Which countries have open economies. Concept and indicators of open and closed economic systems
The word openness has two related but distinct meanings. It can mean that something is unlimited, accessible, and possibly vulnerable. Or it may mean that something, such as a person or organization, is transparent rather than secret.
In the first sense, the word is often applied to international trade, investment and technology (although most definitions do not associate opportunity with vulnerability). Such openness has always led to structural changes in the economy, especially with regard to employment. Structural changes can be both positive and destructive. Policymakers have long needed to find a balance between the abstract principle of openness and concrete measures to limit the worst consequences of such changes.
Fortunately, scientific research and historical experience can help authorities find a sensible response to this challenge. Take, for example, the experience of small developed countries in Northern Europe, which tend to be open. There is a reason for this: if they were not open, they would need too much high degree diversification of the tradable part of the economy to meet domestic demand. This would lead to high costs since the small size domestic market prevents them from achieving economies of scale in technology, product development and manufacturing.
However, the openness of these countries has led to an increase in the economic and political importance of both investment in human capital and a strong system social protection. Social protection measures are doubly important for countries with small, highly specialized economies, since the impact of an external shock on one tradable sector in that country can have an effect on the entire economy.
It wasn't always like this. Canada, Australia and New Zealand, that is, countries with small and average economy, pursued protectionist policies that caused excessive diversification in tradable sectors. But as international trade expanded and specialization increased, the cost of domestically produced goods (such as cars) became too high for consumers compared to their imported counterparts. In the 1980s and 1990s, these three countries began to open up their economies and went through a difficult transition period of structural change, which nevertheless helped improve productivity and brought numerous benefits to citizens and consumers.
Authorities too often want to completely prevent change from happening.
However, finding the right balance is always difficult. Canada, Australia and New Zealand are resource-rich countries that are susceptible to "Dutch disease": a situation where one strong, capital-intensive sector harms other sectors, strengthening national currency. This is a concern insufficient diversification, which makes these countries vulnerable to volatility in global commodity markets and creates threats to employment.
We typically associate structural adaptation with international trade and investment. However, within the country industrial activity is also constantly changing, which causes local and regional problems. For example, textile production in the United States, once densely concentrated in the New England states, largely migrated to the southern states (and then moved to Asia and other low-cost countries).
In 1954, then-Senator John Kennedy wrote a long and fascinating article in the magazine The Atlantic, which explained this undesirable movement of production from New England by the system tax benefits in the southern states. Kennedy argued that such measures could lead to inefficiently high levels of industrial mobility as corporations strive to increase profits while ignoring the impact of their actions on local communities. To end this race to the bottom, Kennedy called not for free trade, but for regulation that would make trade fairer and more efficient.
Structural changes are indeed necessary to improve dynamic efficiency. However, measures are also needed to ensure that investment and economic activity are based on real comparative advantage, rather than temporary beggar-thy-neighbor incentives. This is especially important during periods of rapid structural change. Adaptation on the supply side of the market is slow, painful and expensive, so it should not be undertaken unnecessarily.
But both countries with closed economies that miss out on the benefits of trade altogether, and countries with open economies that have significant institutional and political barriers to structural change will perform poorly. This explains why many open economies today have failed to adapt to new technologies and trade patterns. Authorities too often want to completely prevent change from happening. However, while blocking change may temporarily protect existing industries and jobs, such actions lead to a sharp decline in investment flows, which is ultimately harmful to economic growth and employment.
If structural reforms are not accompanied by social protection reform, they are likely to fail
Another barrier to change in the country is the structure of its economy and social protection. As former Greek Finance Minister Yanis Varoufakis points out, promises of dividends that economic growth will bring long term, thanks to structural reforms, is not enough to calm people's worries about their immediate, short-term future, especially if the economy is semi-stagnant. If you replace something with nothing, you can expect significant political and social resistance.
If structural reforms are not accompanied by social protection reform, they are likely to fail. The reform program Plan 2010, launched by former German Chancellor Gerhard Schröder in 2003, is a good example of this multilateral approach; however, it turned out to be a political risk for Schröder: he was not re-elected in 2005.
The timetable for reform is also important. For example, people with jobs will be much more concerned about welfare reform in a country with a poor economy than in a country experiencing an economic boom. Political resistance to structural reform, especially from older workers, will be stronger in a country where unemployment is high and output is low, because in such conditions it is much worse to be unemployed.
As a general rule, governments should not undertake structural reforms until the economy has started to move forward through fiscal and investment policies. By doing so, political resistance to change can be reduced. Europe is currently experiencing a moderate but significant surge in economic growth. Whether politicians will be able to seize this chance to implement the necessary reforms is anyone's guess.
The final lesson to remember is that structural change is not just an unfortunate side effect of economic growth and the creation of new jobs and new industries. On the contrary, they are an integral part of these processes.
This can be clearly seen in the examples of successful developing countries, where the recipe for growth was openness, modern economic sectors, international trade, high level investments, expanding the base human capital. These countries are also undergoing structural changes and facing distribution problems. However, their transition period turns out to be faster and less painful, since investments are actively flowing into both the public and private sectors, both in material and intangible assets.
The developed countries in this sense they are not much different. Significant and widespread increases in investment will not solve all of their distribution and adaptation problems. But it can certainly boost economic growth and reduce economic and political frictions that impede structural adjustment.
Michael Spence - laureate Nobel Prize in Economics 2001, Professor of Economics at the Stern School of New York University
Copyright: Project Syndicate 2017
MINISTRY OF EDUCATION OF THE REPUBLIC OF BELARUS
EDUCATIONAL INSTITUTION
"POLOTSK STATE UNIVERSITY"
Department: Economic theory
in the discipline "World Economy"
Option - 12
Female students
Faculty of Finance and Economics
correspondence department
group U06-EPz-1
Galai Natalya Mikhailovna
Teacher:
Zenkova I.V.
Novopolotsk, 2008
3. Licensing agreements and franchising
List of sources used
Applications
1. The benefits of economic openness and international requirements for countries to integrate into world economy
Open economy- the economy of a country that opens its borders to the penetration of goods and capital from other countries and freely exports its goods and services to other countries.
An open economy presupposes the integrity of the economy, a single economic complex integrated into world economy, world market. An open economy is the elimination of the state monopoly of foreign trade (for most positions while maintaining state control), efficient use the principle of comparative advantage in international division labor, active use of various forms of joint entrepreneurship, organization of free enterprise zones.
One of the most important criteria for an open economy is the country’s favorable investment climate, which stimulates the influx of capital investments, technologies, information within the framework determined by economic feasibility and international competitiveness (at the sectoral and macroeconomic levels). An open economy presupposes reasonable accessibility of the domestic market for influx foreign capital, goods, technologies, information, work force.
An open economy requires significant government intervention in the formation of a mechanism for its implementation at the level of reasonable sufficiency. There is no absolute openness of the economy in any country.
The advantages of an open economy are;
· Increasing the possibility of attracting direct foreign investment;
· Expansion of the range and range of goods and services;
· deepening specialization and cooperation of production;
· rational distribution of resources depending on the degree of efficiency;
· dissemination of world experience through the system of international economic relations;
increased competition between domestic producers, stimulated by competition in the global market.
Integration(from Latin integer - whole) - the unification of economic entities, the deepening of their interaction, the development of connections between them. Economic integration takes place both at the level of national economies of entire countries, and between enterprises, firms, companies, and corporations. Economic integration is manifested in the expansion and deepening of production and technological ties, the sharing of resources, the pooling of capital, and the creation of favorable conditions for each other to implement economic activity, removing mutual barriers. There are vertical integration and horizontal integration of companies.
International requirements for countries for their integration into the world economy:
1. Establishment of a stable political regime;
2. Development and improvement of the market economic mechanism, adequate Russian conditions;
3. Full attraction and effective use of foreign investment by creating a favorable investment climate, in accordance with the requirements of an open economy with Russian specifics;
4. Carrying out an active foreign trade policy that combines export-oriented production with import substitution;
5. Stimulation economic development along the path of scientific and technological progress.
Today Belarus sells abroad over 55% of GDP, 80% industrial production. Trade and economic relations have been established with more than 180 countries of the world. Foreign trade turnover tripled from 2000 to 2007 and amounted to 53 billion Br. With absence raw materials, and first of all energy resources, this is undoubtedly good indicator, confirming the openness of the economy of the Republic of Belarus. The advantages of foreign trade include a decrease in the share of the Russian Federation over the past 5 years from 58% to 49% and an increase in trade turnover with EU countries (from 18.9% to 31.9%).
Also, one of the main criteria for the degree of openness of countries to the world market is the export quota (EQ) - the ratio of the volume of exported goods and services (E) to the country's GDP/GNP. In Belarus in January-October 2008 Ek≈50-60% (GDP in January-October 2008 amounted to 104,987.1 billion rubles at current prices). This indicates that the economy of the Republic of Belarus is relatively open.
In addition, for 9 months of 2008 in real sector economy (except banks), foreign investors invested 5.2 billion US dollars of investments, or 37.4% more than in 9 months of 2007.
The largest amounts of foreign investment came to such sectors of the economy as industry (43.9% of all incoming investments), the total commercial activity to ensure the functioning of the market (32.7%), trade and catering(7%). Data on the receipt of foreign investment in the main sectors of the economy are given in Appendix 1.
The main investors of the republic's organizations were business entities from Russia (32.5% of all incoming investments), Switzerland (20.4%), Austria (14.1%), the United Kingdom (12.4%), Cyprus (7.8% ).
For 9 months of 2008, foreign investors invested the largest amounts in business entities in Minsk (39.7% of all incoming investments), Minsk (22.5%), Gomel (16.6%) and Vitebsk (15.3% ) areas.
The structure of foreign investment by region of the Republic of Belarus for January-September 2008 is shown in the diagram:
Foreign direct investment accounted for 35.8% of all foreign investment received. Compared to January-September 2007, the flow of foreign direct investment increased by 2.1 times. At the same time, the main forms of attracting direct investment were credits and loans received from direct investors (69.4% of the total volume of direct investment).
For 9 months of 2008, organizations of the republic received other foreign investments in the amount of 3.4 billion US dollars, or 15.6% more than for 9 months of 2007. Their share accounted for 64.1% of all foreign investments received . The main form of attracting other foreign investments is credits and loans.
One form of external financing is portfolio investment. However, in January-September 2008, the real sector of the economy received 1.7 million US dollars portfolio investments, or 16.3% less than in January-September 2007. Their share accounted for only 0.03% of the total volume of foreign investments received in the republic.
2. Government regulation foreign trade
The development of international trade is closely related to the development of measures to regulate it at the level of national states and international organizations. Means of regulating foreign trade can take various forms: directly affecting the price of goods (tariffs, taxes, excise and other fees, etc.); limiting the quantity of incoming goods (licenses, “voluntary” export restrictions, etc.).
International trade- trade with other countries, export of goods from the country and import of goods into the country.
At the national level, state regulation of international trade is carried out through regulation of exports and imports, but not every import of goods into a country means import, and not every export means export. Thus, goods can be imported or exported from the country for processing, or transported through the territory of the country in transit. To ensure a differentiated approach to such situations, world practice has developed various customs regimes specified in the customs codes of countries. This is a regime of export, release for free circulation, transit, re-export and re-import, free customs zone, etc. Regulation of imports comes down mainly to limiting them using tariff and non-tariff means. The main tariff means are customs duties.
Import regulation comes down mainly to limiting it, which is carried out mainly in two ways:
a) through a customs tariff;
b) non-tariff restrictions.
Both ways are widely practiced throughout the world.
A) customs tariff- list of goods subject to duty, i.e. tax. It includes thousands of trade names, is constantly changing and differs from each other in the number of taxable goods and the detail of its positions. The duty is introduced to generate income or to protect their producers. Tariffs put a foreign manufacturer at a distinct disadvantage when trading in the domestic market of a given country.
Customs duties raise the domestic price of imported goods above the world price, and domestic producers expand output. Therefore, a tariff is a means of protecting the market by allowing domestic firms to produce at marginal costs that exceed world prices.
Rate is a tax on imported goods. Fiscal tariff imposed on foreign goods that are not produced in a given country. It goes to replenish budget funds. Protectionist tariffs protect local producers. Distinguish prohibitive And non-prohibitiverates. The value of the first is high, which blocks imports. This tariff is aimed at prohibiting trade. The second tariff is more moderate, so it only slows down trade, since increasing the price of imported goods reduces imports and contributes to the growth of national production.
Countries with open economies
Finam Financial Dictionary.
See what “Countries with open economies” are in other dictionaries:
A country's economy- (National economy) The economy of a country is public relations to ensure the wealth of the country and the well-being of its citizens The role of the national economy in the life of the state, the essence, functions, sectors and indicators of the country’s economy, the structure of countries... ... Investor Encyclopedia
EMS- EUROPEAN MONETARY SYSTEMThe economic agreement entered into force in March 1979. and monetary cooperation between the state members of the European Economy. community was the first step towards the formation of the European monetary system(EVS). Its main and... Encyclopedia of Banking and Finance
Monetarism is a macroeconomic theory according to which the amount of money in circulation is the determining factor in economic development. One of the main directions of neoclassical economic thought. Originated in the 1950s as a series... ... Wikipedia
Isolated economy- CLOSED ECONOMY The economy of a country that does not participate in international trade. In contrast to isolated economies, countries with open economies are constantly expanding their foreign trade turnover. Wed: Open economy… Dictionary-reference book on economics
Inflation- (Inflation) Inflation is depreciation monetary unit, reducing it purchasing power general information about inflation, types of inflation, what it consists of economic entity, causes and consequences of inflation, indicators and inflation index, how... ... Investor Encyclopedia
Payment balance- (Balance of payments) Payment balance this is a statistical document that reflects all foreign economic transactions of a given country. The country’s balance of payments, methods and structure of compiling the balance of payments, negative and positive balance... ... Investor Encyclopedia
Trade balance- (Trade balance) Trade balance is economic indicator, reflecting the relationship between the country’s exports and imports. The country’s trade balance, active and passive trade balance, trade balance, the role of the trade balance in the economy... ... Investor Encyclopedia
World economy- (World Economy) The world economy is a set of national economies united by various types of connections. The formation and stages of development of the world economy, its structure and forms, the world economic crisis and trends in further development... ... Investor Encyclopedia
Exchange Rates- (Exchange rate) Exchange rate is the price of one currency to another currency Exchange rate: concept and form, methods of establishment, quotes and types, dynamics and theories of regulation, currency parity and targeting Contents >>>>>>>>>> ... Investor Encyclopedia
Capital inflow- (Cash inflow) Capital inflow is income Money into the country's economy from foreign sources. The influx of capital and its impact on the state's economy, the role of foreign investment in national economies countries, import and export... ... Investor Encyclopedia
There are several definitions of the concept “open economy”. In essence, they are close, but the differences allow us to get a more complete understanding of the phenomenon being studied:
1. This is an economy integrated into the system of world economic relations, in which any economic entity has the right to export and import goods (services), and financial transactions.
2. This is the economy of a country that opens its borders to the penetration of goods and capital from other countries and freely exports its goods and services to other countries.
Unlike a closed economy, there is freedom here foreign trade transactions, free is installed exchange rate, and regulation occurs through foreign exchange reserves and regulations. An open economy means that countries actively participate in MRI, export and import a significant share of manufactured goods and services, export factors of production (labor, capital, technology) and are free to import them, that countries receive and provide loans on world financial markets and are included in system of international financial and economic relations.
Countries with closed economies ultimately become poorer than those that participate in world economic relations, since the former are isolated from new ideas and technologies, from foreign investment, information, etc. A specific feature of foreign economic policy in an open economy is the maximum use of advantages foreign economic activity to achieve the greatest efficiency in the functioning of the national economy.
Based on the degree of economic openness, countries can be divided into the following groups:
Countries with relatively closed economies (export share less than 10% of GDP);
Countries with relatively open economies (export share more than 35% of GDP);
Countries located between the first two. Based on this criterion, the countries with the most open economies are Hong Kong, Singapore, New Zealand, Switzerland, and the least open ones are North Korea and Cuba. Russia is in 134th place out of 179 (181) countries in terms of economic openness.
The indicators used to measure the degree of openness of the economy are most often used:
- export quota- a quantitative indicator characterizing the importance of exports for the economy as a whole and individual industries for certain types of products. Within the entire national economy, it is calculated as the ratio of the value of exports (E) to the value of gross internal product(GDP) for the corresponding period in percent;
- import quota- a quantitative indicator characterizing the importance of imports for National economy and individual industries according to various types products. Within the entire national economy, the import quota is calculated as the ratio of the value of imports (I) to the value of GDP as a percentage;
- foreign trade quota- is defined as the ratio of the total value of exports and imports, divided in half, to the value of GDP as a percentage. Shows the importance of foreign trade relations for the country, and not just exports and imports. All indicators do not show the country’s share in world exports
Sometimes also used export elasticity coefficients (to assess the dynamics of economic openness) or imports in relation to GDP. The elasticity coefficients of exports and imports relative to GDP show how much exports or imports increase with an increase in Country's GDP by 1% and are calculated as the ratio of the percentage change in the value of exports (or imports) for the period under review to percentage change Country's GDP for the same period
Factors influencing the degree of openness of the economy and the level of development of international economic relations are:
volume of the country's domestic market;
the level of economic development of the country;
the role of the country's participation in the international division of labor;
level of export import duties.
Open economy criterion: Favorable investment climate of the country, stimulating the influx of capital investments, technologies, information within the framework determined by economic feasibility and international competitiveness (at the sectoral and microeconomic level) - main criterion open economy.
Advantages of an open economy:
Deepening specialization and integration of national production;
Rational distribution of the country's resources depending on the degree of their efficiency;
Dissemination of world experience through the system of international economic relations;
Increased competition between national producers, stimulated
competition from the world market.
Disadvantages of an open economy:
Threat economic security countries;
The danger of mass ruin of domestic producers whose products are not competitive enough;
Extensive use of natural resources.
An open economy is an economy integrated into the global economic system, participating in the MRI, in which there are no restrictions on the movement of goods and services or these restrictions are minimal.
Factors that influenced the opening of the economy:
· the state took on the functions of stimulating export production, encouraging the export of goods, capital and services, promoted cooperation with TNCs and created a stable legal basis as a guarantee of investment;
· strengthening TNCs, which made it possible to bypass the barriers of national borders and strengthen international exchange;
· progress of transport and information technologies;
· increased mobility of the population.
An open economy presupposes the integrity of the economy, the accessibility of the internal market (i.e., this country itself actively participates in the MRT and allows other countries to participate in its economy). The antipode of an open economy is autarky, which involves relying on own strength and isolation from the outside world.
Advantages:
1) there is a deepening of specializations and cooperation in production;
2) world experience is being disseminated;
3) there is a rational distribution of resources depending on their effectiveness;
4) increased competition between domestic producers, i.e. competition between imported and domestic goods, and between domestic goods, is intensifying.
Flaws:
1) the threat to economic security increases;
2) the danger of mass ruin of their own producers, whose products are not competitive;
3) intensive use of natural resources.
Indicators of economic openness:
a) export quota – share of exports in GDP
Ek=EK/GDP
if more than 10%, then the country is actively participating in world economic relations
if over 35%, then the country is considered to have an open economy
b) the import quota shows how imported goods participate in reproductive process countries
IR=IM/GDP
c) foreign trade quota
VTk=(IM+EC)/GDP
d) elasticity coefficients of exports and imports show how much exports or imports increase when GDP increases by 1%, calculated as the ratio of the percentage change in the value of exports/imports for a certain period of time to the percentage change in GDP for a given period.
if the coefficient is greater than 1, we are talking about an increase in openness.
There are:
Small open economy- the economy is not big country; its model includes the capital account and the account current operations. It is represented in the world market by a small share and has virtually no influence on the world interest rate, taking the latter as given, since its savings and investments are only a small part of world savings and investments.
A large open economy is the economy of a large country (USA, Japan, China, Germany, etc.), which has a significant impact on both international trade and global financial markets. Large countries have a significant share of world savings and investment, so they interact with the world interest rate.
