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The basic point here is that the economic fates of countries around the world are becoming increasingly connected. We learned this lesson the hard way last year. As some may recall, many pundits touted 'decoupling' theory, which essentially said that emerging markets could grow even as developed ones were experiencing a crisis. As the global recession and these graphs show, this is untrue.
What do you think of this trend? Is this a bad thing? Why are markets becoming more correlated?
Link:
http://paul.kedrosky.com/archives/2010/03/diversification.html
I think that this trend (e.g., countries moving together) is relatively unavoidable in the current times. The new ways of technology, especially with regards to communication, have led to the rapid spreading of ideas across the globe. Therefore, if information is go or bad it will be spread and impact economies around the world.
ReplyDeleteI think that the trend has both positive and negative implications. Specifically, if a country is behind in technology due to dictatorships, colonialism, natural disasters, etc. they may be able to leap frog over intermediate technological facets and therefore become globally competitive (e.g., raising the living standards of their populations). However, if countries are losing money at the same time there will be no one left to bail out the struggling world economy when it faces problems.
This kind of relates to what I learned last quarter in environmental economics. It was questioned whether developed countries should aid developing countries to break the vicious cycle of poverty and resulting environmental degredation. Developed countries, however, could conclude that it's not their responsiblity and may fail to see how their actions impact the ability of the developing country to move forward. But because we're all so interrelated as countries now, we can't ignore the connectedness.
ReplyDeleteFor how this happened, I think technology, as Ashlee pointed out, is a huge contributor, but also the expansion of target audiences. Companies are looking at new ways to reach out to different areas and communities to increase range and profitability. Everyone wants to reach more people, which then creates more interrelation.
I agree with Ashlee. I would add that the nature of instant communication and the subsequent explosion in international trade has tended to raise the standard of living around the world regardless of specific income. The interconnection between markets is necessary if we are to pursue global trade in a real way.
ReplyDeleteI agree with the fact that technological advancements will continue to move us towards a global economic environment. As long as some of the developing countries place certain protectionist policies on industries that are most likely to flourish, they will not be negatively effected. This will ultimately be in the best interest of larger countries because it will create better products at lower cost.
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