MCom I Semester Business Environment International Economic Group Study Material Notes

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MCom I Semester Business Environment International Economic Group Study Material Notes

Table of Contents

MCom I Semester Business Environment International Economic Group Study Material Notes : Need of international economic cooperation’s Main Objectives of Asean Progress of Asean Objectives of Sears Various international monetary institutions and cooperation Progress and Achievements of European Union Long Answer Questions Short Answer Questions Objectives questions :

International Economic Group
International Economic Group

CTET Paper Level 2 Language I English Question Model Paper

International Economic Grouping

Mutual interdependence of the economic policies of various nations is known as international economic cooperation  Both public and private assistance helps the economic development of a country. The World Bank pro development of public sector. Similarly, foreign direct investment also has important place in the economic development. It was realized that the financial disorders of the world could be corrected only by mutual agreements amongst nations having international economic relations. International Monetary Fund and the World Bank were established for promoting international financial cooperation in matters of exchange rates, balance of payments, reconstruction of war-ravaged nations and promotion of economic development. The underdeveloped countries of the world look for the financial assistance from the developed countries, Development of underdeveloped countries is not possible without the financial assistance of the developed countries. The developed countries mostly provide different kind of assistance to the underdeveloped and developing countries.

International Economic Group

NEED OF INTERNATIONAL ECONOMIC COOPERATION

At present, international economic cooperation has become a necessity due to the following reasons :

1 Loss in balance of payments : It is usual experience of all underdeveloped countries to have serious difficulties in settling their balance of payments. Rising imports and lagging behind or stagnant exports lead to the widening of the deficit on current account and capital account too. The balance of payments become increasingly unfavourable from year to year as development programmes proceed at a slow pace. This problem can be solved only by international economic cooperation.

2. Large investment: An underdeveloped country also lacks in capital which have chosen the road to economic development, they need machinery, equipment, industrial raw material industrial raw materials etc. Underdeveloped countries problem of low income and low level of savings, low level of capital formation. Large-scale capital investment is possible only through the international economic cooperation The underdeveloped countries also import technical know technology etc. In all these thing an underdeveloped country lacks and for these it must rely on foreign countries.

3. Reformation The economies destroyed by the Second World War require reconstruction and reformation. The international economic cooperation helps in the restoration of the territories destroyed by the war.

4. Reduction of economic difference: With the object of reducing economic difference between nations, international economic co-operation in needed.

VARIOUS INTERNATIONAL MONETARY INSTITUTIONS AND COOPERATION

Monetary history shows that the gold standard functioned with reasonable success prior to 1914, the peri I preceding World War I. This was mainly because the conditions essential for the successful operation of the system were mostly fulfilled and the rules of the game could be observed to a great extent. The First World War in 1914 created emergencies with the result that the gold standard had to be suspended during 1914-1918. By 1931 fifty nations again started relying on the gold standard. The gold standard did not live long after its restoration. The world in general went off the gold standard by 1936 with the suspension of the gold standard almost all the countries started internal recovery by means of competitive exchange depreciation, exchange control, import-export restriction and unfair trade practices. The Tripartite Monetary Agreement and the manipulation of exchange rates by ‘Stabilisation Funds’ were designed to introduce a stable foreign exchange system in a limited sphere. This also failed when the Second World War broke out. After it various agreements tried to restore international cooperation. In fact, the international economic cooperation developed in the present century. After the Second World War various monetary institutions were established to promote international economic cooperation. Some of important institutions and organisations are as follows:

1 Latin America Free Trade Area: Like other developing countries, the countries of Latin America were also facing the problem of declining internation trade. In mid 1950-60, their share in world trade got reduced to 8% from 10% and at the same time their exports also had been declining. The volume of their mutual trade was also reduced. For their purposes, the countries of Latin America continued discussion to improve trade. Economic Commision of America played an important role in this direction. After a long discussion on Febuary 18, 1960 seven countries signed the treaty. The member countries of NAFTA were Argentina, Brazil, Chile, Paraguay, Peru, Uruguay and Mexico. Mexico is the South American country. The association started to function from July 1, 1961. Afterwards Colombia and Ecuador became the members of association.

2. Economic Commission for Asia and Far East (ECAFE): Earlier it was the misconcept that Asian countries lack in mutual integrity, mutual cooperation and uniformity and the big Asian continent lacks the facilities like transporation, communication, etc., even though there was wide scope of economic development of Asian countries. Because of this, ECAFE was established with the efforts of UNO. Actually ECAFE is said to be a regional unified institution. Therefore, the area of commission is limited to some specific problems. The mutual trade between Asian countries has not been well-developed because of their low productivity. Although Asian countries want to be independent in the matter of trade but they have not been successful.

3. Association of South East Asian Nations-(ASEAN) . The origin of ASEAN lies in Association of South East Asia. The ASEAN was short-lived because of territorial and political disputes among the member countries. Concrete efforts for regional economic co-operation were further revived by the ASEAN declaration on 8th August 1967. At present members of ASEAN are 10-Indonesia, Philippines, Malaysia, Thailand, Singapore. Brunei, Vietnam, Laos, Cambodia and Myanmar. The ASEAN is a political, economic and cultural organisation of countries located in South East Asia. Main Objectives of ASEAN

The main objectives of ASEAN are as follows:

1 To promote economic cooperation in South-East Asia and also to ensure economic stability in the region.

2. To exchange new technology in the fields of agriculture and industry.

3. To make all possible efforts to maintain regional peace and stability.

4. To promote economic development by mutual co-operation in scientific, technical and administrative fields as well as active cooperation in economic, social and cultural sectors.

5. Gradual increase in relationship with other countries and organizations.

Progress of ASEAN

The ASEAN summit is the highest forum for ASEAN co-operation. Its meetings are held once in a year. The first summit of ASEAN was held in February 1976. The twentieth summit of ASEAN was held on 3-4 April, 2012 in Cambodia. The ASEAN Regional Forum is an informal multilateral dialogue of members that seeks to address security issues in the Asia-Pacific region.

On July 23rd 1996, ASEAN gave advisory status to India. Besides India, China and Russia also got this status. India cannot join the ASEAN as a member due to its geographical location.

4. South Asian Association for Regional Cooperation (SAARC): The SAARC comprising the seven south Asian countries of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, formally came into existence in 1985 with the adoption of its charter at the first summit in Dhaka (7-8 December, 1985). The Association provides a platform for the people of South Asia to work together in a spirit of friendship, trust and understanding. It aims to promote the welfare of the people of South Asia and to improve their quality of life through accelerated economic growth, social progress and cultural development in the region. At present Afganistan has became the eighth member of SAARC.

Objectives of SAARC

The following are the main objectives of SAARC:

1 To promote and strengthen collective self-reliance among the member countries.

2. To strengthen over-all cooperation and harmonious economic and political relations among the countries of SAARC.

3. To promote the socio-economic welfare and cultural development of the people of the region.

4. To encourage active collaboration in the economic, social, technical and scientific fields among the grouping nations.

5. To contribute to mutual trust, understanding and appreciation of one another are problems.

6. To promote friendly relations with other developing countries.

International Economic Group

Progress of SAARC

Summits are the highest authority in SAARC and are to be held annually Till now eighteen meetings of the heads of the member countries have been held. The first summit of SAARC was held at Dhaka, the capital of Bangladesh on December 7-8, 1985. The second summit, 1986 and Eighth summit on May 1995 were held in India at Bangalore and New Delhi respectively. The Eighteenth summit of SAARC was held in 2014 in Nepal. Major initiatives have been taken on social issues such as eradication of poverty, promotion of literacy and development of women and children. SAARC will also pay particular attention to the exit of trafficking in women and children. Eleven committees have been set up under SAARC, covering agriculture, communication, education, culture and sports, environment and meteorology, health and population activities, rural development, science and technology, transport, shipping etc.

5. Organization of Petroleum Exporting Countries (OPEC): OPEC was established to protect the interest and ensure development of petroleum-producing countries. At present OPEC has 11 members. The main members of OPEC are Algeria, Iran, Saudi Arab, U.A.E. Venezuela, Libya, Nigeria, Angola, Qatar, Ecuador and Kuwait. This organization widely controls the supply and prices of mineral oil and petrol in the international market.

6. G-15: A Group of fifteen non-aligned and developing countries established this organization. The main object of G-15 is to improve relations amongst the member countries. The main member countries of G-15 are India, Indonesia, Malaysia, Senegal, Algeria, Nigeria, Zimbabwe, Egypt, Kenya, Mexico, Jamaica, Venezuela, Argentina, Peru, Chile, Sri Lanka, Colombia, Iran and Brazil. Now the number of member countries of G-15 has been increased to 19.

ECONOMIC GROUPING SET UP BY DEVELOPED NATIONS

Economic groups set up by the developed nations are as follows:

(i) North American Free Trade Agreement (NAFTA): With the object to counter the economic challenges of Japan and European Economic Community, NAFTA was established on August 12, 1992. Under an agreement, for the establishment of NAFTA a tripartite treaty was performed betwen U.S.A., Canada and Mexico.

(ii) G-8 : Earlier G-8 was known as G-7. Now the number of member countries is 8 which include France, Italy, Britain, Japan, Russia, U.S.A., Germany and Canada. G-8 was established with the object of discussing political and economic matters. All the important industrial countries are the members of G-8.

(iii) European Common Market or European Economic Community or European Union : Europe’s most comprehensive attempt at economic integration was marked by the formation of the European Economic Community. The EEC was founded in 1957, under the treaty of Rome by France, Germany, Italy, Belgium, Luxemberg, and the Netherlands. The community of the original six members was enlarged as from Januray 1, 1973 with the inclusion of Ireland, Denmark and Britain. Greece became its member in 1981, followed by Portugal, and Spain in 1984. Thus the total membership of EEC went upto 15 on January 1, 1995 after the induction of Austria, Finland and Sweden to this organisation Its headquarter is at Brussels (Belgium). EEC started functioning since January 1, 1957.

At present, the European Union is a union of 28 independent states based on the European Communities and founded to enhance political, economic and social cooperation.

OBJECTIVES OF EUROPEAN UNION

The objectives of community include:

(i) The Establishment of a European Investment Bank to Facilitate the  economic expansion of community by opening up fresh resources.

(ii) To coordination of legislation of member states for the smooth functioning of the common market.

(iii) The abolition, as between the members, of obstacles to freedom o movement of persons, services and capital.

(iv) The establishment of common policy in the sphere of agriculture.

(v) The establishment of common policy in sphere of transport.

(vi) The establishment of a common tariff and commercial policy for the outside nations.

(vii) The removal of custom duties and import-export quotas between each other.

(viii) The creation of European Social Fund in order to improve the possibilities of employment of workers and to contribute to the raising of their standard of living.

PROGRESS AND ACHIEVEMENTS OF EUROPEAN UNION

The European Union has eliminated gradually obstacles to the free movement of goods, services, capital and labour between the member countries and established a common policy in the spheres of agriculture and transport and a common external commercial policy. The European Common Market has set up European Social Fund and European Investment Bank. It has also improved the mobility of labour and capital. Member countries have removed the obstacles in free movement of capital.

Member states have taken a major step towards integration by adopting the same currency Euro. They adopted the Euro at its launch on January 1, 1999. These countries introduced the Euro in cash form on January 1, 2002. Denmark, Sweden and the Britain have chosen to remain outside the Euro for the time being. European Central Bank took over full responsibility for monetary policy through out the Euro area. The Bank also has the job of ensuring that payments move smoothly across all European Union borders, not just within the euro area.

International Economic Group

EXERCISE QUESTIONS

Long Answer Questions

1 What is meant by regional economic co-operation? How far these regional economic groupings are compatible with the free trade policy? Explain it.

2. Write a detailed essay on International Economic Groupings.

3. Discuss the objectives of SAARC. What are the main hurdles in the way of its progress?

4. Write the objectives of European Union. How far has it achieved these objectives?

Short Answer Questions

1 What do you understand by ECAFE?

2. What do you know about NAFTA?

3. What is meant by regional economic cooperation?

4. Write the objectives of SAARC.

5. Write the objectives of European Union.

6. What do you know about G-20 ?

7. Write a note on ASEAN.

International Economic Group

Objective Questions

Choose the correct alternative:

1 The first summit of summit of South Asian Association for Regional Cooperation (SAARC) was held in :

(a) 1985

(b) 1986

(c) 1987

(d) 1988

2. The Eighteenth summit of SAARC was held in:

(a) 1999

(b) 2000

(c) 2014

(d) 1998

3. The agreement made to promote economic cooperation in South-East Asia and to ensure economic stability in region, was:

(a) SAARC

(b) ASEAN

(c) NAFTA

(d) ECAFE

4. The progress of mutual trade between Asian countries is :

(a) slow

(b) fast

(c) first slow than fast

(d) none of these

5. NAFTA was established on:

(a) August 13, 1992

(b) August 14, 1992

(c) August 15, 1992

(d) August 12, 1992

6. The European Common Market was organized in:

(a) 1957

(b) 1958

(c) 1956

(d) 1959 [Ans. : 1. (a), 2. (c), 3. (b), 4. (a), 5. (d), 6. (a)]

International Economic Group

(II) Write True or False :

1  The developing countries need huge capital investment for economic development.

2. Technical know-how is necessary for development programmers which are in plenty with underdeveloped countries.

3. International cooperation is a must to reduce the economic differences among various countries.

4. The developing countries may not be benefitted from the scientific and technical knowledge of developed countries.

[Ans.: 1. True, 2. False, 3. True, 4. False]

(III) Fill in the Blanks :

1 … is the mutual interdependence of economic policies of various countries.

2. Rising imports and lagging behind or stagnant exports lead to the widening of deficit of …………….. of underdeveloped countries.

3. The reconstruction of the destroyed economies by the Second World War was possible only with the help of ..

4. The economic stability in South East Asia may be maintained by ……….

[Ans. : 1. Internal economic cooperation,  2. Balance of payments, 3. International economic cooperation, 4. economic cooperation.

International Economic Group

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