The High Level Of Openness And Labor Mobility

External stability – stable exchange rate, a sustainable level of foreign debt and the current account deficit (CAD) 

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

Many indicators serve to measure the degree of trade openness. The first is designed to assess directly the level of economy openness to foreign trade. The degree of openness measures the level of the external constraint and it is obtained by the ratio of the value of foreign trade on the GDP. The second indicator (distortion) aims to measure the impacts of protectionist policies of a country.

The Internal Market of the European Union (EU) is one of Europe’s significant achievements and its greatest resource in times of modern globalisation. Since its creation in 1993, the Internal Market has opened itself more to competition, created jobs and reduced many trade barriers. It is the principal instrument for building a stronger and fairer economy in the EU. It assures the free movement of people, services, goods and capital, and by doing so, creates fresh opportunities for businesses and consumers. The Treaty on the Functioning of the European Union adopts measures with the aim of combining national markets in a single market with the characteristics of a domestic market. The vision is that it should be as easy to trade between London and Madrid as it is between London and Manchester.

An open economy is an economy in which there is economic activity between foreign and domestic communities. People and businesses are able to thrive because of it and theoretically, limitless possibilities are open due to the possibility of exchange of foreign goods (however, they cannot do anything that defies the rule of law). America’s current economy has begun to differ from that of the visions of its founding fathers’ because the government has put restrictions on certain companies to prevent any single one from monopolizing an entire section of the economy, thus promoting diversity within similar types of goods.

Those economically disadvantaged (poor) within a country generally gain from a loose trade. A loose trade is generally a strong positive contributor to poverty reduction. This allows people to exploit their productive potential, assists economic growth, restrains illogical policy interventions and helps to insulate against shocks. This corresponds with a new World Bank study which, used data from 80 countries over four decades, confirmed that openness boosts economic growth and that the incomes of the poor rose one-for-one with overall growth.

Consequences regarding the international businesses and the flow of trade and investment among the three countries are given below as benefits and drawbacks of holding fixed exchange rate system-

A small country with strong economic ties to a larger country should (PEG ((HARD OR SOFT)) THEIR EXCHANGE RATE TO THE LARGER COUNTRY’S CURRENCY)

Here is an example of what happens if a country is on a floating system. ”If demand for a currency is low, its value will decrease, thus making imported goods more expensive and thus stimulating demand for local goods and services. This in turn will generate more jobs, and hence an auto-correction would occur in the market. A floating exchange rate is constantly changing.”(Investopedia.com) In the above we can see that as much as it is negative to have a currency with little value, it can in turn create a positive outcome. Employment can rise, people spend, and eventually the economy stabilizes again. The cycle starts all over with the currency having a high value again.

A GCE Analysis for Free Trade in the D8” written by Mustafa Acar agues about free trade between the OIC countries. OIC is the second inter-governmental organization in the world after the United Nations. Organization of the Islamic Conference (OIC) includes 22.5 percent of world population, 6.6 percent of world GDP, and 9.1 percent of world trade, more than 70 percent of oil and nearly 50 percent of natural gas reserves of the world. Turkey, Iran, Nigeria, Indonesia, Malaysia, Egypt, Pakistan, and Bangladesh are the members of D8 (Developing 8) countries. Free trade between these countries will be beneficial and it will increase the trade volume and will bring welfare gains to each

The current international system is characterized by growth in globalization hence regional integration is becoming a common phenomenon in most parts of the world. As a result of states becoming more interconnected, most of them have opted for regional integration so as to enhance trade between states thus boosting economies of the states as well as the regions as a whole. Besides free trade, regional integration has seen to it the elimination of trade barriers, free movement of goods and people across borders, regional co-operation in issues to do with peace and security within the regions among various other benefits of regional integration. One of the regions that has grown as a result of regional integration is the European Union (EU), which is an economic and political partnership composed of 28 European countries. This paper will focus on the EU and give a theoretical analysis of the Brexit while giving lessons of integration and liberalization based on the Brexit.

The wide spread of the swap lines and the increase of their scope represents a new trend in the practice of the central banks and is worth a thorough research. Certain authors, for instance Moreno (2010), Destais (2013), Aizenman, Jinjarak and Park (2011) claim that such currency agreements may decrease the necessity of the foreign-exchange reserves allocation and become an alternative to such credit instruments of the international market as the IMF credit lines.

Li Tiandong and Jiang Boke (2006) point out that the relationship between exchange rate and employment depends on the coaction of three mechanisms: (1) the effect of exchange rate changes on aggregate demand; (2) the effect of exchange rate changes on prices of capital goods; (3) the substitution effect of exchange rate changes on the relationship between physical and human capital.[4]

The Middle East region is a conservative cultural and religious area that grew at only half the rate of other developing countries during the 1990s. A number of factors such as structural imbalances, the so-called 'curse of natural-culture and religious conflicts, are highlighted for the slow economic development in the Middle East. Similarly, Abed (2003) identifies five main causes holding back the economic growth of the Middle East i.e. lagging political reforms, dominant public sector; underdeveloped financial markets; high trade restrictiveness and inappropriate exchange regimes. apart from these , some of the others factors include the lack of integration into the global

Explain how the international trade flows should initially adjust in response to the changes in inflation (holding exchange rates constant). Explain how the international capital flows should adjust in response to the changes in interest rates (holding exchange rates constant).