[Solution] Global Economy and Trade
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Author: Sarah Bennett
Mature Market Economies and High-Potential Economies
Organizations that operate internationally find that there are mature market economies, high-potential or high-growth economies, and economies with characteristics of both maturity and growth.
Mature Market Economies and Systems
Since the US economy is a market economy, US managers usually have few difficulties operating in foreign market economies. A market economy is based on private ownership of property and the relatively unrestricted operation of economic forces, such as supply and demand. Today most market economies are mature, meaning that many industries are dominated by large companies; this sets up a challenging competitive environment.
A market system is a cluster of countries that do a large proportion of their trade with each other.
- The United States, Canada, and Mexico are a market system, and the three countries have negotiated trade agreements—first the North American Free Trade Agreement (NAFTA) and then the 2018 United States–Mexico–Canada Agreement (USMCA)—to facilitate trade.
- Another market system is Europe. In Europe, the European Union (EU) has eliminated most trade barriers among its 27 member nations and installed a common currency, the euro. Expansion of the EU to so many countries and differences in level of development between Western Europe and Eastern Europe pose challenges to the governance of the EU.
- Pacific Asia includes Japan, China, Thailand, Malaysia, Singapore, Indonesia, South Korea, Taiwan, the Philippines, and Australia.
The Global Economy
Major market systems and trade relationships across the world
High-Potential/High-Growth Economies
High-potential economies are characterized by rapid growth and development opportunities, though they may lack the infrastructure and stability of mature economies.
Other Economies
Some economies share characteristics of both mature and high-growth systems, with varying levels of market orientation and government control.
The GATT and the WTO
International trade agreements and organizations play a critical role in facilitating global commerce and establishing rules for fair trade.
Select the correct response to the following question.
Which of the following countries are members of the European Union (EU)?
- All countries using the euro currency
- China, Japan, and South Korea
- Canada, Mexico, and the United States
- All countries with market economies
View Explanation
One of the achievements of the EU is its use of a common currency, the euro. All countries that use the euro are members of the EU (although not all members of the EU have adopted the euro yet).
While all EU member nations have market economies, this does not make them members of the EU. China, Japan, and South Korea are in Asia and are not members of the EU.
Canada, Mexico, and the United States are in North America and are also not members of the EU.
Choose the correct response(s) to the following question.
Which of the following are NOT characteristics of high-potential and high-growth economies? Check all that apply.
- Their governments discourage foreign investment and trade.
- They have well-developed infrastructure.
- They have mature market economies.
- Today they are found only in Africa and Latin America.
View Explanation
High-potential, high-growth economies do not yet have mature market economies or well-developed infrastructure. Also, their governments encourage, not discourage, foreign investment and trade.
These economies are found in Africa and Latin America but also in Europe and Asia.
The international trade agreement that first incorporated the principle of most favored nation (MFN) status was the .
View Explanation
The international trade agreement that first incorporated the principle of most favored nation (MFN) was the GATT, developed after World War II.
MFN means that if a country that is a signatory to a treaty extends favorable treatment to another country in the compact, it must extend that treatment to all countries covered by the treaty. This principle promotes fair treatment of all trading partners.
