Obstacles to Successful International Economic Policy Coordination
Hello students, my name is Tara Cellars. I have been asked to explain obstacles that might arise during the coordination of international economic policy. There are three main obstacles: enforcement, uncertainty, and corruption (Frankel, 1990; Tanzi & Davoodi, 1998). “The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations” (World Trade Organization, n.d.). The problem with only one organization to supervise all trade is the difficulty of this. Not every country is a member of the WTO. Another problem is that there are only 150 countries that are members of this organization out of the whole world. Therefore it is impossible for all of the trade policies to be enforced around the world.
Uncertainty is the second obstacle that can emerge. Countries that enter a trade agreement are unsure as to what will happen in the long run. The questions that may appear are:
What will happen to our jobs?
What will happen with our taxes?
Will inflation occur?
What will this do for our environment?
What will happen to our sovereignty?As you can see there are many questions that countries entering trade agreements think about. It is important that they know what will come about with the agreements. This is why proper communication is important throughout the process of coordination. The key to any business agreement is communication. When communication fails, business operations fail.
Corruption is another issue that can occur. Some companies might invest in a country in hope of kickbacks or bribes.
The result is that, paradoxically, some public investment can end up reducing a country’s growth because, even though the share of public investment in gross domestic product (the total of all goods and services produced in a country in a given year) may have risen, the average productivity of that investment has dropped. (Tanzi & Davoodi, 1998)
The country that is thought as “giving the bribe” gets hurt in the long run.
As you can see it is imperative for both of the countries involved to effectively communicate the needs of both parties. When what is to come is not communicated the citizens of the host country are hesitant because they do not fully understand whether the business will help or harm them individually or as a country. It is somewhat impossible to guarantee the results of business, but it is important to understand the risk of what might come. So with every business venture it is important to always keep the lines of communication open and also to do the proper research.
Frankel, J.A. (1990, September 25). International nominal targeting (int): A proposal for overcoming obstacles to policy coordination. Retrieved February 9, 2007, from http://ksghome.harvard.edu/~jfrankel/MONTDUMM.R51.PDF
Tanzi, V. & Davoodi, H. (1998, March). Roads to nowhere: How corruption in public investment hurts growth. Retrieved February 9, 2007, from International Monetary Fund Web site: http://www.imf.org/external/pubs/ft/issues12/index.htm
World Trade Organization. (n.d.). What is the wto?. Retrieved February 9, 2007, for World Trade Organization Web site: http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm