Transitional and Emerging economies Essay
The term Emerging economies is used to refer to a nations business activity, or social activity that is in the process of rapid industrialization. According to Theodore (2004: p122), most economists have asserted that the term is dated, though a new term has not yet gained traction. The term emerging economies had its origin in the World Bank economies in 1980s.
Emerging economies refer to a business phenomena that has not been fully described, or one that is in constraint of economic or geographic strength, such nations are said to be in the phase of transition, between developed and developing status. Examples of emerging markets are Brazil, Mexico, Pakistan, India, China, Colombia, Chile, Peru, Argentina, and much of countries in Eastern Europe and South East Asia. Other emerging markets include Latin America and parts of Africa.
According to Welt (2005: p72-76), emerging markets can be referred to as a country where matters of politics are considered in the same way as the economic matters. The economy report in 2008, defined emerging markets as those regions of the world that experience a rapid form in formalization under conditions of partial or limited industrialization. This shows that emerging markets concentrate in the intersection of
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On the other hand, transitional economy is an economy that is changing from a centralized planned economy, to a free market economy. Kamal (2008: p42), expressed that this type of economy undergoes economic liberalization, by allowing the market forces to establish the prices and by reducing the trade barriers. This also allows to stabilize macroeconomic, where a high inflation is brought under immediate control, privatization and restructuring is improved, in order to form a financial sector where a business can be moved from public ownership to private ownership. These changes however often result to enhanced inequality of wealth and incomes, a fall of GDP and dramatic inflation.
Alexander (2005: p245-246) posited that the major characteristic of transitional economy is the changing and creation of institutions, and specifically in the private sectors, changes in state role, and thus leading to establishment of different government institutions, while the private owned enterprises are promoted, and also enhances the development of independent financial institutions. Examples of transitional markets include most markets in the East and Central Europe.
According to Michael (2005: p244), transitional markets in a wider sense comprises the following elements; liberalization of process, economic activities, market operations, and relocation of market resources to locations where they can be of more use, development of indirect instruments for market orientation, that are helpful for macroeconomic stabilization, attaining effective economic efficiency and enterprise management, normally through privatization, imposition of tough budget constraints, that offer incentives to enhance efficiency, and the establishment of legal and institutional frameworks used to secure property rights, regulation of market entry, and application of the rule of law.
Role of Government Intervention in a Period of Declining Economic Growth
Within a situation where the local and national economic activities have declined, there is need for the government to play the effective role of intervention, beyond working with the aim of attaining a stable macroeconomic environment. The government in the United Kingdom addresses market failures that often create increased barriers that deter people who want to develop business ideas, or those who want to start private businesses (Johny, 2004: p56).
The UK government has put in place a range of actions, activities and policies to strengthen business support networks, and to ensure that the business environment is appropriate to encourage and support entrepreneur activities. These efforts are meant to improve the declining economic activities. The government effects infrastructural changes, and allows equal distribution of credit and other forms of financial support to the potential entrepreneur in the market.
According to Henry (2008: p86-88), the United Kingdom government has been criticized for failure play its role of increasing awareness to the potential enterprenuers and those who have already joined the field of entrepreneurship, on the importance and benefits of business advice. The government has also not been efficient in improving access to quality advise and information.
The market business support in the UK for instance, has not been successful due to failure of providing the potential enterprenuers with the required full signposting services, such as the provision of information on the quality, range or type of services on offer, and how such support can be accessed. Franklin (2004: p234), asserts that these problems are mainly exacerbated by specifically the organizations that provide business start up advise. This has in effect resulted to lack of co-operation and co-ordination between the services that are offered, and hence undermines the potential development of the market.
Government intervention has been criticized as interfering with economic activities. The basis for this argument is that, the government interferes with the market economy by over regulating market activities, this in turn deprives enterprenuers the opportunity to work independently and freely. This may result in the discouragement of some potential entrepreneurial activities in the market (John, 2004: p274).
Role of Foreign Direct Investment (FDI) in Globalization
A good example of foreign direct investment (FDI), is the growth of a new comparative in Israel in the hi-tech sector during the period of 1995-2005. Unlike the traditional form of foreign direct investment, the new mode of international investment has been adopted in most countries globally. According to Manuel (2005: p44), this form of foreign direct investment helps in developing and improving the weak and developing market economies among various globally.
Financial foreign investment involves the flow of capital from the countries that are already developed and wealthy, to the emerging markets and small countries. The countries who undertake to provide capital are often referred to as sector specific capital. These capital providers play the role of risk and financial intermediaries, like the private equity funds, and venture capital funds.
Like the major multinational enterprises, foreign direct investors transfer the factors of production to various countries in the attempt to maximize the value of these factors of production (Finn, 2006: p134-138). In doing this, foreign direct investment becomes part of the process of producing new comparative advantages. A good example where developing markets have benefited from foreign direct investment is in Israel.
As a result of the inherent asymmetry, the government had to get committed in triggering an action to enable the process of importing specific sector capital to Israel, from the capital markets of United States. However, when the process began, this became advantageous to Israel whose economic growth has gone up by reduction of the intangible and the tangible trade costs, there has been creation of trust between the country importing capital and the recipient, and thus producing competitive advantage for Israel, for the innovative technology markets in Israel, and in other global markets (Heather, 2006: p248)
Contribution of Economic and Monetary Union Progress Towards Full Integration, and a Critique.
According to Susan (2003: p63), economic monetary union in Europe began with 11 European members in 1999. More countries joined in 2001. European monetary Union introduced a single currency that has done away with the problem of exchange rate fluctuations, and has helped to complete a single market with uniform money for close to 300 million people. The Economic Monetary Union has also increased efficiency in the use of currency in an unprecedented manner. The European Governing Council of European Central Bank is charged with the responsibility of setting the monetary policy.
Bernardin (2006: p166-168), emphasizes that monetary integration among these countries has been an effective tool of enhancing the continuation of economic integration. In addition to promoting economic integration, European Monetary Union plays a key role in European political dimension. The Monetary Union has been able to introduce single currency in among 12 sovereign nations. This involves the transfer of policy decision making power from national monetary levels, to a superannuation entity which is the European Central Bank.
On the beneficial side, the introduction of a single currency by the European Monetary Union has fostered the creation of one single market, and thus promoting economic integration. On the negative side, relinquishing the aspect of sovereignty for most of the member nations in a very vital field, such as monetary policy, and in the transfer of a superannuation institution which is a move to the creation of a type of European state-hood (Damian, 2006: p245).
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