Trade

A major player in the international political economy is the multinational corporation or multinational enterprise as these structures of economy are commonly referred to. These are business or firms that hold offices and/or major production facilities in two or more different countries. The multinational corporation therefore is any business whether private or public that extends its production facilities or embarks in huge investments in capital across national boundaries.

Since the end of World War II, the dominate western countries of Europe and the United States have long been the main headquarters of these multinational corporations, while the lesser developed nations of the world have been the sites for these corporations subsidiary markets and production facilities. On the subject matter of these multinational corporations, there exist two preeminent sources for the political science student in international political economics.

The first is Richard Caves, whose article “The Multinational Enterprise as an Economic Organization” explains the creation and existence of the multinational corporations as a facility to more easily transport capital across international borders. The other source Osvaldo Sunkel, in his article “Big Business and Dependencia: A Latin American View” believes the multinational corporations have been a major political, economic and social boundary to pure economic growth in Latin America and has put a strangle hold on their own attempts to enter the global market.

Richard Caves” viewpoint is that multinational corporations act as a facilitator to the movement and trade of the hard to price assets of a multinational firm. Specifically in terms of business and trade, there are manufactured goods, which are easy to move across international boundaries essentially. Yet, within the market there are many circumstances where transactions are hard to impossible to complete due to the markets ability to establish a fair price on certain assets.

The reason for this inability is not due to the nature of the economy mind you, it is that these assets are non-physical. Assets such as patents and copyrights, the new technologies that arise from them and managerial expertise are all assets that cross international boundaries. According to Caves, the multinational corporation is in existence to move these assets across international borders. The multinational corporation in this process takes on three different models according to Caves.

The first is a multi-plant firm that produces the same goods in several geographically different locations. This is the static model of “horizontal multi-plant enterprise” as Caves refers to it. It is the most thoroughly basic kind of Multinational Corporation. The factories abroad are controlled under common management, and are run and operated in the most cost effective locations of production. In most cases of the horizontal multi-plant enterprise, the products or their effects are mobile between national markets.

This horizontal enterprise will produce goods that may deprecate but will not have a short life p of productivity. The second model is the “vertically integrated multinational enterprise”; this is a corporation wherein the outputs of the corporation”s plants serve as inputs to another of the corporation”s plants. This is used in most cases to reduce the cost of production of certain goods. Semiconductors for example are made by the advanced technicians in highly industrialized countries, while the process of soldering the wires and boards of the conductors can be done in a lower-wage country.

The third type of multinational firm is the “diversified company”, which is a company whose plants inputs and outputs are neither horizontally nor vertically related. The reason for the creation of this firm is the multinational corporations bid to increase the diversification of the corporation”s interests abroad. This is done to increase the viability of a company, whether it is to inflate stock prices or some other arbitrary goal of the corporation.

This view is quite different than the view of Osvaldo Sunkel, in his article “Big Business and Dependencia: A Latin American View” Sunkel brings to light the idea of Dependencia: Which is the control of Latin American markets by United States and European multinational corporations. This control of Latin American industry for well over 200 years by the US and Europe has radically altered the socio-economic development of this region. And has added to the dispensation of their current markets since the 1930″s, which has led to an economic stagnation for many Latin American countries.

Sunkel brings to light several points that show how the multinational corporations, be them Horizontal or Vertical. How these corporations do not benefit the country that houses the subsidiary, moreover the corporations home country benefits many times over than the exploited country. Sunkel”s argument is very clear; the very infrastructure of the Latin American economy is based on a hierarchy, whereas the core nations of the world”s economy use their strong positions to exploit the weaker economies.

Robert Gilpin refers to this as Structuralism; it is a major school of thought in international political economy. This theory of “Dependencia” causes many socio-political, and socio-economical problems in the Latin American countries. Sunkel states that when the more powerful United States placed increasingly manufacturing complexes in Latin America the local centers of production were either swallowed by the larger company or put out of business by the lower prices of giant conglomerate. This led to the eventual decrease in exporting that benefited the local market.

Sunkel, makes this point very clear: that the trade between the core nations and Latin American never left exploitation not unlike the colonialism of 200 years ago. Whereas Europe used to subvert the local population and exploit the natural resources, the core nations now use the large corporations to do this instead. A bulk of Latin American trade has been replaced with this intra-firm/corporation transfer of products. It benefits the core nation even more, because not only does a bulk of the product or material go to the corporation”s home country, but also the majority of the profit follows the same line.

This lack of real trade and a concentration of wealth in the core nations have made the Latin countries even more tied to the elite through huge loans and aid from the IMF and World Bank. Caves and Sunkel share very different mindsets, while Caves believes that the multinational corporation extends the scope of the world economy. Sunkel believes that it exploits the Latin American market, by reducing the capitol in the working class and middle class the corporations take capitol from the local economy that could be used to improve the social condition.

Globalization is a construct that everyone utilizations but is a hard term to specify. In general, globalization refers to the tendency toward states fall ining together economically, through instruction, society and political relations. Sing themselves non merely through their national individuality but besides as portion of the universe as a whole. Within the educational sphere it is necessary to understand the effects globalization may hold in defining policy and pattern.

The purpose of this essay is to analyze the impact of globalization on policy and pattern within Post-Compulsory Education and Training ( PCET ) concentrating on the womb-to-tomb acquisition subdivision within PCET. Initially the essay will concentrate on specifying globalization, one time this is established it will be possible to critically analyze its effects on PCET policy and pattern. The analysis will try to research illustrations of alteration both past and present in order to find to what degree they reflect an consequence of globalization.

The essay will so travel to analyze womb-to-tomb larning within Higher Education ( HE ) in farther item. It is within this subdivision of PCET that globalization can be seen to act upon the antiphonal issues of the marketisation and the internationalization of HE coupled with the construct of a developing cognition economic system. This should supply the foundations for the aspiration of continued sweetening to the proviso of womb-to-tomb acquisition in the latter portion of the essay.

During the probe it may be necessary to research other positions in order to find and explicate the spread outing influences of globalization within the particular domain of instruction.

Globalization

As ab initio mentioned globalization is a complex issue to categorize. Globalisation is on a regular basis debated by bookmans as to what is really meant by the term. Globalisation is frequently presented as a late twentieth centaury, early twenty-first century economic phenomenon, stimulated by inventions in communicating and information engineerings. This combined with increased air travel by the multitudes and the turning laterality of English as the common linguistic communication of concern, political relations and scientific discipline ( Crystal, 1997 ) . The World Bank defined globalization as “ the turning integrating of economic systems and societies around the universe ” ( World Bank 2001 ) . However the Oxford English Dictionary defines globalization as “ the procedure by which concerns or other administrations develop international influence or get down operating on an international graduated table. ” ( Oxford English Dictionary 2010 )

Anthony Giddens ( 1990 ) has described globalization as ‘the intensification of world-wide societal dealingss which link distant vicinities in such a manner that local occurrences are shaped by events happening many stat mis off and frailty versa ‘ . The term can besides be used to depict the alterations in societies and the universe economic system that are the consequence of dramatically increased trade and cultural exchange. It is these alterations to society within the context of the economic system that can take to alterations with instruction ( Spring 2009 ) .

Taking the above into history why would globalisation increase the demand for instruction? Chiefly sing economic sciences, the lifting final payments of a higher instruction in a planetary, scientific discipline based, knowledge focussed economic system makes university instruction more of a necessity to acquire “ good ” occupations. This in concurrence with socio-political demographics and democratic ideals have increased force per unit area on universities to supply chances for wider engagement to groups that traditionally have non attended university ( Castells & A ; Himanen 2002 ) .

Sing Giddens description, globalization within instruction could be defined as world-wide treatments and processes impacting on local educational patterns and policies. Very small of these on the job patterns would stay inactive in this hypothesis as there would be a changeless altering dynamic as progressing engineerings and communications are integrated into course of studies doing them more economically competitory within the universe phase.

This can be viewed with regard to HE establishments as they become intertwined on a planetary degree with pupil organic structures going progressively migratory in their hunt for cognition with the intent of advancing their personal societal and economical development. This leads to the construct of a cognition economic system.

Knowledge Economy

A assortment of perceivers depict today ‘s planetary economic system as one in development to a cognition economic system. This knowledge-based economic system depends chiefly upon the usage of thoughts instead than physical aptitude and on the application of engineering instead than the transmutation of resources or the use of inexpensive labor ( Therborn 1995 ) . It is an economic system in which cognition is created, acquired, communicated, and used more efficaciously by persons, endeavors, administrations, and communities to advance economic and societal development ( Giddens 2006 ) .

The rise of this cognition economic system has meant that economic experts have been challenged to look beyond labor and capital as the cardinal factors of production. Paul Romer ( 1995 ) ( cited in Holsapple 2003 ) argued that engineering, and the cognition on which it is based, has to be viewed as a major factor in taking economic systems. The Dearing study of 1997 stated that higher instruction should prolong a acquisition society in order to function the demands of an adaptable, sustainable, knowledge-based economic system at local, regional and national degrees ( Dearing 1997 ) .

Fixing workers to vie in the cognition economic system requires a new attack to instruction and preparation in the signifier of womb-to-tomb acquisition. This womb-to-tomb acquisition model embraces larning throughout the full life rhythm, from early childhood to retirement. It should include formal, non-formal, and informal instruction and preparation. The deductions and possible hereafter of Lifelong Learning will be discussed subsequently in this essay.

As the universe transforms through globalization, single cognition will besides necessitate to set. This will therefore originate the demand to modify the instruction provided to the person so that they can stay current and therefore a feasible trade good within the employment market. In order for the cognition economic system to develop further it requires the support of HE. This suggests a demand to associate HE to the demands of employers, developing HE-market interaction. This could allow orienting high degree accomplishments to the market but could besides jeopardize the ethos of instruction.

Marketisation of Higher Education

Education is really much immersed in planetary transmutations, with HE itself being altered by the cultural and economical facets of globalization. Peters, Marginson et Al ( 2008 ) argue that “ Higher instruction is swept up in planetary marketisation. It trains the executives and technicians of planetary concerns ” . Is this the instance within the UK?

With the diminution of the fabrication industry in the UK ( National Statistics Online 2010 ) this has given rise to the increased value placed upon the service sector, both in magnitude and profitableness ( Economic Outlook 2007 ) . This has led to increased trouble dividing the influence of markets from the societal and cultural facets of globalization in which instruction sits. This force per unit area to alter instruction from a public service to a tradable service is unusually compliant with the political orientation of the World Trade Organisation ( WTO ) General Agreement on Trade and Services in an effort to liberalize services within the planetary economic system sector ( cited in Robertson et al 2002 ) .

This motion towards a tradable service could take to an change in the character of universities functions within society by altering them from being a Centre of larning into a concern orientated constitution ( Doring 2002 ) . This arguably may take to the displacement of the educational focal point off from an academic focal point, traveling towards a trade good focal point therefore leting the values of the commercial sector to be encoded into the Centre of the university system.

Recent Government policy within the UK has encouraged the rapid growing of HE, in order to widen engagement with the purpose of making a more educated and marketable labour force. This growing has led to the inevitable competition between HE establishments with pupils viewed more as consumers than scholars. A position surmised by Willmott when he stated that pupils are openly viewed as clients ( Willmott 1995 ) . However, this rapid enlargement may be under menace given the latest authorities support cuts ( Barker 2010 ) but still the most prevailing mentality within HE is one of concern. Students view the chance to derive a grade, one time selected, as a right and a service for which they have paid for. Maringe and Gibbs ( 2009 ) further sign the issue when they stated “ the thought of instruction and cognition for its ain interest – the intrinsic value of larning – is going subsidiary to the touchable benefits associated with prosecuting with higher instruction ” . This leads to a demand for greater pick and a demand for a return on the pupil ‘s investing.

This ideal is developed farther with the thought that a grade is a trade good that can, hopefully be exchanged for employment instead than an instruction that prepares a pupil for life ( Willmott 1995 ) . Smith ( 2002 ) argues that this construct of commodification of instruction has been happening for a figure of old ages. However he views the pupil as the trade good instead than the class of survey when he stated that pupils were altering their orientation to Higher Education “ off from that of participants towards being consumers. ”

The issue for this essay is non what is viewed as a trade good it is instead that either is viewed as a trade good. The marketisation of the HE system, with the force per unit area to export the rational ware in order to keep fiscal support in a competitory market has lead to doing faculty members ‘ functions more complex. The consequence of this marketisation of instruction is likely more seeable in the illustration of the growing of international pupils. Higher instruction has become progressively international in the past decennary as more and more pupils choose to analyze abroad. The issues and environing this internationalization of instruction and the effects is the topic of the following subdivision.

Internationalization of Higher Education

The universe of higher instruction is altering and the universe in which higher instruction dramas such a important function in is besides transforming. Whether it is driven by the motion of skilled labor in a globalised economic system or the desire of the academic establishments to bring forth extra gross or even the demand to construct a more educated work force, the international dimension of higher instruction is going progressively of import, complex, and confounding. In order to go globally competitory universities are following an progressively international attack to the proviso of higher instruction. Internationalisation has become the motto of these present times in higher instruction.

Knight ( 1994 ) defines internationalization as “ the procedure of incorporating an international/ intercultural dimension into the instruction, research and service maps of the establishment ” Altbach ( 2004 ) merely states that “ internationalization is the procedure of establishments reacting to globalization ” which implies that internationalization of instruction is the reply to globalization or at least a agency of capitalizing on the state of affairs.

Is this a sudden phenomenon? Well non truly. For a figure of old ages pupils have traveled outside of their ain states in order to progress their higher instruction. High income states have provided grants and extra wagess to both instructors and pupils. Within the UK the entire figure of non-UK pupils for 2008/09 was 368,970, compared with 325,985 in 2007/08, an addition of 8 % . The strongest growing was in full-time taught graduate student programmes, up 17 % for non-UK pupils ( UK Council for Affairs, Statistics on Higher Education ) . Coupled with this increased mobility of pupils universities have taken stairss to reexamine their plans and specific institutional schemes in order to ease the execution of an internationalised course of study ( Haigh, 2002 ) .

In order for UK HE establishments to encompass internationalization they appear to concentrate on increasing pupil quotas by intentionally enrolling greater Numberss of international pupils. Other assorted activities are encouraged including diversifying bringing manners ; ‘internationalising ‘ course of study ; bettering the quality of the pupil experience and escalating international linkages and coaction. Besides the outgrowth of new types of suppliers such as international pools and for-profit universities in the instruction market organize portion of this dynamic image.

However, as Harari ( 1992 ) stated in an article on internationalization, “ holding many international pupils on a campus does non do that establishment international ”

Why is there such a thrust towards internationalization of instruction? With the rapid escalating demand for HE driven by an emerging planetary cognition economic system and the demand for instruction to prolong development with the intent of farther heightening planetary citizenship. This should ensue in a greater capacity of alumnuss with a high degree of cultural apprehension and perchance an enhanced perceptual experience of planetary and intercultural personal businesss, if Throsby ( 1998 ) is to be believed. Another issue with this rapid demand is that the domestic supply can transcend the capacity of many states taking to intense competition for topographic points within HE.

Internationalization is non without its unfavorable judgments as increased pupil mobility can take to a encephalon drain from the state of pupil beginning and a encephalon addition for the receiving state. Recent World Bank publications progress the statement saying that encephalon circulation may be a more appropriate term than encephalon drain, adumbrating that this is what happens when HE pupils do non return to their state of beginning but other skilled workers emigrate from the having state ( Ozden and Schiff 2006 ) .

Lifelong Learning

As alteration within the cognition economic system can be rapid, employers are unable to trust entirely on new alumnuss as a chief beginning of new accomplishments and cognition. This demand to keep a current labor force gave rise to adult instruction policies of the eightiess. However since the 1990s this term seemed to vanish and Lifelong Learning assumed prominence. The accent, as the name suggests, is that everyone should be able to larn throughout their life p and that we need to go on the acquisition procedure in order to better people ‘s abilities and skill sets at that place by leting them to work more expeditiously in their several countries. Education and preparation establishments need to be able to fix workers for womb-to-tomb acquisition as it is important in enabling workers to increase societal capital therefore assisting to construct human capital, increasing economic growing and stimulating development.

Lifelong acquisition is widely considered to be a transformational procedure, both for the person and for the wider community. For persons the battle with new larning can take to improved wellbeing, perchance taking to fresh personal success. For our society the acquisition can be cardinal in unlocking economic success and a agency to an fresh national individuality.

Policies and Practices – The official desire to spread out acquisition can be traced back through educational policies, studies and white documents. The three foremost studies on HE and Lifelong Learning were Dearing, Kennedy and Fryer.

Dearing Report – Higher Education in a Learning Society: This study set out a vision for 20 old ages of making “ a society committed to larning throughout life. ” ( Dearing Report 1997 ) . This was a committedness that would necessitate non merely persons to prosecute with, but besides the province, employers and suppliers of instruction throughout the UK. The chief purposes of the study were to do recommendations on the hereafter form, size and support of HE in order to run into the UK ‘s educational demands. It besides made recommendations in to widening engagement within HE.

Kennedy Report – Learning Plants: This study prepared by the Committee on Widening Participation chaired by Baroness Kennedy set out a extremist vision to promote a return to instruction grownups who have few if any educational makings. The study contains some convincing testimony for the instance that “ acquisition is the key to economic richness and societal coherence ” ( Kennedy 1997 ) . This study besides makes recommendations on future support and widening engagement. The authorities responded to the study by saying they were committed to the constitution of a learning society in which all people have chances to win and that they were looking to increase entree to acquisition ( DfEE 1998 ) .

Fryer Report – This study was compiled by Professor R.H Fryer and discussed similar subjects to those raised in the Kennedy Report of the same twelvemonth. The primary focal point was to show a deficiency of Lifelong Learning civilization observable within the British educational system at the clip of roll uping the study. Professor Fryer besides argued that the UK could non be considered a learning society as it possessed neither a Lifelong Learning nor a preparation civilization ( Fryer 1997 ) .

These three major studies argued for the importance of a broadening of engagement and womb-to-tomb acquisition. This was to hold a bearing on a Green Paper by David Blunkett that placed greater accent on womb-to-tomb acquisition and requested that the educational system expand the acquisition age in order to see grownups as willing scholars and persons that were really in demand of farther instruction. This brought alterations to the national course of study in order to supply for grownup scholars ( Tight 1998 ) .

Further responses from the Government were to denote a figure of schemes to convey greater Numberss into Further and Higher Education, a figure of 500,000 by 2002. Enterprises such as the University for Industry and Learning Accounts were designed to turn to skill lack issues by heightening womb-to-tomb acquisition chances and the acceptance of National Learning Targets was seen to show an official desire to spread out larning. Policies to help in accomplishing these marks included the basic accomplishments plan to better grownup literacy and numeracy and encouragement to employers to supply entree to more preparation within the workplace.

Table 1 – Entire Part Time Students within the United Kingdom 2002 -2009

( HESA 2010 )

Since these studies and policies were implemented there has been a steady rise in the figure of portion clip pupils within the United Kingdom, as shown in Table 1. The tabular array shows a combined growing of 68 % from 2002/3 academic twelvemonth until 2008/9 academic twelvemonth within portion clip pupil Numberss, a marked increased in popularity of portion clip survey. This would look to correlate with the rapid growing highlighted within the internationalization treatment earlier in this essay. Unite this with Numberss of international pupils lifting from 278,225 in the academic twelvemonth 2002/3 to 368,970 in academic twelvemonth 2008/9 ; a growing of 75 % ( HESA 2010 ) suggests that the commodification and marketisation of HE is demoing marks of success.

The impact of globalization and the aspirations of Lifelong Learning are prevailing in the rhetoric of the studies and policies. Each one discusses the importance of Lifelong Learning as a contemplation of the realization that larning must be more active, more structured and long term. All the pieces must mesh if UK PLC is to stay competitory. The suppliers and donees, including society at big, must lift to the challenge of making and prolonging an environment which encourages and supports Lifelong Learning in order to guarantee economic prosperity now and in the hereafter.

So what may be the future aspirations of Lifelong Learning? The purposes of Lifelong Learning UK set out in their 2008 -2011 Strategic Plan ( LLUK 2009 update ) include raising employer battle, demand and investing in accomplishments by offering free advice and literature for any one interested or involved in womb-to-tomb acquisition. In its 8th published paper the Inquiry into the Future of Lifelong Learning Commission articulated the demand for a wide principle for public and private investing in womb-to-tomb acquisition, but they besides stated that the UK, by international instruction criterions, has a really Lifelong Learning friendly environment ( IFLL 2009 ) . The Government ‘s 2009 White Paper titled “ The Learning Revolution ” recognised the profound importance of increased engagement and grownup acquisition. It besides discussed the benefits of farther larning assisting people to develop and perchance take to deriving farther makings. However all this was the rhetoric of the old authorities and was published prior to the General Election.

The studies, policies and patterns reviewed for this essay seems to hold repeating subjects running though them, specifically the instance for increased larning peculiarly among less skilled grownups. But this seems to be tempered by puting the load on the person to make and fund, to a certain extent, the chance to larn. Some of the study recommendations attempt to undertake lacks in employer proviso. Employers should be encouraged to increase larning chances perchance by supplying entitlements to larning during working hours or possible entree to support for larning and larning installations being increased. This last suggestion does look less probably in the visible radiation of the disbursement reviews that are presently on traveling.

Decision

The purpose of this essay was to research the extent of impact globalization has had on the policies and pattern of HE, concentrating on womb-to-tomb acquisition. It is apparent that globalization has and is go oning to extensively consequence the planetary acquisition society and economic systems. This is peculiarly apparent in the enlargement of the cognition economic system with employers puting greater demands on persons to keep a current and flexible cognition base. In easing this continued larning the person must prosecute in virtually changeless accomplishment sweetening through acquisition. This in bend leads to a greater demand for womb-to-tomb acquisition from academic establishments and an increased enthusiasm for the acquisition throughout workers callings. This has led to the realization that the increased accent and hungriness for womb-to-tomb acquisition can be viewed as a consequence of globalization. Other cardinal countries such as the continued marketisation and internationalization of instruction have lead to seats of larning developing their educational merchandise or, as argued by Smith ( 2002 ) , the single scholar, as a salable trade good that entreaties to all possible pupils within the planetary small town.

In order to analyze policies and pattern within Lifelong Learning it has been necessary to reexamine certain studies that were perceived as pivotal in the development of Lifelong Learning. This was necessary in order to understand the alterations taking topographic point within our ain society that have influenced the increased engagement in Lifelong Learning in order to keep a bridgehead within a knowledge-based economic system. If these countries were non explored so the enterprises that have sprung from recent authorities policies such as the aspiration for a “ Learning Revolution ” would non be realised.

Lifelong acquisition is non merely a method but a civilization that needs to be embraced if continued professional development within UK PLC ‘s labour force is to prevail. HE has a positive function to play in set uping the cognition base during beginning of acquisition and moving as a supplier of farther larning chances such as distance and unfastened larning throughout an persons life-time. HE besides has a duty to widening engagement in acquisition, by luring nonchurchgoing scholars and those who may non hold engaged with larning earlier in their life-times back into the cognition civilization.

Despite the positive rhetoric conveyed within the studies and Government white documents there still remains an component of incredulity about the ability to accomplish all that is pledged. Improved employer proviso and support with single support could stay a stumbling block in the journey to the realization of Lifelong Learning aspirations. As David Blunkett stated in the Government 1998 Green Paper “ Learning is the key to prosperity – for each of us as persons, every bit good as for the state as a whole ” So why should society merely experience accountable for educating the immature? Even with the increased force per unit areas of marketisation and internationalization the principal of instruction should concentrate on educating the immature in order to fix them to go on this acquisition procedure throughout their lives.

Given that the project is located in Argentina, a 10% percent discount rate is not the appropriate rate for valuing the project. 10% discount rate is the capital cost for similar U.S based projects. When the project is located in countries other than the U.S., a different discount rate should be used in compensate for different country risks. U.S is the most developed country in the world with well established political, economic and financial system.

Political environment is relatively stable, and chances of economic or financial crisis are low compared to other nations, especial developing nations. If the project is located in Argentina, we should take Argentina’s country risks into account when determining what discount rate should be used. Normally, discount rate in Argentina should be higher than that in the U.S due to higher country risks in Argentina. Country risks consist of three different types of risks, political risks, financial risks and economics risks.

During the past decade, political environment in Argentina has been relatively stable, the democratic government remained in power for 12 years and no expropriation had been reported for the previous 50 years. Although the political system seem to be stable in Argentina, political risks of Argentina is still relatively high compared to political risks in the U.S. Economics prosperous and stability is key to political stability, governments will lose power and credits if economy of the country shrinks and national income decreases.

Economic instability is a major concern for foreign companies when considering launching a project in Argentina. During 1980s, Argentina witnessed series hyperinflation, stagflation and huge fiscal deficits. National income decreased by a large amount and unemployment rate increased dramatically. Although situation in Argentina has been improving since late 1980s, the probability of having another hyperinflation period remains at a significant level. Economic instability in turn contributes to political instability; therefore, political and economic risks increase cost of capital for projects located in Argentina.

Financial risks, or precisely, currency risks, are the major country risks when considering locating projects in Argentina. Between 1970s and 1995, Argentina had experienced at least 9 major currency crises including the Tequila Crisis that happened recently. During currency crises, the Peso loss credibility and people in Argentina started selling Argentina Peso and buying USD since they expected that Argentina Peso is losing value and they will get nothing if they keep Peso instead of USD.

This will make Peso depreciate even further. Dow Argentina receives Peso in Argentina and converts Peso into USD. If Peso depreciates a lot, the company will suffer great loss. The convertibility law ties Peso to USD at an exchange rate of 1:1 to store value of Argentina Peso. This is not a perfect solution since pegging Argentina Peso to USD requires huge foreign reserve, Peso will lose its credit if the central bank of Argentina fails to maintain adequate amount of foreign reserve.

In conclusion, discount rate of projects located in Argentina should be high than similar U.S based projects in compensate for higher country risk in Argentina. From historical data, Argentine yields equal to U.S yields plus Argentine country risk premium. According to EMBI Index, Argentine country risk premium at the end of 1995 is about 11%, thus, discount rate for Dow is equal to cost of capital for similar U.S based projects plus Argentine country risk premium. That is 10%+11%=21% Using discount rate of 21% for projects in Argentina that developed in question 6 along with discount cash flow method, we can find the value of the project if the project is located in Argentina. The total value of the project using 21% discount rate is 514.4088 million USD. Value for stage 1, stage 2 and stage 3 are 290.9129 million, 153.7234 and 69.7725 million, respectively. Detailed comparison is as follows:

The total value of the project in Argentina is about one fourth that of the project if the project is located in the U.S. Value of the project decreases significantly because country risks in Argentina is higher than in the U.S. Higher country risk is incorporated in higher discount rate, and thus present value of cash flow decreases. Value of the project in stage 1 given the project is located in U.S is 714.391 million, and value of the project in stage 1 if the project is located in Argentina is 290.9129 million.

The project value decreases by more than a half if the project is located in Argentina. Percentage decrease in value in stage 1 is less than percentage decrease in value for the whole project, since majority value of stage 1 is from early years of stage 1. And country risks are generally lower in the short run than in the long run in that probability of unexpected events is larger in the long run; therefore, value of stage 1 decrease less than value of the whole project.

This is also true for stage 2, where value of project is 168.5178 million if the project is located in Argentina and value of stage 2 is 363.4208 million if it is located in the U.S. Value of stage 3 is only 69.7225 million if it is in Argentina, a significant decrease comparing to value of stage 3 if it is located in the U.S. Value of stage 3 is 903.3546 million if it is in the U.S. This is because the majority value of stage 3 comes from terminal value. The further the cash flow is from today, the more likely that there are events that will reduce value of cash flow to the company, for example, a currency crisis that depreciates value of Peso will reduce value of cash flow to Dow. In other words, country risks of Argentina are higher in the long run than in the short run. Value of stage 3 mainly comes from distant cash flows, and country risks affect these cash flow the most; therefore, value of stage 3 decreases significantly.

The country may have no choice but to make products for which it has a comparative disadvantage. Other factors such as trade agreements, tariffs, political harmony etc. between the two countries must be taken into account. b. A country engaging in trade according to the principles of comparative advantage gains from trade because it is producing exports using fewer labor units. False: Labor abundance doesn’t necessarily factor into the synergistic production means of two countries making use of comparative advantage.

There are many factors such as the seasonal weather changes in the production of crops or the latitude and longitude of the respective countries being more favorable to certain crops than others. Therefore, the use of comparative advantage MAY result in more efficient production (fewer necessary labor units), it does not necessarily have a direct cause-effect relationship. c. The Ricardian theory of comparative advantage states that a country has a comparative advantage in widgets if output per worker of widgets is higher in that country.

True: The Ricardian model states that increased productivity determines a country’s comparable advantage and thus encourages the countries specialize and trade to maximize the output and efficiency. d. Given the following information, neither country has a comparative advantage. Unit Labor Requirements Cloth Widgets Home 10 30 Foreign 3 9

FALSE: Although the Home (Domestic) country has an absolute advantage in production of cloth AND widgets, a comparative advantage always exists as it takes account of the production efficiency in two countries and is a relative term. In the case of these countries, the domestic country has a comparative advantage in the enormous disparity between its productivity with widgets compared to the productivity of the foreign country in making widgets. Therefore, the foreign country has its comparative advantage in the area of clothes.

e. In the 2-factor, 2 good Heckscher-Ohlin model, a change from autarky (no trade) to trade will equalize the wages in both countries. False: The Heckscher-Oblin model does not proffer equality for countries that engage in stringent adherence to its recommended shared production via product/labor between two countries. However, by following the recommended labor/capital levels both countries will be at their maximum efficiency in producing the two products evaluated. f.

In international-trade equilibrium in the Heckscher-Ohlin model, the capital rich country will charge less for the capital intensive good than the price paid by the capital poor country for the capital-intensive good. True: Heckscher-Ohlin model is based on the theory that if one country is abundant in labor, it will export a labor-intensive product to another country. If one country is capital-abundant, it will export capital-intensive products to the other country. 2. Many countries in Sub-Saharan Africa have very low labor productivities in many sectors, in manufacturing and agriculture.

They often despair of even trying to attempt to build their industries unless it is done in an autarkic context, behind protectionist walls because they do not believe they can compete with more productive industries abroad. Discuss this issue in the context of the Ricardian model of comparative advantage. (10 points) Undoubtedly, establishing dominance in a certain market within the worldwide economic sector is a difficult process. In the case of the sub-Saharan countries of Africa, it would benefit each tremendously to determine a niche in the marketplace – an area of production in which it has a comparative advantage in productivity.

This advantage can be assessed using neighboring countries willing to trade or by moving on to a more distant global market. 3. In 1975, wage levels in South Korea were roughly 5% of those in the United States. It is obvious that if the United States had allowed Korean goods to be freely imported into the United States at that time, this would have caused devastation to the standard of living in the United States, because no producer in this country could possibly compete with such low wages. Discuss this assertion in the context of the Ricardian model of comparative advantage.

(10 points) The wages being so much lower in South Korea would tempt the United States to send its labor needs over there, thus significantly lowering the cost of production. As a result of the cost of production being lower, the profit gained when sold at the higher prices possible in the United States would increase the profit margin. In the Ricardian model of comparative advantage, the labor would be done in South Korea and the enormous production yielded at the low cost would then be sold at regular price over in the United States.

The high amount of capital in the United States would be given to South Korea in exchange for the cheap labor. 4. At the conclusion of World War I, Germany, as a punishment, was obliged to make a large transfer to France in the form of reparations. Is it possible that the actual reparations may have improved Germany’s economic welfare? Discuss. (10 points) The condition of Germany being divided was inhibiting the potential re-growth of Europe according to the State Department planners.

When negotiations were met with obdurate refusal of the Soviets, the idea of a third force was presented. The issue of military security posed problems for the ‘third force’ idea, and even further, the problem of who would lead the third force alternative was not easily decided upon. By summer of 1948, they had agreed in what became known as the “London Conference” program, to allow Germans responsibilities of minimum control and limited control over the governmental affairs.

The internal State Department policy decreed West Germany was a political entity capable of aiding the reconstruction of Europe. When Germany began making reparations to France, it was already in a financial crisis of its own. However, by improving the relationship between Germany and France, the availability of trade created a more stable economic condition in Germany. By healing the economic damage in France, Germany was also improving the stability of a country with which it could exchange goods as per the guidelines of comparative advantage.

In other words Germany and France could begin a slow progress toward recovery by producing products at greater efficiency, which was crucial at a time when both countries were left fragile and destitute. 5. Japan primarily exports manufactured goods, while importing raw materials such as food and oil. Analyze the impact on Japan’s terms of trade f the following events: (10 points) a. A war in the Middle East disrupts oil supply. A war breaking out in the Middle East would cut the oil supply all over the world. Due to Japan’s dependence on raw material imports, the production in Japan would fall.

Gas prices would rise and other oil-dependent factions of production would drop. Furthermore, any of the oil-dependent products Japan manufactured for export would be in decline, having a profound effect on the overall economy of the island nation. b. U. S. engineers develop a fusion reactor that replaces fossil fuel electricity plants. The United States making technological advances ahead of Japan would cause a shift in the demand of products relating to fusion reactors in Japan. Other countries would buy the new and improved form of technology from the United States.

At the same time, Japan would benefit from the new technology; by adopting a new fusion reaction would create greater energy efficiency in Japan, perhaps decreasing their dependency on foreign entities for energy production. As a country that depends on raw material imports, any decrease in the dependency by creating domestic means would aid Japan tremendously. c. A harvest failure in Russia. A harvest failure in Russia could result in less imports for Japan, subsequently leading less production of goods generated for export from Japan, created from the raw materials gained from Russia.

The current account deficit is the broadest measure of U. S. trade balance plus the net balance of services, net income on overseas investments and net transfers. It basically measures the value of imports minus the value of exports. When the current account deficit is negative, which it has been over the last decade, the U. S. needs to borrow from or sell to foreigners to fund their consumption and investment. Foreign governments generally finance our current account deficit by investing in U. S. Treasury Bills. For 2008 the current account deficit fell sharply for the second consecutive year. As a percentage of the economy or GDP, the fourth quarter deficit was 3. 7 percent, the lowest it’s been since 2001.

(1) It is projected that the current account deficit will fall further in 2009 due to the recession reducing significantly the amount of imports. However, the global economy recession will also reduce the amount of exports, but as long as the dollar does not appreciate considerably over foreign currencies the current account deficit should continue to decline. Many economists and politicians have blamed recent current account deficits on the valuation of the Chinese yuan compared to the U. S. dollar.

China has historically pegged the yuan to the U. S. dollar and many claim that the yuan is extremely undervalued compared to the dollar. This results in imports from China being less expensive than domestic goods and causes a huge trade imbalance with China. There has been much pressure put on China to raise the value of the yuan to put it on a more even keel with the dollar. In response to this pressure China has been appreciating the yuan but not fast enough to suit many in congress. For 2008 our net exports to China were $71. 5 billion and our net imports were $337. 7 billion for a trade imbalance of -$266. 3 billion.

(2) This trade imbalance with China has contributed greatly to our current account imbalance. The current account deficit is problematic for the U. S. economy. Persistent U. S. trade deficits put a substantial drag on productivity growth. More dollars spent on imports than exports reduces domestic demand and employment and drives workers to less productive jobs. To lessen the current account balance the U. S. needs to expand domestic demand, see expansions of domestic demand in major foreign economies, reduce the U. S. budget deficit and continue to put pressure on China to appreciate its currency.

There are economists, however, that argue that current account deficits are not inherently bad for the economy. They believe that a current account deficit is a feature of a successful international monetary system. Analyses that have been done by these economists show that net capital flows from poor to rich countries. These net outflows of capital are associated with relatively high growth rates in emerging markets. Chronic current account deficits, though, are politically unsavory and will always be seen as a threat to our economic well being if they exceed 5% of GDP in any particular year.

What are the economic and political arguments for regional economic integration? Given these arguments, why don’t we see more substantial examples of integration in the world economy? Unrestricted free trade allows countries to specialize in the production of goods and services that they can produce most efficiently. If this happens as the result of economic integration within a geographic region, the net effect is greater prosperity for the nations of the region. From a more philosophical perspective, regional economic integration can be seen as an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the World Trade Organization. The political case for integration is also compelling.

Linking neighboring economies and making them increasingly dependent on each other creates incentives for political cooperation between neighboring states. The potential for violent conflict between the states is also reduced. In addition, by grouping their economies together, the countries can enhance their political weight in the world. Despite the strong economic and political arguments for integration, it has never been easy to achieve on a meaningful level. There are two main reasons for this. First, although economic integration benefits the majority, it has its costs. While a set of nations as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. The second impediment to integration arises from concerns over national sovereignty.

How should a firm that has self-sufficient production facilities to in several ASEAN countries respond to the creation of a single market? What are the constraints on its ability to respond in a manner that minimizes production costs?

The creation of the single market means that it may no longer be efficient to operate separate production facilities in each country. Instead, the facilities should either be linked so that each specializes in the production of only certain items, or several sites should be closed down and production consolidated into the most efficient locations. Existing differences between countries as well as the need to be located near important customers may limit a firm’s ability to fully consolidate or relocate production facilities for production cost reasons. Minimizing production costs are only one of many objectives of firms, as the location of production near R&D facilities can be critical for new product development and future economic success. Thus what is most important in location decisions is long-run economic success, not just cost minimization.

Case Study (Logitech)

In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products? In a world without trade, the costs that American consumers would have to pay would be very high. The product that the case study gives for example, Wanda, retails for $40, of which only $3 is the production cost from China. This $3 cost would rise immensely if production was in the United States because the American economy demands high wages.

Explain how trade lowers the costs of making computer peripherals such as mice and keyboards. If the United States were to build a product entirely domestically, the retail price would not be feasible to most consumers. With trading in place, it allows for economies of scale. The technology can be developed in one country, the production in another country, and the assembly in yet another country. The shipping costs are much less than it would be to perform these tasks in one country. This is called absolute advantage, where someone is great at one thing. With this in mind, you will get a product that has the best resources available at the lowest cost, which is a comparative advantage. Finally, specialization is where everyone is doing what they do best and pulling their resources together to make one incredible product.

Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California? Logitech is very brilliant when it comes to comparative advantage. It does basic R&D work in Switzerland with 200 employees, its headquarters are in Fremont, California with 450 employees as well as some R&D, the ergonomic designs are developed in Ireland, and the products are manufactured in Taiwan and China. The comparative advantage is that it is the most cost-effective to break up the business in many different countries that specialize in a certain job.

Who creates more value for Logitech, the 650 people it employs in Fremont and Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of this observation for the argument that free trade is beneficial? The 650 employees in Fremont, California and Switzerland create more value for Logitech. It is where all of the R&D and designs are developed. The 4,000 employees of China add $3 to the Wanda product, which is almost nothing in comparison to the remaining $37. Free trade is beneficial because labor costs can be brought way down.

Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont? America specializes in R&D. The headquarters were moved because of the company’s global marketing, finance, and logistics operations. That is what Americans do best

To what extent can Porter’s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech?

There are four parts to Porter’s diamond:

• the factor of endowments, which is a nation’s position in factors of production such as skilled labor or the infrastructure necessary to compete in a given industry
• demand conditions, which is the nature of home demand for the industry’s product or service
• relating and supporting industries, which is the presence or absence of supplier industries and related industries that are internationally competitive
• Firm strategy, structure, and rivalry, which are the conditions governing how companies are created, organized, and managed and the nature of the domestic rivalry.

Taiwan’s factor of endowments was that it had a science-based Industrial Park in Hsinchu. The demand conditions were that the Taiwanese were already trained to deal with technology. The relating and supporting industries were that Taiwan was the best as building technology at the lowest cost. The firm strategy, structure, and rivalry were that Taiwan had no domestic rivalry; they provided the lowest cost.

Why do you think China is now a favored location for so much high technology manufacturing activity? How will China’s increasing involvement in global trade help that country? How will it help the world’s developed economies? What potential problems are associated with moving work to China?

Chinese laborers are some of the cheapest in the world. Even though the workers are not treated very well, they are starting to rise up and demand more wages. The increase in foreign trade for China has helped to increase their economy. The world’s developed economies will benefit because of the globalization of production. The potential problems are that Americans are losing jobs to foreign markets.

Creating the International Trade organization- Case Study

President Truman had the unenviable task of deciding the fate of one of the most revolutionary proposal that had the potential to change the shape of international economy forever. If he lobbied hard enough for it using all his diplomatic clout and political power, he could get it ratified by the congress. But deep in his mind he must have had doubts about its worth because the charter that was proposed had several weak points that were not in the complete interests of his own country.

History of 19th century gives sufficient proof that a perfectly free trade system is not practical or sustainable. All countries are not similar in their economic and political make up and individual countries, from time to time, have had and are likely to always have their own problems and objectives. An International Trade policy of a country is one factor that will get flexed at the time of domestic distress within a country or when the relationship with another country or countries is strained.

The Charter of the International Trade Organization ( ITO ) failed to come into existence due to several factors. The most of important of them was the protests from within the United States from the perfectionists who felt the charter was not strict enough to lead to a free trade world and the protectionists who protested that ITO would ruin their domestic industry and employment situation.

After the Second World War, the world economy and trade were in chaos. The United States, emerging as the most powerful economy in the world, initiated a series of activities to help reconstruct the affected countries and their economies. President Truman considered ITO as ideal platform for setting the tone for the future of world economy. (p.1).

The successful creation and operation of the International Monetary Fund ( IMF ) and the International Bank for Reconstruction and Development ( later named World bank ) after the second world war it was the idea of the think tank of US to create a system of free trade between nations by proposing a clearly laid out guidelines for international negotiations of trade, trade liberalization, foreign direct investment, cartels and commodity agreements. (p.1)

Both the IMF and World Bank proposals were ratified without much opposition and had been seen by the international community at large, as the steps in the right direction to eliminate the disparities between the developed, the developing and the third world countries.

The problems of the charter started when the two of years of international negotiations  compromised a number of original recommendations of Cordell Hull and his team, the original proponents of ITO. These compromises gave plenty of escape routes and loopholes to member countries especially of the developing world to nullify the terms of the charter on certain grounds. Many people in the US and other major economies feared that these loopholes are likely to be misused jeopardizing the whole idea of free trade.

The ideology of ITO was flawed to the extent that the final agreement had several clauses that made the free-trade system self-defeating.

Had the Americans compromised too much in the negotiations?.  It would seem so.  The opponents of the ITO pointed out that US would probably be the only country that would stick to the rules of the agreement while a majority of the rest of world would be able to use any one of the clauses to claim exemption to deviate from the terms of the agreement.

Within the domestic economic framework in the United States was clearly divided towards the implementations of ITO. The agriculture based enterprises in the south where in favor of ITO while the industrial sectors in the north areas were crying foul. On the Political front the republicans were largely opposing ITO while the democrats where for free trade.

After several failed attempts to get it passed by the congress President Truman finally announced that he would not pursue the matter further. Thus the ITO chapter was dead and buried by 1950.

However, the failure of the ITO or the critics arguments on it did not seem to affect the fate of another trade agreement at a much lower level called General Agreement of Trade and Tariffs ( GATT ). The success of GATT instead of ITO is ample proof of the fact that  ITO charter was all-encompassing and universal with an organizational structure and comprehensive provisions to the extreme extend. GATT on the contrary was narrow and focused. GATT was later used by the US as a vehicle to push some of the ITO charter recommendations (Wilkinson, R., p.20). The fact that GATT, later gave way to World Trade Organization ( WTO ) which is reminiscent of the ITO charter points to fact that ITO was introduced too early for its own good. The world market was not ripe enough to handle such a complicated and comprehensive system of regulations and conditions.  In the shape of size of GATT and then WTO some of the ITO objectives were pursued with considerable success even though the achievement of global free trade looks an unlikely possibility.

Yet, some of the concerns voiced by the opponents of ITO have proved to be true, such as the fear that in a free and open global economy, a crisis in one area would affect the rest of the world.

Conclusion

The US congress did not ratify the ITO charter that the proposal committee had signed up with 53 countries of the world at Geneva in 1947.  It would seem that United States escaped fro committing a blunder of sorts which would have seriously undermined its aim of sustaining and strengthening its position as the leading political and economic power of world. The world was not ready for a structure of that magnitude. And in order to satisfy all countries concerned the charter committee had made far too many compromises that would have been taken advantage of by undeserving nations. The ITO was indeed a brilliantly beautiful but utterly unpractical dream.

References

Harvard Business School, 1998, Creating the International Trade Organization

Wilkinson R., , 2001,Multilateralism and the World Trade Organization: The Architecture and Extension of International Trade Regulation,  Routledge

Northrup C N, 2003, The American Economy, ABC-CLIO