Economy/2.International Economy

Artem Dyachenko, Valentina Gluchova and Sergiy Didur

Mychailo Ostrogradsky Kremenchuk State Polytechnic University, Finance Department

Coexistence and Mutual Development of National Economies under Globalization Conditions

Globalization reveals itself in economic, financial and political interdependence and coherence. In this process, national state economies can either win or lose. We will try to explain how one state can be successful in the globalization process without setting the other state down to the worse position regarding their economy [3]. It will be also investigated whether it is possible to refrain from zero-sum game within economic relations on the global level. And we will try to answer the question how globalization advantages can be maximized and the national economy fragility can be reduced as much as possible within the globalization conditions.

When discussing these issues, three dimensions can be identified or differentiated: globalization dimension, financial-economic dimension (the national economy structure) and institutional dimension. The illustration 1 gives us a look over the interrelations between three dimensions, culture and outward conditions.

Economic structure

Formal Informal

Political culture, education, culture, ability for self-organization

Environment (policy), outward conditions

Figure 1 Globalization, economy structure and institutions [author’s work out]

This illustration shows that globalization, economic structure and institutions are examined in an integrated way. In addition, it should be pointed out that institutions develop evolutionary (= Problems show up, and they are either solved or ignored with institutions either changed or not changed) according to ‘order perceptions’ prevailing in the society [7].

This part of work will take a look how a win-win situation for national economies within globalization framework can be achieved as well as when zero-sum game takes place on the global level. This way of looking will be related to national economy structures and to economic policies undertaken by the governments. It is thus possible to differentiate a policy level, then economic structure level and, finally, either a win-win game or a zero-sum game. One can assume that positive results, for example for two countries, are achieved when the efforts of the players are coordinated. The two-state model can show examples 1) when incomes of two countries rise because their economies are related to each other and 2) when one country economy wins and the other country economy loses.

Let’s assume that the income of one country depends on the income of another country under the globalization conditions given and that a home country implements a fiscal policy to increase its income. The fiscal policy in the home country leads to an increase of consumption in the home country. That increases an income in the home country and the home country thus gets to import from the foreign country; the income of the foreign country increases. The fiscal policy within a two-state model has become a push for the increase of two countries’ incomes [5:149]. This happens through export-import transactions between two countries in the open economy.

The following example will show when one country, due to globalization, profits and the other loses. When a home country implements an exchange rate policy revaluing foreign currency, exports from the home country soar up; income of the home country also increases. The foreign country gets to import more; its income, in contrast to the home country, decreases [5:151].

Also, it can be noted that a strategic long-term decision about country’s economic structure (what should be produced, what should be imported and what should be exported) determines how fragile country’s economy is. It is therefore important to identify and to eliminate or to remove the disproportions in the national economies in order to decrease and to minimize its fragility. For example, the disproportions in the bank (financial) sphere in the US revealed themselves in the underestimation of the systematic (market) risk, in the large number of loans given, whereas the disproportions (disequilibria) in Ukraine regard the balance of payment [2]. These balance-of-payment disproportions in Ukraine are caused by export-import structure of its national economy.

Regarding the globalization, it can be pointed out that it is subject to fluctuations out of its nature [1]. These fluctuations (= downturn and upturn in the globalization process) can be reduced when institutions regulate economic relations between the actors. In this sense, institutions are not in contradiction to the economic freedom. On the contrary, institutions can help world economy avoid a wave of protectionism which can come up during or in the period after economic or financial crisis.

As for institutions, one should also underscore the importance of compatibility between the formal and informal rules. Informal rules determine choices between rules and whether the chosen formal rules are followed, while the formal rules determine choices within rules [4]. Also, one can say that informal rules are influenced by the (political) culture in the society.

In addition, it can be pointed out that it is possible to regulate economy on the global level when global economic institutions are designed the way that brings all actors to the Nash Equilibrium that is when no state or no internationally relevant actor has an incentive to deviate from the rule. That means that the institution corresponds to the interests of all (relevant) actors [6]. And at the same time, preferences of one actor are not known to the other actor.

Finally, under conditions given, economic policy of one country influences economies of other countries. That’s why institutions and cooperation are important to achieve a win-win situation.

Literature

1. Бондар І.Р. Наслідки фінансової глобалізації для України / Бондар І.Р. – К.: Фінанси України, 2009 (8). – 68-75 с.

2. Гриценко Г. Глобальна криза як форма сучасної фінансово-економічної динаміки/Гриценко А. – К.: Економіка України, 2010 (4). – 37-46 с.

3. Cullis J. Public Finance and Public Choice/ J.Cullis, P. Jones. – New York: Oxford University Press, 1998. – 422 p.

4. Erlei M. Neue Institutionenökonomik / Erlei M., Leschke M., Sauerland D. – Stuttgart: Schäffer-Poeschel Verlag, 1999. – 355 S.

5. Heubes J. Monetäre Außenwirtschaftstheorie / Heubes J. – München: Verlag Franz Vahlen, 2001. – 219 S.

6. Maskin E.S. Mechanism Design: How To Implement Social Goals. Stockholm: Prize Lecture, December 8, 2007.

7. Meier A. Wirtschaftspolitik. Kognitiv-evolutionärer Ansatz / A. Meier, T. Slembeck. – München, Wien: Oldenbourg, 1998. – 329 S.