration of population made the quick exchange of ideas possible and was therefore one of the reasons why so many early inventions (e.g. paper, printed money, gunpowder) originated in China. However, it could also be argued that the densities of the population in these areas lead to quick spread of infectious diseases and therefore worsened living conditions to some extent.

During the 16th century and the above-mentioned commercial revival, living conditions undoubtedly improved. Jiangnan and barren Fujian regions started importing rice and other edibles from Yangzi valley provinces Hunan and Hubei, while earning their living by specializing in handicraft industry (Von Glahn, 2016, p.297). Other regions, like Huizhou (Anhui) started exploiting their own natural resources, e.g. timber. This overall diversification of economic activity resulted in proliferation of internal trade (e.g. handicraft goods produced in Fujian were traded for food imported from Hunan province) while also enabling the population to diversify its diet and therefore improve living conditions.

However, despite the progress described above, the size of the Chinese territory abated economic growth due to the inefficiency and slowness of communication. This was further amplified in the later centuries by the lack of technological development (discussed in the next section of this essay). Chinese unity and the enormity of its territory had an additional downside: over the course of the centuries, it became evident that the lack of competition from neighbouring states (unlike in Europe), stifled economic initiatives and resulted in economic stagnation.

Europe

Located between the Bosporus in the east, the Atlantic Ocean in the west and Mediterranean Sea in the south, Europe was geographically predisposed to become susceptible to the variety of different influences (the exact opposite of China). Due to its geographical features, it was unable to develop common language and culture.

Unlike China, Europe lacked enormous rivers and vast fertile valleys along them: this prevented concentration of population on a relatively small area of land. Furthermore, its landscape was much more fragmented than China’s, with various mountain ranges such as The Alps and The Pyrenees forming natural borders between distinct populated areas. Economic consequences of such fragmented geography were of utmost importance.

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As Kennedy (1988, p.17) reasoned: “For a start, it both made difficult the establishment of unified control (…) and minimized the possibility that the continent could be overrun by external force.” Therefore, a case can be made that Europe’s landscape helped to shape the commercial spirit of the continent. The lack of the central rule made imposition of trade restriction and government monopolies much harder to execute, therefore allowing competition and entrepreneurship to evolve. The diverse climate of the continent led to diverse products, which could then be exchanged via the network of rivers which helped the development of the long-distance trade and reduced its costs (Kennedy, 1988, p.19).

Furthermore, Europe’s surrounding seas played the crucial role in its economic development. By providing incentives for the growth of the shipbuilding industry and proliferation of seaborne trade(Kennedy, 1988, p.19), consequences were as far-reaching as the discovery of The New World. Numerous economic benefits of the discoveries (discussed in the previous section of this essay) put Europe in an economically advantageous position over China, who largely neglected investing in maritime commerce and financing of voyages after Zheng He’s expeditions in the early 15th century.

Technological development

China

Considering its earlier history of innovation, along with its large population and the geographical location favourable to the development of maritime commerce, China had all the potential to emerge as the world’s technologically most advanced nation. However, during the course of a few hundred years, it fell behind Europe, which inspired a number of theories trying to explain this phenomenon.

First of all, it should be noted that the political climate (discussed above) is closely related to the technological progress. In this context, emperor Hongxi’s ban on voyages in 1424 and the following dismantling of the navy (Headrick, 2009, p.73) had an enormous impact on the Chinese economic history. By turning its back on further expeditions and building of new ships, China effectively stopped participating in not only maritime trade, but also in the development of new naval technologies. As a consequence, China was not able to take part in exploitation of the New World’s resources and long-distance trade, the two pillars of Europe’s future economic growth.

Its backwardness regarding military technology had even greater effects on China’s economy. As Headrick (2009, p.73) stated: “The Chinese were familiar with cannon and other firearms but used them far less than did the Turks or Europeans because they lacked sufficient bronze”. It can be argued that this came as the result of the aforementioned neglect of the naval development. That is, if China had a stronger navy and an active maritime trade with distant nations, it could make up for its lack of raw materials by importing them. Since this was not the case, its military technology was not sufficiently advanced and fell far behind European.

Again, political situation and geography provided context for such course of events. Considering China’s unique historical unity (as opposed to Europe’s political fragmentation) and its enormous size, there were little to no incentives to compete and therefore to innovate. Chinese inability to resist Europeans and their trading posts came as a result, with the foreign monopolies on trade in China’s surrounding seas being the ultimate outcome.

Europe

While China experienced stagnation, Europe thrived regarding both economic growth and technological development. Its political disunity encouraged competition among warring nation-states, resulting in rapid technological advancement.

Contrary to China, who discouraged seaborne trade and shipbuilding, European nations invested as much time and money as they could into development of the naval technologies. Equally important, Europeans were quick to assimilate technologies developed elsewhere (e.g. navigational aids, the compass and the astrolabe), some of which proved to be quite useful in the European voyages (Jones, 1987, p.57). Europe’s enthusiasm for maritime affairs further intensified after the discovery of the New World in late 15th century, when the advantages of a strong navy became obvious. Their growing interest in maritime affairs is illustrated by the memorable event in the early 18th century, when the British Parliament offered £20,000 for any method of precisely determining longitude (Headrick, 2009, p.76). Above-mentioned anecdote further supports the claim made in this essay that maritime technology in Europe was growing ever more important, in contrast to waning interest in technology in China.

Likewise, the competition among many conflicting states had an obvious consequence: a lot of attention was paid to the military technology. However, Europeans did not merely assimilate foreign technologies. They looked to improve them and therefore gain advantage over their competitors, an argument which can be supported by Headrick’s (2009, p.81) claim: “The English, who lacked the copper to make bronze, experimented with cast iron(…)The first iron cannon were (…) much cheaper than bronze. By the early eighteenth century, England had the largest and most heavily armed fleet in the world.” As explained above, although some technologies have originated elsewhere (e.g. cannon), they were upgraded in Europe for the sake of bettering the competitors.

All of the above listed factors combined to shape Europe as the technologically and economically most developed continent at the beginning of the 19th century. Thus it was the place where one of the most important processes of the 19th century took place: the Industrial Revolution.

Conclusion

In conclusion to this essay, it can be said that many factors interacted with one another from the 1500(and earlier) to 1800 to ultimately result in the Great Divergence (that is, the great disparity in economic prosperity between Europe and China) at the end of this period. They can be grouped into a few main categories: political situation, geographical features and technological development. For the sake of organization, the categories for each region were examined separately. However, that is not to say that they are independent of one another. Quite the opposite, throughout the essay the effort has been made to show that they have heavily influenced one another and should therefore be taken into consideration together.

Bibliography

Kang, D.C. (2012) East Asia before the West: Five Centuries of Trade and Tribute. New York City, New York: Columbia University Press

Millward, J.A. (1998) Beyond the Pass: Economy, Ethnicity, and Empire in Qing Central Asia, 1759-1864. Stanford, California: Stanford University Press

Nelson, L.H. (1998) The Impact of Discovery on Europe. Available at: http://vlib.iue.it/carrie/reference/worldhistory/sections/19impact.html (Accessed: 13 November 2018).

Gaille, B. (2015) 8 Pros and Cons of Mercantilism. Available at: https://brandongaille.com/8-pros-and-cons-of-mercantilism/ (Accessed: 13 November 2018).

Tregear, T.R. (1965) A Geography of China. London, United Kingdom: University of London press

Myers, R.H. (1980) The Chinese Economy: Past and Present. Belmont, California: Wadsworth

Von Glahn, R. (2016) The Economic History of China. Cambridge, United Kingdom:  Cambridge University Press

Kennedy, P. (1988) The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000. New York, New York: Random House

Headrick, D.R. (2009) Technology: The World History. New York, New York: Oxford University Press

Jones, E.L. (1987) The European Miracle. 2nd edn. New York, New York: Cambridge University Press

Money and Prices in the Long Run and Open Economies

Money and Prices in the Long Run and Open Economies

Introduction

 This essay covers an overview of the U.S. economy and how economies in general function. This economic outlook entails: comparisons of historic and future predictions of U.S. economic indicators, an explanation of how the government can affect the wellness of the economy, an analysis of how monetary policy could influence inflation rates in the long term, a description of how trade shapes the productivity and the gross domestic product, a discussion on the significance of two vital markets in the economy, and finally a recommendation on what the government can do to help grow the economy.

Comparing Histories and Forecasts of U.S. Economic Indicators

 Let’s begin with the changes in gross domestic product (GDP) in the United States over the past years. According to Trading Economics, an online economic database, GDP has been growing in our country every year for 9 straight years. Only from 2008-09 was there a decrease in GDP. The forecast predicts that in the next 5 years it will continue to grow to over 23 trillion dollars (Trading Economics). Both our past and predicted future GDP measures appear to steadily grow.

How Government Policies Can Influence Economic Growth

 Diving further into the overview of an economy and how it operates we begin to see a regulating entity that manages an economy. The government plays this position and has a vital role in the economy of a society. Its function, in regards to the economy of that society, is to support the goals of economic growth, low unemployment, and low inflation. Governments can reach these goals by exercising two methods: monetary policy and fiscal policy (Exploring Business, 2010).  For reference in today’s world the United States economy will be focused on as an example to display how these means are practiced.

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 Monetary policies are enactments by the government that utilize its regulating authority to adjust the supply of money and the level of interest rates (Exploring Business, 2010). In the United States, the Federal Reserve System (Fed), the central bank of the country, is in charge of this responsibility. In fact, there is a specific sect within the Fed that works out monetary policy called the Federal Open Market Committee (FOMC). The FOMC affects the supply of money in the economy through what is known in the economic world as open market operations. After meeting with its members and discussing what direction the supply of money needs to be moved in conducts these open market operations by purchasing or selling U.S. government bonds. If the FOMC decides to increase the money supply it will produce dollars that will be used to purchase the bonds. This results in more money in the hands of the public which equals an increased supply of money. If the Fed wanted to decrease the money supply they would sell the bonds to the public which causes a reduced supply of money as the public exchanges their dollars to government. Both of these actions ultimately affect interest rates simply because as banks have less and less money it becomes more and more difficult to loan it out which ends in higher interest rates. Conversely, the same holds true, because as the banks have more and more loanable funds it becomes easier and produces lower interest rates (Mankiw, Ch. 16, 2015). Monetary policy indirectly changes the money supply through a series of causes and effects, but the government also has a more direct method.

 Fiscal policy is the other tool used by the Fed to affect the money supply. When the government reduces spending and when it increases taxes, the result is a decreased money supply. The opposite is true as well, when the government increases spending and when it decreases taxes, the consequence is an increased money supply (Exploring Business, 2010). Like monetary policy, fiscal policy is a tool used by the Fed that causes a cascade of causes and effects that ultimately influences the intended result.

How Monetary Policy Could Affect the Long Run Behavior of Inflation Rates

 Monetary policy also has long term implications on the rate of inflation. To explain this we will begin with the quantity theory of money. This is a theory that asserts that growth in the money supply governs the rate of inflation. Following this school of thought, monetary policy that increases in the supply of money would increase the inflation rate. The most notable example of this phenomenon found in real world history occurred in Zimbabwe. Zimbabwe once printed their own currency that was similar in price to the U.S. dollar. The government decided to enact monetary policy that increased the supply of money by printing more dollars and pumping them into the economy. Prices eventually increased again afterwards so the central bank elected to increase the inflation rate more. This began a cycle of increasing the inflation rate to solve the short term problem, but a larger long term problem was growing. As more money was entering the economy with each monetary policy action the value of each dollar was decreasing. As each dollar gradually lost value more dollars were required to pay for goods and services that were once worth less dollars. Instead of printing more single dollar notes the central bank began printing higher note amounts. This then lead to the lower note amounts becoming less and less valuable and therefore less used in the economy because they had a minute amount of purchasing power. This cycle continued on in Zimbabwe until the central bank stopped printing their own currency and switched to other currencies. Once the dust had settled on their vicious cycle of increasing money supply that kept leading to increases in inflation rates, the central bank had printed notes worth 10 trillion in the Zimbabwe dollars. Those notes at the time were worth around 3 dollars in America. This example demonstrates how monetary policy can affect not only the short run, but also the long run of inflation rates (Mankiw, Ch. 17, 2015).

How Trade Deficits or Surpluses Can Influence the Growth of Productivity and GDP

 Trade between countries affects an economy in a significant way as well. Trading between economies involves exports and imports. Exports are goods and services produced within a country and sold abroad while imports are foreign goods and services that are purchased domestically. When the values of each are combined the imports are subtracted from the exports to form what is referred to as net exports or the trade balance. Because exports add money to an economy it increases the net exports and because imports reduce the money supply of an economy it decreases the net exports. When an economy has more total exports than total imports there is a positive amount in net exports which is called a trade surplus. In contrast, when an economy has more imports than exports they have a negative amount in net exports which is termed a trade deficit. When both are equal and the net exports is zero, a country is labeled as having a balanced trade (Mankiw, Ch. 18, 2015).

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 Trading internationally also influences a country’s GDP or output. GDP provides a measure of the value of all final goods and services produced in a country. Final is the key word in the definition that implies the goods or services have not been double counted which would overestimate the result. A high GDP displays that a country’s economy has a high output and would be considered a larger economy (Kurtzleben, 2014). GDP is calculated using a formula that has four components all added together: consumption, investment, government purchases, and net exports (Mankiw, Ch. 10, 2015). Because net exports are a pivotal element in the calculation of GDP, trade deficits and surpluses can be very impactful to the output of an economy.

 Trade between economies also shapes the productivity of a country. Mankiw defines the economic term of productivity by testifying that it is “the quantity of goods and services produced from each unit of labor input” (Mankiw, Ch.1, 2015). If a country exhausts a minor amount of resources to produce a major amount of goods or services, then that country would be considered highly productive. Inversely, if a country depletes a sizeable amount of resources to produce a scarce amount of goods or services, then that country would be considered less productive. According to an article in the International Monetary Fund Blog, trade boosts productivity by exposing domestic firms to a higher level of competition through importing, by learning from foreign customers through exports, and by reallocating resources between domestic companies toward a more productive apportionment (Ahn and Duval, 2017). Knowing this we can more clearly envision how trade deficits or surpluses can alter the productivity of a nation.

The Importance of the Market for Loanable Funds and the Market for Foreign Currency Exchange to Our Economic Growth

 The markets for loanable funds and foreign currency exchange hold imperative functions in the growth of our economy as well. The market for loanable funds causes our economy to shift for a few reasons that will be expounded, but we will begin by defining what the market for loanable funds is. Mankiw expresses to his readers this market consists of a supply of loanable funds that is derived from national saving and that the demand of loanable funds emanates from domestic investments and also the net capital outflow (NCO) (Mankiw, Ch. 19, 2015). Net capital outflow being previously delineated by Mankiw as “the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners” and characterized as always being equal to net exports (Mankiw, Ch.18, 2015). Knowing this we see that the market for loanable funds is where the demand of loanable funds, those who are seeking domestic investments, meets the supply of loanable funds, those who are saving their money in the economy (Mankiw, Ch. 19, 2015). The point at which these two lines intersect is where the real interest rate, which basically is the cost of borrowing money in our economy after the effects of inflation are excluded (Mankiw, Ch. 11, 2015). This figure is keynote component in the importance of our economic growth because it sets the NCO, which is equal to our net exports, in a positive or a negative position. When the real interest rate is higher there is a negative NCO, also known as a net capital inflow, and when it is lower there is a positive NCO. After the real interest rate modifies the NCO, the NCO then moves the supply of foreign currency which directly affects the market for foreign currency exchange. The reason the NCO directly shifts the supply in this market is because once foreign currency is invested domestically, in cannot be used domestically and therefore must be used abroad. Once the supply has been set by the NCO, it meets the demand curve to set the equilibrium real exchange rate. The demand for foreign currency is set by the cumulative exports of the country. When foreign currency grows weaker, the total exports of the country increases because they can purchase more for the money they have and when it grows stronger, the net exports decreases as domestic dollars no longer go as far as they previously did (Mankiw, Ch. 19, 2015).

 Taking a step back to see how these markets come together is paramount. In our economy these two markets are of chief importance. The amount of saving in depository institutions of the American people sets the supply of loanable funds.  This supply meets the amount of domestic investment and NCO we currently have to adjust the real interest rate. Afterwards, the real interest rate establishes the NCO, which then regulates where the supply of foreign currency in the foreign currency exchange market. Where the supply is determines where demand meets it and at that spot the real exchange rate is set (Mankiw, Ch. 19, 2015). The implications of ignoring these two markets will be conveyed to further present their magnitude. Imagine the American people were not saving money. The supply for loanable funds would dwindle leaving only reserves in the banks which would mean that there could be not investing domestically. As the supply for loanable funds would begin to plummet, the demand would start skyrocketing. This would cause a drastic increase in the real interest rate which would cause a huge net capital inflow, or negative NCO. The supply of foreign currency would follow in dramatic fashion decreasing which would ultimately cause the real exchange rate to skyrocket as the American dollar weakens in the global market.

A Research Driven Recommendation of What the Government Should Do to Encourage Economic Growth

 My recommendation of a plan of action for the government to encourage economic growth is to drastically reduce, or even eliminate completely, tariffs that are impeding the benefits from international trade. Currently, we are in the midst of a “trade war” with China that is leading to losses of productivity and economic growth opportunity on both sides. According to Business Insider’s Bob Bryan, these tariffs could increase costs of parts and materials which causes the American people to have to foot the bill through higher prices (Bryan, 2018). This is simply not good for our economy and needs to be reversed.

Conclusion

So in all, this economic outlook has covered the history and forecasts of economic indicators, conversed on how government policy can grow or weaken the economy, analyzed how monetary policy can influence inflation rates in the long run, reviewed how trade adjusts the growth of productivity and GDP, taught on how pivotal the market for loanable funds and the market for foreign exchange currency are to the economy, and finally provided a recommendation on what our president can do to help the economy grow.

Reference Page

Ahn, J., & Duval, R. (2017, May). How trade with China boosts productivy. IMF Blog . Retrieved from https://blogs.imf.org/2017/05/24/how-trade-with-china-boosts-productivity/

Bryan, B. (2018). Trump’s trade war could cost every middle-class American family $453 and could eliminate 292,000 US jobs. Retrieved from https://www.businessinsider.com/trump-trade-war-china-steel-tariffs-could-cost-us-families-jobs-2018-12

Government’s role in managing the economy. (n.d.). University of Minnesota Libraries, (), . Retrieved from https://open.lib.umn.edu/exploringbusiness/chapter/1-7-governments-role-in-managing-the-economy-2/

Kurtzleben, D. (2014, June). What does GDP measure/. Vox, (), . Retrieved from https://www.vox.com/2014/6/20/17587364/what-does-gdp-measure

Mankiw, N. G. (2015). Principles of macroeconomics (7th ed.). Retrieved from https://phoenix.vitalsource.com/#/books/9781305727625/cfi/6/50!/4/2@0:94.7.

Trading Economics. (n.d.). United States Gdp. Retrieved from https://tradingeconomics.com/united-states/gdp

Social vs Liberal Market Economies

Gabriela Lopez
 
Section I
Dictators Dilemma:
Dictators can never be sure of how much support they really have because of the repression they practice. As explained in the chapter “repression breeds fear, which in turn breeds misinformation.” Dictators often have to spend more on civilian or military spies to gain knowledge of opposing parties or disloyal civilians. Since dictators can’t be sure of how many supporters they have, they find themselves spending money to buy loyalty. Dictators spend a lot of resources trying to neutralize areas that they believe could be a threat.

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Military regimes tend to be more paranoid when it comes to measuring the loyalty of the nation. They are aware that in order to gain power they overthrew the standing government; therefore, they know that someone else can do the same to them. It is important for the dictator to ensure the military’s loyalty but spending luxurious amount of money and resources.
In Africa in authoritarian regimes it was obvious who was ruling because of the difference in infrastructure from one place to the other. Dictators tend to prefer to spend more on their home areas than anywhere else. It is common for authoritarians to be more generous with the people of own ethnic group.
Drogus and Orvis 2012, Chapter 8
Social vs liberal Market Economies:
Market economy is the system in which individuals exchange goods and services in a large manner. It is not limited to finished good, this system also includes labor. Social market economies are designed to benefit a larger amount of people. In a social market economy the government is highly involved in creating social goods for the people. They have highly coordinated business communities. In a social economy the government is heavily involved in protecting the citizen’s welfare and providing employment security. Germany’s highly productive market economy led to be the leading industrial exporter. They have and extensive welfare policies that cover almost every citizen of the nation. Germany has been successful at keeping the productivity levels high, secure wages, and low inequality levels.
In contrast, a liberal economy limits government intervention. The United States is an appropriate example of liberal economy, the states has allowed the economy to take its course with little of no intervention. The market has crashed more than once, taking the nation’s economy down with it. The bargaining levels are not as efficient in a liberal economy that in a social economy because of the lack of government intervention. The bargaining happens between the employer and employee, and unfortunately for the working class we get paid what the employer things the labor is worth. The United States continue to be one of the wealthy countries that don’t provide its citizens with welfare. The United States has been successful in creating good growth, keeping unemployment rates in a moderate state. On the opposite side, the United States has high inequality and poverty levels compared to other wealthy countries.
Drogus and Orvis 2012, Chapter 5
Market Externalities:
Market externalities are one of the three causes of market failure. Market externalities occur when the cost or benefit of the product is not reflected in the market price, this in turn reduces efficiency. The market price should include the price of production and the price of the damage it creates. Environmental damage is often considered an externality because the company that created the pollution did not pay for the damage. When a factory pollutes the air they create a long term health problem for the people that inhale it. Therefore, some people believe that industries should be limited to the amount of pollution that they can release to the environment and or be responsible for the full cost of their production.
Efficiency can also be maximized if both the seller and the buyers know the full cost of the product; this is known as “perfect information”. The 2008-09 recessions were partially caused by investors not knowing the full cost. Home buyers were so desperate to buy homes that they didn’t check the variable interest rates that were in the contracts. The high mortgage payments would be higher than what families could afford after a certain period of time. This happened to my family back in 2009, my parents lost the home that they had invested so on because the mortgage payment double from one month to another. I explain this part of my life to show that I completely understand market externalities.
Drogus and Orvis 2012, Chapter 5
Four Welfare Policy Types:
Social policy can be categorized in four distinct types: universal entitlements, social insurance, mean tested public assistance, and tax expenditures. Universal entitlements are the benefits that the government provides equally to all its citizens, these are funded with taxes. The only example that can relate to the United States is public education, which is a right that every citizen has. Some believe that is an indirect component, the government only offers free education because that will decrease the poverty level in the future. In Europe the universal entitlement is more direct, they provide cash benefits to the families to help pay for the expenses of raising a child. People don’t always agree with universal entitlements because they feel that it’s a waste of money that is going to people that don’t need it.
Social insurance is a form of insurance that you only get if you have contributed to the funds. For instance, in the United States we have social security, the pension system created by the government to help you when you need it. The money is taken out directly from the paychecks and it’s put into the general fund. Young people pay for the elder’s social security and in turn we rely on the future generations to do the same. People are more supportive of social insurance because they don’t have to question the reasons why people get money.
Means-tested public assistance are the programs that only people that fall under low income levels get. SNAP, CHIP, WIC, TANF are programs offered in the United States to families that need financial assistance. The tax payers don’t always agree with means-tested public assistance because they are funded with their tax money. The working citizens that contribute the nations general tax fund don’t feel that the people receiving welfare benefits are worthy of the assistance because they are getting money that they did not work for.
Tax expenditures are tax breaks that only specific people get. This social policy is different from the rest because the government is not spending money on providing you with assistance; instead they allow you to keep this money. This is sometimes helps families to keep money that they can use to purchase a home, which would stimulate the economy in a different way. Tax breaks can be limited to certain groups of people and they are meant to help lower poverty and inequality.
Drogus and Orvis 2012, pages 564–596
Cap and Trade:
Cap and trade is and incentive given to companies by the government that is intended to reduce the pollutant that a company releases into the environment. The government gives vouchers to the companies that allow them certain units of pollution, the companies are then free to trade or exchange with other industries that have a higher cost of pollution. The companies that cannot afford to but cleaner technology to create less pollution can buy more rights from the companies that can easily upgrade to more ecofriendly technology. The downside to the cap and trade system is that any company with enough resources can buy all the rights it needs, creating some trouble areas where they will suffer from severe pollution. The government still has to limit the amount of right a company can buy to be able to successfully make the cap and trade system work. Some suggest that a simpler solution will be to directly tax pollutants.
Drogus and Orvis 2012, pages 564–596
Part II
Is political science actually science?
Political science as Aristotle described it is the study of the state. Political scientists preoccupy themselves with studying nations, states, and government policies among other things. As defined by dictionary.com science is the study of a subject that deals with facts systematically arranged to show the operational of general laws. Based on that definition I will say that political science is definitely a science. The study and comparison of the state policies and nations is no easy task, it requires hard work and years of study to find out what works for society and what doesn’t. Comparative politics is possible because even when nations are not exactly the same they do have similar variables that can help weight the differences.
Thanks to comparative politics we are free to “exchange ideas” with other nations. Throughout the course we have compared many nations and their rules and we have being able to make our mind on what we find correct and the things we wish to stay away from. For instance most of us already had an idea of what democracies are, but little did we know that there are different types of democracies. The type of democracy that we find politically correct is the one in the United States, the nation that allows a liberal market economy, and holds free and fair elections regularly. Other nations that are not democratic have adopted the term to make them sound democratic like the Democratic People’s Republic of North Korea and the People Republic of China. Communist countries have gone as far as to adopt elections and have democratic institutions. Then there are nations that are recognize as democracies but don’t measure up to the definition of the word. Comparative politics has allowed us to measure how democratic a nation is based on contestation and inclusion.
Political scientists are constantly focusing their studies on topics such as health care and the different types of health coverage offered across the world. Most of the world has adopted the idea that health care is a social right. Everyone is regardless of social status has the right to get the appropriate health coverage they need. Most wealthy countries have been able to intervene in the market to be able to create universal coverage to the citizens. Even though the United States has not taken it into its own hands to recognize health care as a social right it, it does claim the provision of the best health care possible to the largest number of people. Comparative politics has put the health care systems into perspective to be able to adequately identify which one serves the largest amount of people. In Germany the national health insurance system has been a success, the government has mandated that every must have health insurance. Since the government regulates insurance company’s there’s absolute control on how much those companies can charge for premiums and health procedures.
National health insurance only works for wealthy countries; most citizens in poor countries cannot afford insurance. Some countries implement a modified version of the national health insurance that adapts to the peoples budget, or that only benefits the higher classes. The national health system is also more common in wealthy countries. This system is government financed and managed. Doctors that work in a national health system get their income directly from the government. Therefore the government can regulate the cost of procedures and drugs. Poor countries attempt to enforce the national health system by offering services through public clinics and hospitals.
Market based insurance is the least common; the insurance game is ran by markets. This allows limited government regulation which in turn creates high prices for the citizens to pay. Even though, the market based economy is usually pricier due to the lack of government regulation, the size of the population that doesn’t have health insurance is relatively small. Comparative politics sets the examples of what country we want to be like. Do we want to continue to have a market based insurance system or do we want to be like Germany where health care is a social right?
Political science has helped us gain knowledge of things that have failed in the past to keep us from making the same mistakes in the future. Everything in this world can be measured and compared; some things are more obvious to the eye than others. Comparative politics is certainly possible. If it wasn’t for the patience and dedication of political scientist that live to reject their theories there might not have been such great advancement in the world.
Citations:
Clark et al. 2009, Chapter 5
Drogus and Orvis 2012, pages 564–596
Essay 2
Advanced Democracies
Advance democracies are countries that have institutionalized democracies and have high levels of economic development and prosperity. Originally, advanced democracies were considered “first world” countries, they were ahead of all others because they were growing economically and they had declared themselves democracies. Referring to countries as first, second and third world had to be redefined because countries with oil-based economies began to become wealthier but weren’t exactly heading toward democracies. The biggest challenge that advance democracies face is staying ahead in the economy game.
Advanced democracies can be identified as such by looking at the degree of institutionalization of participation, competition, and liberal. Advanced democracies have open market policies and high levels of private property ownership. A small portion of the economy is based on agricultural. Advanced democracies initially replaced agriculture with industrialization, which is now being replaced by education, real estate and other parts of the service sector. Liberal democracies all share common characteristics of high economic development based on industry and services. However some differences stand out. Advance democracies take different approaches to measure freedom and inequality. Liberal democracies limit the freedom that the citizens have. For instance, some countries like the United States allow abortion as long as they are done before the first trimester. In other countries the government can go as far as to ban abortions all together. Every country can takes different approaches to protecting certain liberties.
Todays advanced democracies are rational, materialistic, and bureaucratic. They give greater importance to individualistic freedom than collective equality. Advance democracies are undergoing social, political and economic changes. These changes have shifted from having an economy that was based on industrial and agricultural goods to service sector economies. Most of the people in the nation are employed in the service sector, instead of producing something that can be sold or traded people are working in finance, retail, and health care. According to the reading three quarters of the population are employed by the public sector, the “made in China” stickers are to blame.
Globalization has made it easier for companies to move to foreign countries to pay for cheap labor. Industries have migrated to China and India among other countries where labor is so cheap it outweighs the cost of transporting the goods. Advanced democracies are faced with the daily challenge of keeping unemployment levels down by creating different jobs. Globalization has made it easier for communist countries to draw economic growth their way. Being a manufacturing company in the United States comes with more costs than what companies can afford. In the United States environmental awareness is rapidly gaining attention, companies find themselves either having to buy newer ecofriendly machinery or buying pollution rights from other companies. Environmental issues might not be that big of a concern in developing countries, they are yet to see the long term cost of the rapid economic development they’ve been enjoying.
In consequence advanced democracies no longer have the advantage of selling “home-made” products. Companies in advance democracies have taken the rational approach to increase their individual gain while ignoring the nation’s economic needs. Globalization has made the challenge of even greater, economic growth more difficult. Fortunately, the market has been creative enough to come up with jobs that might not have existed years ago. The main concern is to come up with leverage to somehow be able to compete with growing economies that are benefiting from the companies that have found better business opportunities elsewhere.
As a supporter of advance democracies, I believe in the strength and the efficiency of the countries to successfully compete in foreign markets. The United States must be able to produce something that other nations want to invest on, in order to have even trade with other countries. I also admire globalization and how easy it is to be united with other parts of the world. I believe that globalization is a threat when countries are competing for economic growth. The United Stated and other advance democracies should not ignore the importance of trading manufacture goods, there should be some incentive plans to keep American companies in American soil.
Citations: O’Neil 2010, Chapter 7
 

Analysis of Open and Closed Economies

1.0 DEFINITION OF OPEN ECONOMY AND CLOSED ECONOMY
An open economy is an economy in which there are economic activities between domestic community and outside, e.g. people, including businesses, can trade in goods and services with other people and businesses in the international community, and flow of funds as investment across the border. Trade can be in the form of managerial exchange, technology transfers, all kinds of goods and services. Although, there are certain exceptions that cannot be exchanged, like, railway services of a country cannot be traded with another to avail this service, a country has to produce its own. This contrasts with a closed economy in which international trade and finance cannot take place.

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The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade. There are a number of advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose. Additionally, consumers have an opportunity to invest their savings outside of the country. In an open economy, a country’s spending in any given year need not to equal its output of goods and services. A country can spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigners. There is no closed economy in today’s world.
An economy in which no activity is conducted with outside economies. A closed economy is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy’s borders. A closed economy is the opposite of an open economy, in which a country will conduct trade with outside regions.
1.1 DIFFERENCES BETWEEN OPEN ECONOMY AND CLOSED ECONOMY

1.2 COUNTRY WHO PRACTISE OPEN ECONOMY AND CLOSED ECONOMY
American countries in adopting open economy and free and other trade practices or the United States an open economy is the opposite of a managed economy. It is one that is characteristically market-oriented, with free market policies rather than government-imposed price controls. In an open economy industries tend to be privately owned rather than owned by the government. In the area of international trade an open economy is one whose policies promote free trade over protectionism .On the other hand, a managed or closed economy is characterized by protective tariffs, state-run or nationalized industries, extensive government regulations and price controls, and similar policies indicative of a government-controlled economy. In a managed economy the government typically intervenes to influence the production of goods and services. In an open economy, market forces are allowed to determine production levels. A completely open economy exists only in theory. For example, no country in the world allows unlimited free access to its markets. Most nations have fiscal and monetary policies that attempt to improve their economies. Many economies that are open in some respects may still have government owned, monopolistic industries. A country is considered to have an open economy, however, if its policies allow market forces to determine such matters as production and pricing.
1.3 CONSUMPTION AMONG OPEN ECONOMY AND CLOSED ECONOMY
In a closed economy, all output is sold domestically, and expenditure is divided into three components: consumption, investment, and government purchases.
Y = C + I + G an open economy, some output is sold domestically and some is exported to be sold abroad. We can divide expenditure on an open economy’s output Y into four components: Cd, consumption of domestic goods and services, Id, investment in domestic goods and services, good government purchases of domestic goods and services, X, exports of domestic goods and services. The division of expenditure into these components is expressed in the identity.
1.4 INVESTMENT AMONG THE OPEN ECONOMY AND CLOSED ECONOMY
An open economy is one that engages in international exchange of goods, services, and investments. Exports are goods and services sold to buyers outside the country, while imports are those purchased from foreigners. The difference between exports and imports of goods and services is called net exports. When foreign trade is introduced, domestic demand can differ from national output. Domestic demand comprises consumption, investment, and government purchases (C + I + G). To obtain GDP, exports Ex) must be added and imports (Im) subtracted, GDP = C + I + G + X.
1.5 IMPORT AMONG THE OPEN ECONOMY AND CLOSED ECONOMY
The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade. There are a number of advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose. Additionally, consumers have an opportunity to invest their savings outside of the country.
2.0 UTILIZE
Utility, or usefulness, is the ability of something to satisfy needs or wants. Utility is an important concept in economics and game theory, because it represents satisfaction experienced by the consumer of a good. Not coincidentally, a good is something that satisfies human wants and provides utility, for example, to a consumer making a purchase. It was recognized that one cannot directly measure benefit, satisfaction or happiness from a good or service, so instead economists have devised ways of representing and measuring utility in terms of economic choices that can be counted. Economists have attempted to perfect highly abstract methods of comparing utilities by observing and calculating economic choices. In the simplest sense, economists consider utility to be revealed in people’s willingness to pay different amounts for an economic term referring to the total satisfaction received from consuming a good or service. A company that generates transmits and/or distributes electricity, water and/or gas from facilities that it owns and/or operates.
2.1 WEALTH DISTRIBUTION
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society; the word “wealth” is often confused with “income”. These two terms describe different but related things. Wealth consists of those items of economic value that an individual owns, while income is an inflow of items of economic value (See Stock and flow.) The relation between wealth, income, and expenses is rather than the current income of members of that society.
2.2 FOUR PRODUCTION FACTORS EFFICIENTLY AMONG WEALTH DISTRIBUTION
The four factors of production in economics are land, labor, capital and entrepreneurship. In economics, factors of product’ are the inputs to the production process. Finished goods are the output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function. There are three basic factors of production: land, labor, capital. Some modern economists also consider entrepreneurship for a factor of production. These factors are also frequently labeled “producer goods” in order to distinguish them from the goods or services purchased by consumers, which are frequently labeled “consumer goods.” All three of these are required in combination at a time to produce commodity. In economics, production means creation or an addition of utility. Factors of production (or productive ‘inputs’ or ‘resources’) are any commodities or services used to produce goods or services.
Factors of production may also refer specifically to the primary factors, which are stocks including land, labor the ability to work, and capital goods applied to production. Materials and energy are considered as secondary factors in classical economics because they are obtained from land, labor and capital. The primary factors facilitate production but neither become part of the product as with raw materials nor become significantly transformed by the production process as with fuel used to power machinery. Land includes not only the site of production but natural resources above or below the soil. The factor land may, however, for simplification purposes are merged with capital in some case due to land being of little importance in the service sector and manufacturing. Recent usage has distinguished human capital the stock of knowledge in the labor force from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics.
2.3 INTRODUCE NEW TECHNOLOGY AMONG WEALTH DISTRIBUTION
In exchange relations two actors come to an agreement to trade with each other on mutually agreed-upon terms. Something is delivered, and something is expected in return, in a quid pro quo (“something for something”) relation. In product and labor markets, exchanges typically involve a flow of goods or services from seller to buyer, in return for a monetary payment. The monetary payments in turn create flows of labor and capital income. For example, when customers buy shoes from a mall shoe store, the incomes created include the payment of a wage to the shoe salesperson, rent to the owners of the mall, and profits to the owners of the business. Labor income is compensation received by workers in the form of wages, salaries, and fringe benefits. Capital income includes rents, profits, and interest. (Rent as economists use the term, refers not just to rent for housing, but to payments for the use of any asset).
2.4 INVESTMENT IN NEWPLANT AND EQUIPMENT AMONG WEALTH DISTRIBUTION
Distribution of wealth and income, the way in which the wealth and income of a nation are divided among its population, or the way in which the wealth and income of the world are divided among nations. Such patterns of distribution are discerned and studied by various statistical means, all of which are based on data of varying degrees of reliability.
Wealth is an accumulated store of possessions and financial claims. It may be given a monetary value if prices can be determined for each of the possessions; this process can be difficult when the possessions are such that they are not likely to be offered for sale. Income is a net total of the flow of payments received in a given time period. Some countries collect statistics on wealth from legally required evaluations of the estates of deceased persons, which may or may not be indicative of what is possessed by the living. In many countries, annual tax statements that measure income provide more or less reliable information.
2.5 ENSURE SUFFICIENT DEMAND AND SUPPLY FOR PRODUCTS AMONG WEALTH DISTRIBUTION
Have been described as the most directly observable attributes of goods produced and exchanged in a market economy. The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed. In microeconomics, it applies to price and output determination for a market with perfect competition, which includes the condition of no buyers or sellers large enough to have price-setting power.
For a given market of a commodity, demand is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded (as in the figure). Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is “constrained utility maximization” (with income and wealth as the constraints on demand). Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred.
FIGURE 1.2 DEMANDS AND SUPPLY
3.0 CONCULUSION
This assignment task one based about open economy and closed economy. The task two about utility. The open economy is market economy mostly free trade barriers and where exports and imports form a large percentage of GDP.
4.0 REFERENCES

Unknown. Open economy. Available: http://en.wikipedia.org/wiki/Open_economy. Last accessed 19th JUNE.
Unknown. . Close economy. Available: http://www.investopedia.com/terms/c/closed-economy.asp. Last accessed 19th June 2014.
Unknown. Utility. Available: http://en.wikipedia.org/wiki/Utility. Last accessed 19th June 2014.
Unknown. Wealth distribution. Available: http://www. Wealth distribution Last accessed 19th June 2014.
Unknown. . Wealth distribution. Available: http://www.wealth distribution. Last accessed 19th June 2014.

 

What can we learn from the success of the East Asian economies?

INTRODUCTION
The purpose of this essay is not to describe a deep comparative analysis of micro or macroeconomic policies, but rather to present in an integrated way some of the strategies implemented that were crucial for understanding the economic success of East Asia.
In Southeast Asia, reflections on development policy began early, emphasizing the issues of modernization and limited links with the West. After World War II, a period in which Asian countries begin to progressively become independent, development models with central planning, established in yearly projections, begin to be developed.
It can be said that the strategies used by East Asia in the context of the globalization had a lot to do with its development and success, especially those strategies oriented to the development and use of human resources, as well as the alliance between the public and private sectors with the objective of optimizing the available resources were crucial for the growth of the region.
In the following enumerated sections, we will understand and learn which were the strategies used in particular areas by the region to better understand how their economies succeed.
I. INTERNATIONAL ALIGNMENT
Asian countries have always understood and maintained that development can only flourish within the realistic recognition of existing structures in the international system. The countries of the region recognize their link with the Western-capitalist economic order and the system is accepted as the best alternative to ensure the growth and modernization.[1]
In this regard, the countries of Southeast Asia have set an excellent standard in terms of attracting foreign investments, essential for economic success. In some country’s privatization and external investments always require a percentage of capital and local management, in this way not only the identity of the region is maintained but also the formation and training of the human resources of the region are promoted, thus ensuring development.

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II. ASIAN DEVELOPMENT MODELS
The state had an important role in the economic success since the process started as governments established the mobilization of investments and industrial development efficiently. A concrete example is Japan, whose government-oriented the exchange rate and domestic credit towards large corporations to accelerate investments and protect the domestic market so that their companies could achieve static and dynamic economies of scale. [2] As a result, the level of imports of manufactures decreased and the economy of the country strengthened. Korea, Malaysia, and Indonesia are other examples of this procedure.
These models resulted in record values in terms of sustained growth from the sixties to the year two thousand. During this period, growth was especially concentrated in eight economies, in what we could define as three waves of growth. The first wave of growth was Japan, followed by the called Four Tigers (Hong Kong, Korea, Singapore, and Taiwan), and finally by Indonesia, Malaysia, and Thailand.[3]
The first and second wave of growth in Asia applied a considerable amount of state intervention during the industrialization process, in contrast, the third wave placed much more emphasis on private sector liberalization. [4] Although there is no single Asian model, there is no doubt that there are common characteristics of their leaders such as the ability to learn from the experiences of others, their agility, and dynamism.
III. LOW INFLATION AND COMPETITIVE EXCHANGE RATES
Macroeconomic stability and low levels of inflation were a basic prerequisite for the economic success of these economies, where one of the key elements was the administration of the fiscal deficit. Through regulations and legislation, the region ensured that the debt acquired is used in activities that favored development, in this way preventing financed investments from being channeled towards consumption.
On the other hand, success in export promotion required a competitive real exchange rate. For this, reasonable fiscal and monetary policies were combined with a flexible exchange rate administration, to keep the exchange rate aligned with the changing protectionist structures and inflationary levels of its trading partners.[5] For example, countries like Indonesia, Korea, and Thailand faced periods of real appreciation of their currencies, avoided maintaining a fixed exchange rate given the possibility of reaching higher inflation rates than those of their trading partners.
IV. EXPORT PROMOTION
The success of the economies of the Asia Pacific region has been associated with the rapid growth of its exports, in fact, since 1970, the growth of exports in the region has been usually superior to that of the rest of the developing world.
Authors such as Weiss[6], Redding and Venables[7], among others, argue that openness to international trade, supported by a system of neutral incentives, was a critical factor in
Asia’s rapid growth. Asian countries practiced intervention in different sectors of the economy, including commercial aspects, but they did not fail to recognize the importance of trade as a development factor.
Interventions in industrial policy, which often made use of trade policy instruments, were implemented under the belief that changing the industrial structure to new and more modern sectors increased opportunities to capture dynamic economies of scale; this strategy remains currently applied and is one of the reasons for the balanced growth of the region in terms of technology, production processes, and products, as well as necessary to maintain an acceptable competitive level.
The World Bank itself recognizes that, of all the interventionist processes applied in East Asia, the one associated with the export impulse is the most promising for other developing countries.[8]
V. FINANCIAL SYSTEM
In the financial sector, policies were established to promote savings and to channel resources towards activities with high social return. Although different institutions and policies were used, in general, there were positive real interest rates for deposits and stable financial systems.[9]
Besides, regulations were promoting responsible behavior, for example, avoiding loans for speculative purposes. Furthermore, although these countries did not implement deposit guarantee systems, they transmitted confidence to the system, essential for an economy prosper, through rescue programs if were necessary.
Domestic savings and the level of investments in East Asia is significantly higher compared to other economies. The difference between domestic savings and investments is the outflow of foreign capital.[10] East Asian economies as a group have been one of the only economies in which savings exceeded investments, making them net exporters of capital, which will help them expanding the market of the region, increasing economies of scale and having more capacities to specialize in research and technology.
CONCLUSION
The rapid growth of East Asian economies is unquestionably an example in terms of implementing development strategies. However, despite the international recognition of this fact, some developing countries have not followed the East Asian model.
It can be said that it is important to be aligned with the main international economic system to thrive economically, doing this the region was able to attract foreign investment achieving growth and expanding its market. Besides, this alignment was an incentive for boosting exports, finally reaching the leadership in terms of world industry exports.
It can be learn from this countries that an economic success can be achieved through some common characteristics that they applied in their economies, such as, macroeconomic stability, low levels of inflation, rapid economic growth, broad participation in the benefits of growth, growth based on technological progress, rapid export growth, rapid demographic transition, high investment rates and significant savings in human capital investments.
Another point that can be can learn from East Asian countries is that if a country becomes a net exporter of capital it would develop its expansion thought the world market, increasing its economies of scale and having more capacities to specialize in research and technology, essential for success in the economy.
Undoubtedly, the economies of the region have suffered due to the crisis of 2008, but nevertheless, the achievements of the model that allowed many East Asian countries to perform important economic achievements in less than a generation must be recognized.
BIBLIOGRAPHY
Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.
Ha-Joon, Chang. The East Asian Development Experience. Zed Books Ltd., 2006.
Ito, Takatoshi, and O. Krueger Anne. The Role of Foreign Direct Investment in East Asian Economic Development. The University of Chicago Press, 2000.
Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.
Redding, Stephen, and Anthony J. Venables. “South-East Asian export performance: external market access and internal supply capacity.” The Japanese and International Economies, 2003.
Rodan, Garry, Kevin Hewison, and Richard Robinson. “The Political Economy of South-East Asia.” 2006.
Weiss, Jhon. Export Growth and Industrial Policy: Lessons from the East Asian Miracle experience. 2005.
Yamazawa, Ippei. Japan and East Asian Economies. APEC Study Center, 2004.

[1] Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.
[2] Yamazawa, Ippei. Japan and East Asian Economies. APEC Study Center, 2004
[3] Rodan, Garry, Kevin Hewison, and Richard Robinson. “The Political Economy of South-East Asia.” 2006.
[4] Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.
[5] Ha-Joon, Chang. The East Asian Development Experience. Zed Books Ltd., 2006.
[6] Weiss, Jhon. Export Growth and Industrial Policy: Lessons from the East Asian Miracle experience. 2005.
[7] Redding, Stephen, and Anthony J. Venables. “South-East Asian export performance: external market access and internal supply capacity.” The Japanese and International Economies, 2003.
[8] Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.
[9] Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.
[10] Ito, Takatoshi, and O. Krueger Anne. The Role of Foreign Direct Investment in East Asian Economic Development. The University of Chicago Press, 2000.
 

Analysis pf Coalition for Environmentally Responsible Economies (CERES)

Coalition for Environmentally Responsible Economies (CERES), a non-profit organization was founded in 1989. Its objectives include encouraging ethical and sustainable business practices and promoting investment policies which are environmentally, socially and financially sound. It has created a group of world’s largest companies and investors who are responsible to take care of the environmental issues. 100-plus companies and many Fortune 500 businesses like- General Motors, Polaroid, Body Shop International, Bank of America, are engaged with Ceres for supporting clean energy policies and maintaining a strong climate. Financial organizations and Environmental groups like Sierra Club are members with Ceres (Coalition for Environmentally Responsible Economies (CERES), 2016). 
Ceres aims at making companies understand the concerns of the planet’s future. Meeting the sustainable challenges of the 21st century is important along with running business. Ceres works on making the environment more sustainable and therefore it follows all the laws that comes under the Environmental Laws and Regulations of the U.S. government.
Ceres’ rights:
On the account of the Exxon Valdez Oil Spill that happened in the Gulf of Alaska in March 1989, Ceres came up with its core Ten Principles. These principles aim to protect the earth, its energy and resources wisely; reduce waste and doing business in fair manner. The principles and its aspects are as follows:
(The Ceres Principles , n.d.)
Laws supported by Ceres-
There are several issues addressed by U.S. Environmental Protection Agency(EPA). Some of them include- limitation on air pollutants, enforcement of clean water and laws on safe drinking. EPA works for implementation of these federal laws so that the environment does not get affected by business practices. Ceres works along with EPA in implementation of the laws.
The INCR Policy Working Group – an initiative by Ceres focuses on five different areas of policy engagement:

Its members collaborate with other investor groups, including the European IIGCC, the Australian/New Zealand IGCC, the Asian AIGCC, UN PRI and UNEP-FI, to support the Strong Climate and Clean Energy Policy among the investors worldwide.
Its members also support the policies which promote clean and low carbon fuel sources, improving Corporate Average Fuel Economy (CAFE) standards, and reduction of greenhouse gas emissions which happen by transportation activities. INCR members also support research reports which show the investment case for such policies.
Under the Clean Air Act, the EPA has proposed an arrangement of noteworthy controls that will lessen air emissions, help the economy and make occupations. Financial specialists have signed letters and met with Congressional staff to guarantee implementation of the Utility Mercury and Air Toxics Standard, the Cross State Air Pollution Rule and the Carbon Pollution Standard for Future Power Plants.
The Ceres Roadmap to Sustainability, organizations are relied upon to adjust publicly disclosed arrangement positions on atmosphere and energy issues with the approaches they advocate through their lobbying and political expenditures.
Its members bolster a scope of approaches at the state and government level, for example, the Production Tax Credit for renewable vitality, the California AB32 climate and Clean Energy Program and the Regional Greenhouse Gas Initiative (RGGI).

Ceres makes sure companies and investors follow the strong climate and Clean energy policies in the US and abroad.
One of the CEOs of Ceres- Mindy S. Lubber joined U.S. Environmental Protection Agency (EPA) in 1995. She joined it as a senior policy advisor and has achieved recognition as a ‘regional administration’ under President Bill Clinton in 2000. She has also been a president at former National Environmental Law Center. Her efforts include-

Organizing waste removal at hazardous waste sites
Redevelopment, new jobs and urban revitalization
Protection of drinking water supplies (2016 William K. Reilly Award Winners Announced, n.d.).

Ceres along with WWF assembled a group of 100 large companies which supported the Paris Climate Agreement. It also supports the Clean Power Plant which was an initiative by Obama administration. Ceres strongly supports Clean Air Act(Business Is Taking Action on LGBT Rights. Will Climate Change Be Next?, n.d.).
In the ‘Six Proactive steps’ that Ceres has made for insurance companies, for addressing the climate change, it mentions about the ‘Greenhouse gas emission’, in favor of Federal and International Policies which limit its emissions. It addresses the threat of change in the climate because of carbon pollution (Insurance, n.d.).
Laws opposed by Ceres-
Ceres mostly works for sustaining the environment and limiting business practices for better future. It supports laws that relate to maintaining environment standards. Therefore, there aren’t many laws that are being opposed by Ceres. Rather there are a couple of them which are addressed as below.
It opposed the President’s and Congressional Leader’s abandoning of Methane rule and the Clean Power Plant. Ceres believes that these laws were made to support the environment. There are many companies that has made an agreement in support of the law. And so, Ceres does not want such laws to get abandoned.
It also shows its disagreement with the President’s ‘two-for-one’ executive order which requires deletion of two federal regulations against any one issued.
Ceres’ impact on business-
Ceres’ major goal lies in influencing business and its practices which affect environment. It has made many huge contributions which has helped business to follow the standards and become effective in their practices. The contributions by Ceres which impacted companies include-

Investor Network on Climate Risk (INCR), 2003- works on leadership and accomplishments on climate and sustainability of financial firms.
Launched the Global Reporting Initiative (GRI) for corporate reporting on environment, social and economic performances
Launched the Climate Declaration
Launched Business for Innovative Climate and Energy Policy (BICEP)

Ceres made an evaluation of its member companies and found that most of them have adopted policies based on International norms and fewer companies have adopted sector-specific policies. In the evaluation, most frequent instituted policies include those related to bribery and corruption and elimination of discrimination along with overall sustainability of environment. Companies which adopted the international standards like International Labor Organization(ILO) and United Nations’ Global Compact (UNGC), show understanding of sustainability issues and are committed in implementing changes in their business (Corporate Policies and Management Systems, n.d.).
Ceres influence on legislative process-
Ceres resolved an issue on United Parcel Service (UPS)’s Lobbying Disclosure. It laid down points which the BOD of UPS requires to disclose in their report. “Indirect lobbying” and “Grassroots lobbying communication” are the points covered under the solution. These points include efforts at the local, state and federal levels.
Along with this, we already saw that Ceres has laid down its core 10 principles which are in favor of environmental protection. Business and stakeholders adhere to these aspects and make sure that they are abiding by the rules related to these policies. It tracks shareholder’s resolutions and considers the following issues:

Climate change
Carbon asset risk
Greenhouse gas emission
Water pollution and scarcity
Public policy
Air pollution – methane emission
Proxy voting policies
Human rights

The shareholders make such resolutions. This ensures that they make proper implementation of the laws. On studying the resolutions, the legislatures can make laws that depend upon the environmental standards.
Ceres’ 3-year plan-
Ceres has presented a Road map on Sustainability which covers – Governance for sustainability, Stakeholder Engagement, Disclosure, Performance: Operation, Supply Chain, Transportation and Logistics, Product and Services, Employees.

The Roadmap expectation on corporate policies and management systems measures the extent to which companies embed sustainability into decision-making.
Encourage organizations to receive a more expansive way to deal with recognizing and speaking with stakeholders, including engagement on a more extensive topic.
The disclosure segment layout the attributes of a way to deal with revelation that meets the new and rising difficulties on corporate sustainability.
The operation segment enhances sustainability across their operations, including building and facilities management, water management, the elimination of waste and respect for human rights.
Sustainable supply chain performance expects establishing supplier policies and endorsing industry codes or practices containing explicit references to social and environmental standards.
Transportation and logistics include reducing transportation impacts which are focused on the architecture of the transportation network, including distances traveled; and specific transportation modes, including the sustainability credentials of the energy sources used. This section also looks at business travel and commuting practices and the role that companies can take in shaping employee behavior.
Sustainable solutions for products and services should be that they are marketed and delivered in a sustainable way. Proper communication of the usage and consumption pattern.
Improved recruitment and retention rates, employee morale and productivity, and lower healthcare costs should be crucial for company’s employees in order for sustainable performance (The Ceres Roadmap for Sustainability – Ceres, n.d.).

Ceres aims at transferring the way corporations integrate environmental and social risks into their decision-making. By 2020 Ceres wants major companies which re its members to attain these standards. The areas in which more companies should come forward include – Product and Services and Supply Chain. Ceres looks forward in making greater attempts at helping companies in achieving the goals of sustainable environmental business practices.
Mind-Map:

Ceres an organization works majorly in line with the International Laws on Environmental protection. It supports U.S. laws as well about certain policies. Ceres helps implementation of the following laws of Unites States Federal Environmental Statutes-

Clean air act
Clean water act
Emergency planning and community right to know act
Energy policy act
National environmental policy act
Resources conservation and recovery act

References
(n.d.). Retrieved from 2016 William K. Reilly Award Winners Announced: http://www.american.edu/spa/cep/news/2016_Reilly_Award_Winners.cfm
Business Is Taking Action on LGBT Rights. Will Climate Change Be Next? (n.d.). Retrieved from Business Is Taking Action on LGBT Rights. Will Climate Change Be Next? – Ceres: https://www.ceres.org/press/press-clips/business-is-taking-action-on-lgbt-rights.-will-climate-change-be-next
Coalition for Environmentally Responsible Economies (CERES). (2016, november 24). Retrieved from Encyclopædia Britannica: https://www.britannica.com/topic/Coalition-for-Environmentally-Responsible-Economies
Corporate Policies and Management Systems. (n.d.). Retrieved from Corporate Policies and Management Systems – Ceres: https://www.ceres.org/roadmap-assessment/about/roadmap-expectations/governance-for-sustainability/policies-and-management-systems
Insurance. (n.d.). Retrieved from Insurance-Ceres: https://www.ceres.org/industry-initiatives/insurance
The Ceres Principles . (n.d.). Retrieved from The Ceres Principles- Ceres: https://www.ceres.org/about-us/our-history/ceres-principles
The Ceres Roadmap for Sustainability – Ceres. (n.d.). Retrieved from The Ceres Roadmap for Sustainability – Ceres: https://www.ceres.org/roadmap-assessment

Gcc economies

Introduction
Challenges and Opportunities in GCC Economies. General Attitude towards Foreign Investors
Trade integration and Economic Philosophy in GCC economies. Economic Status of GCC economies. Economic Stability. GCC’s Political Stability . FDI in the GCC countries
The size of the Market . Physical Infrastructure . Resource Endowment and Industrialization . Labor Force . GCC – India business relationship . Challenges. Trade Protection and Competitiveness. Lack of diversification
The Changing Economic Context of Gulf Politics. Recommendations and conclusions
Reference
Executive Summary
The Gulf Cooperation Council (GCC) is an attractive location for investment and a salient consumer market for imported goods and services, and information technology to one of the youngest population that is considered to have highest powers of spending in the world.
The common market of the six GCC economies are open to foreign capital investment and are continually working to grant national treatment to all foreign investment firms and cross country investment and services trade. By 2010, GCCs inter-state trade is expected to enhance by 25 percent, and international trade in this states is anticipated to grow by multiples. Given its trade history and strategic location, the six GCC economies has had long trade and diplomatic relationships with Asia, Europe, and African states, suggesting that it stands to benefit in the long-term from the anticipated growth of these countries.
The GCC economies have upheld an open system of trading, free capital movement, convertibility of currency with fixed nominal rates, and large labor inflows- both skilled and unskilled. Additionally, the GCC’s advanced financial systems have been an essential channel for advancing their trade integration into the global community.
Despite current global economic crises, the GCC has remained a very liquid expanse. The economic growth in several key sectors is forecasted to be moving forwards across the region. Any investor considering venturing in the GCC should be centrally positioned to take advantage of one of the world’s fastest-growing markets.
Given the GCCs’ comparative advantage in oil, gas, petrochemical products, and private capital, and given the India’s technology, know- how, marketing skills and that can be marketed in a very sizeable market indeed. When countries or trading partners specialize on the basis of their comparative advantages, returns are maximized. Therefore Indian firms invested heavily according to the strategy emphasizing their comparative advantages in oil and gas service sector, which presents a great scope for Indian enterprises to undertake joint investments in these fields.
Introduction
The Gulf Cooperation Council (GCC) consisting of states six Arab states (Saudi Arabia, Bahrain, Qatar, Oman United Arab Emirates, and the Kuwait) located in Arabian Gulf. The GCC economies are one of the fastest-growing international markets and have become increasingly important to the economy of the whole world.
GCC attracts an ever-increasing number of foreign investments and across wide-ranging sectors. Its rapid development and expansion has made it an active seeker for modern technological capacities, infrastructure development, and business services. Development and improvements have been made to build up a private sector that is fewer dependants on government or natural resources, thus making the area an attractive destination for investment and competitive market for expatriate workers and overseas expansions (Al Bawaba, 2007).

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The GCC countries investment climate is conducive to foreign investment. GCC countries are continuously adopting policies and taking measures to improve this climate and taking into consideration changes in the international economic parameters and factors. GCC economies recognize the value of attracting and maintaining foreign investment and have resulted to adopting measures aimed at attracting and encouraging foreign investment.
GCCs openness to foreign investment and capital has been motivated by an expectation that foreign capital and investment will attract financial resources- visible and invisible, as well as bringing in modern technology (Al-Shamali & Denton, 2000). In addition, it may also raise marketing potentials of the local firms by providing access to export markets. Foreign capital and investment can also advance skills and techniques of management and set up state-of-the art facilities of training.
The initiative for encouraging invest mostly focuses on the institutional structure and on creating legal and administrative conditions appropriate for carrying out investment activities.
Despite current global economic crises, the GCC has remained a very liquid expanse. The economic growth in several key sectors is forecasted to be moving forwards across the region. Any investor considering venturing in the GCC should be centrally positioned to take advantage of one of the world’s fastest-growing markets.
However, investments and trade links among the Arab countries leave much to be desired. Capital-rich countries do not feel safe investing in people-endowed or resource-rich countries. However this latter group of Arab countriescan insure food safety, enlarged markets for industrializing GCC countries and investment opportunities (Al Bawaba, 2007). Political risk is often cited as a deterrent, along with bureaucracy. Most often governments are blamed for failure to devise a system that motivates the public as well as the private sector to joint efforts.
This paper identifies investment prospect and provide advice on the challenges and opportunities for an Indian enterprise intending to embark on an investment in oil and gas service sector in the GCC region.
Challenges and Opportunities In GCC Economies
General Attitude towards Foreign Investors
Generally speaking, GCC Countries’ religion, social fabric and norms, and their economic and political cultures do not have in any way prejudices against foreign investors (Al Bawaba, 2007 b). The fact is that there is a history of fruitful co-operation and strong tradition of hospitality. The number of foreign firms and expatriate workers in the region clearly manifest this attitude. Hostilities in whatsoever manner of at any level of contact are absent.
Trade integration and Economic Philosophy in GCC economies
The GCC economies has had an apparent degree of success in terms of trade integration, capital mobility, labor creation, and in setting regular standards in diverse regulation areas. Some of the GCC members have extended cordial privileges to foreign capitals and investment in areas such as share-market, investment, and government procurement.
The longstanding economic philosophy of the region is obviously an open free market and outward – oriented (Al Bawaba, 2007). Private property rights are well established and honored. GCC countries, unlike many developing countries, have never experienced what could be called socialist inclinations. Capital and goods are allowed to freely enter and leave GCC countries. Foreign exchange control measures are non- existent and as thus expatriation of profits, remittances and dividends face no restrictions.
GCC countries openness is also manifested in their high foreign trade openness ratio which reached more than 70%. For comparison reasons, the same ratio amounted to 16% in U.S.A. and 18% in Japan. This manifests the dependence and incorporation of GCC economies in the international market (Al-Shamali & Denton, 2000).
Economic Status of GCC economies
The combined Gross Domestic Product (GDP) of the GCC economies is estimated to reach 1.15trillion dollars according to the Gulf Finance House (GFH) projections. The projection by the Saudi American Bank (Samba) and Al Ahli Bank estimates that by 2018, total investment in the GCC economies could reach up to 670 million dollars.
The GCC’s world economy share is estimated to enlarge slightly higher than the annual average global growth with an aggregate of 4.5 percent, compared to globally annual average of 3.3 percent (Emerging Markets Monitor, 2008). Within 10 years, the GCC countries are expected to be supplying nearly one-quarter of the world with oil as well as increased quantities of petrochemicals, plastics and metals.
Economic Stability
The six countries of the GCC possess many common and rather special characteristics. They all depend on oil and gas for government revenues and foreign exchange earnings. These governments’ revenues and expenditures move the engine of the economy. The non-oil sector, while growing constantly, remains relatively dependent.
Oil will remain the major source of energy and the main vehicle to development for years to come (Al-Shamali & Denton, 2000). Its role in the international economy as an important strategic commodity needs no elaboration here. Thus, GCC countries status as major producers and exporters will continue to enhance their economic power. GCC production of this strategic commodity accounts for more than 20% of world production. Of the world’s proven oil and natural gas reserves, GCC states hold 45% and 15% respectively, according to conservative estimates (Emerging Markets Monitor, 2008).
GCC states have been recording positive GDP growth rates even at times of international recession. Their Consolidated GDP has surpassed the landmark of $ 550 Billion according to World Bank. Expenditure on capital formation (investment) totals more than 25% of GDP.
Another indicator of stability, inflation, has remained one digit, and below 5% in most recent years in all GCC countries. Not only that, but inflation was recorded with a negative sign in some years.
GCC states have maintained their realistic path of rationalizing expenditure and conservatively estimating revenues. This year’s budgets which have been based on expected oil prices of $ 40 per barrel, at a time when market indicators and oil experts’ expectations foresee a price close to $ 60 per barrel. In fact, this behavior has helped GCC countries to record large surpluses in their actual oil revenues during the last few years, and thus assisted them in settling internal debt arrears, and replenishing their foreign exchange reserves.
It is evident that GCC countries have started to reap the fruits of the daring measures – adopted for the last few years – of rationalizing expenditure and embracing the concept of efficiency in the management of both the private and the public sectors. More importantly, they have succeeded in reducing people’s expectations regarding the role of t he government in providing subsidies, employment opportunities…etc.
GCC countries have enjoyed surpluses during the last decade, sometimes substantial, in the current balance of payments (Al Bawaba, 2007). High rates of savings, however, have been unmatched by corresponding internal investments, the potential growth vehicles for these economies. The exhaustibility of their resources implies the urgent need for long-term economic and financial planning in these countries before nonreversible trends take root
Economic stability and growth are also combined with general trends which – among other results – strengthen and enhance foreign investments. GCC governments are pursing policies towards more economic liberalization, privatization and giving a greater role to the private sector. Moreover, export – 0riented policies are dominating and manifested in the creation of export financing institutions and establishing specialized exporting units in ministries and chambers of commerce and industry.
GCCs Political Stability
GCC countries are renowned for their stable political and administrative governance. Power is smoothly handed and regime change is less frequent as compared to most of the developed and developing countries. The stability of the regimes in GCC countries is totally correlated with the stability of general strategies and policies (Al-Shamali & Denton, 2000). The strong legitimacy and popular support enjoyed by GCC regimes is rather rare in other developing countries and even in some developed ones.
However, on the political and administrative level, there are several fundamental problems that have remained unsolved. Some customs union are yet to be fully implemented, while unstable bilateral agreements between individual GCC states and other trade partners undermine the consistency of the external tariff regime. The monetary union of some GCC economies has been called into question and especially by latest announcement by Oman to opt out and by the reluctance of the governments to agree on representative criteria of convergence. Political tensions have been created between some neighboring GCC States, particularly between Saudi Arabia and Qatar, which could make the political stability level of the GCC economies to wobble.
FDI in the GCC countries
Having recognized the importance of attracting FDI, GCC economies have adopted new measures aimed at attracting foreign capital and investment. These new measures and development priorities include realizing sustained economic growth by raising investment rates of private sector; enhancing technological skills and local capacities; improving the exports into the world markets, creating more competitive employment opportunities. Openness to foreign capital and investment has been stimulated by an expectation that this openness will bring in financial resources, while attracting modern technology. In addition, foreign capital and investment provides raises marketing capabilities of local firms and access to export markets. It also facilitates upgrading of the management techniques and skills.
In the GCC economies, the FDI flow accounts for more than the world’s average in two of the GCC states (Bahrain and Qatar). Conversely, except for the UAE, FDI stock has accounted for a key share weighed against to the value of Gross Domestic Product in these GCC economies, as was evidenced in the case of Bahrain, in which the stock reached more than 74 percent and 70 percent of the level of GDP in 2000 and 2004 respectively.
The GCC Service sector Market
The size of the market is considered one of the main factors in determining inflows of foreign investments. The larger the size of the market and the greater its growth rates, the larger are volumes of foreign investments. Unfortunately, a popular perception, based on the population estimates only, sees GCC states’ markets as small. This perception fails to appreciate a number of facts:
First, GCC states constitute an economically united bloc which entails – among other things – a market size of a population approaching 38.7 million inhabitants. Second, the per capita income for GCC states is more that $ 14,317. In other words the populations of the GCC countries enjoy high levels of income, even by advanced industrialize countries standards. Third, the high incomes enjoyed by GCC countries are reflected in high purchasing power and effective demand.
GCC states are also strategically situated, by neighboring the African and European continents and being the entrance gate to Asia. It should be mentioned that GCC imports from the rest of the world totaled about $ 119,524.35 million in 2004.
Physical Infrastructure
Whenever foreign investment in developing countries is discussed, inadequate physical infrastructure is cited as a major discouraging factor. On the contrary, GCC states have succeeded in utilizing their abundant resources in creating a very well developed – by any standards – physical infrastructure. Major industrial and population centers are connected to each other and to the ports with international – standard road network. Recently installed telecommunication systems are in some ways even better than some industrialized countries. New power and water capacity is being installed, and the consumption is being rationalized through meaningful tariffs (Diekmeyer, 2009).
Most large urban centers in the region have been provided with industrial parks, complete with necessary utilities and other amenities needed by manufacturing operations (Diekmeyer, 2009).
Resource Endowment and Industrialization
As petroleum and natural gas form the greatest volume of GCC resources, their industrial development has been directed mainly towards oil and gas based industries such as petroleum refining, chemical fertilizers and petrochemical industries and/or to energy intensive industries such as aluminum and steel (Al-Shamali & Denton, 2000). This goes in line with the concept of comp of comparative advantage i.e. if countries specialize in producing commodities on the basis of their comparative advantage, returns from production and trade will be maximized.
The availability of cheap energy resources is a blessing for GCC industrialization. For example, the gas used as a feed stock to the petrochemical industry is associated gas and most of it is a by-product of crude oil production. The cost of producing this gas is very low and if it is not used it would have to be flared (Al-Shamali & Denton, 2000).
Developments in the level and efficiency of the industrial capabilities of the GCC region enhanced the availability of a number of foreign investment attracting factors such as the skills available to prospective investors, efficiency of local suppliers and service firms, and a net-work of supporting institutions, both private and public.
Labor Force
The substantial developments which took place in all economic sectors have affected GCC labor force in two major ways. First, it required and induced large influxes of foreign professional, skilled and unskilled labor. On the positive side, this has helped in bridging the shortage in local labor, expediting the development process, and exposed the local labor force to a variety of rich experiences and high levels of theoretical and practical training in all fields and aspects of life. That is definitely a plus and an encouraging factor for any future investments, both local and foreign. Second, the tradition and experience in bringing and dealing with well-trained foreign labor reduces the possibility of manpower bottlenecks. That is to say labor as a factor of production is no problem for whoever is interested in establishing production or services units.
Expatriate labors as well as nationals do not pay income taxes. Another important factor – for foreign and local investors – is that in the GCC region there is no record of business disruption because of labor disputes.
Gcc – India Business Relationship:

GCC countries and India have strong trade relations. In 2005, the volume of trade between the two parties was nearly $20 billion GCC countries supply India with a large portion of its oil imports, near $6 billion (Alam, 2008).
For GCC countries, their comparative advantages lie in the manufacture of hydrocarbons and the development of energy intensive metal and mineral based products. In addition to this there is a great scope for investment in small and medium size ventures.
Furthermore, forecasts show that petrochemical industries – for example – can branch out into two categories during the next few years (Ramazani & Kechichian, 1998). Industries in the GCC countries can specialize in basic petrochemical and energy – intensive metals while Indian companies can benefit from such products by using them in manufacturing highly specialized and specialized and sophisticated products with higher value added (Alam, 2008). As a result, this step will certainly enhance the ability of GCC countries not only to import more specialized Indian products, but also will help them in diversifying their industrial base.
The attractive investment climate and the geographical market proximity of GCC countries make them suitable candidates for export platform of Indian investments and joint ventures. This scenario is strengthened by the availability of more than 6000 GCC small and medium sized enterprises, covering a wide variety of manufacturing activities (Ramazani & Kechichian, 1998). These include food, textiles, wood, paper, chemicals, metallic, non- metallic, engineering and other fields of activities (Alam, 2008). Studies reveal that about 90% of these SME’S have plans for expanding their activities.
This fact offers the Indian business community wide opportunities via joint ventures, turnkey operations, production sharing, licensing, and other forms of non- equity involvement.
The GCC – Indian economic relationship would be enhanced by:

Arranging visits for Indian businessmen to GCC countries so that they learn more about the region’s investment and business opportunities. FGCCC can co-ordinate such visits.
Organizing joint exhibitions both in the region and in India.
Organizing events to enlighten GCC businessmen with the available Indian co-operation instrument and institutions in fields of trade and investment.
We notice a dearth of information on trade, markets and investment opportunities. There is a need for India – GCC body to collect and disseminate such information.

Challenges
Trade Protection and Competitiveness
Although many GCC countries boost of open trade policies, they extensively use production subsidies protect a large inefficient, domestic non-oil sectors, often public owned.
Price related factors ones are usually among the most imperative factors that affect trade outcomes (Al Bawaba, 2007). The prices of goods and services being traded are considerably influenced by tariffs level and non tariff barriers as well as by real effective rates of exchange, which are themselves influenced by macroeconomic conditions and policies. There is a compelling evidence that trade protection is high for some GCC countries relative to their income levels.
Lack of diversification
The GCC countries lack diversification in the sustainable economic base and need to devise a system which encourages private investment in industry, agriculture, exports and re-exports, i.e., production and movement of goods. The virtual absence of continuous local water resources and reliance on desalinated water, which is both expensive and insecure, is a constant challenge. Local food and agricultural production falls far short of providing self-reliance and security in light of a burgeoning population and evolving patterns of consumption. Population increase and a dramatic upsurge in education require finding appropriate employment for those with improved skills, as the present rate of growth in the non-oil sector leaves a widening gap between manpower supply and demand.
The Changing Economic Context of Gulf Politics
The Islamist sectors in the states making up the GCC have grown more politically active since the time that the welfare states were established in the 1970s. The population in these regions has also increased while the price of oil, the main source of revenue, remained fixed. The educated young generation is actively seeking participation in administrative and political levels of governance, while the middle demands work with good wages (Ramazani & Kechichian, 1998).
On the political and administrative level, there are several fundamental problems that have remained unsolved. Some customs union are yet to be fully implemented, while unstable bilateral agreements between individual GCC states and other trade partners undermine the consistency of the external tariff regime. The monetary union of some GCC economies has been called into question and especially by latest announcement by Oman to opt out and by the reluctance of the governments to agree on representative criteria of convergence. Political tensions have been created between some neighboring GCC States, particularly between Saudi Arabia and Qatar, which could make the political stability level of the GCC economies to wobble.
Recommendations and conclusions
The GCC countries investment climate is conducive to foreign investment. GCC countries are continuously adopting policies and taking measures to improve this climate and taking into consideration changes in the international economic parameters and factors. GCC economies recognize the value of attracting and maintaining foreign investment and have resulted to adopting measures aimed at attracting and encouraging foreign investment.
For Indian enterprises trading in the oil and petroleum service sector, their comparative advantage lies in their specialization in production technology
The Gulf Cooperation Council (GCC) is therefore an attractive destination for an entrepreneur wishing to invest in oil and petroleum service sector and the opportunities in this sector far outweighs the challenges.
References
Alam A., (2008) India and West Asia in the Era of Globalisation, Michigan: New Century Publications,
Al-Shamali A., & Denton J., (2000) Arab business: the globalization imperative, India: Kogan Page Publishers,
Al Bawaba, (2007 a), The Future of the Gulf: The World Economic Forum Launches Scenarios on the Gulf Cooperation Council Countries, p1
Al Bawaba, (2007 b), Saudi Arabia intensifies reform efforts to improve competitiveness around two thirds of $240 billion in planned projects outside oil, gas, and petro p1
Diekmeyer, P. (2009) ”Export Wise, Summer,” GCC: Infrastructure Development Opportunities., p26-28, 3p;
Emerging Markets Monitor, GCC: Implications Of The Credit Crunch. (2007), Vol. 13 Issue 20, p1-2,
Emerging Markets Monitor, (2008) US Crisis: GCC, 14 (26), p17-17,;
Ramazani, R. K. & Kechichian J. A. (1998) The Gulf Cooperation Council: record and analysis, US: University of Virginia Press,