2.

I N T E R N AT I O N A L

ECONOMIC SYSTEM

2.1. International economic system: the essence and the structure 2.2. International economic relations 2.3. Main tendencies of development of the international economic system Key words Economic system International economic system International economic relations International economic activity Subjects of international economic relations Forms of international economic relations International trade International movement of capital International movement of labour Levels of international economic relations Environment of international economic relations Microenvironment Macroenvironment Sovereignty Internationalization Regionalization Transnationalization Globalization

2.1. International economic system: the essence and the structure

Economic system - set of principles and techniques by which a society decides and organizes the ownership and allocation of economic resources [i]. It is a particular set of social institutions which deals with the production, distribution and consumption of goods and services in a particular society. It means that production together with distribution, exchange and consumption play the main role is this system. All economic systems need economic resources for production and the results of economic activity are being distributed, exchanged and consumed (fig. 2.1). Production (supply) Manufacturing Labour

Regulation

Land Circulation

Capital Distribution

Consumption (demand) Fig. 2.1. Economic system

The distinction between economic systems is in their elements that differ in different countries [ii, .16-17]: social-economic relationships based on property relations and organizational forms; economic mechanism (the way of regulation of economic activity on macroeconomic level); specific economic relations between economic subjects; system of stimuli and motivations of parties. No nation exists in economic isolation in the modern world. All aspects of a nations economy its industries, service sectors, levels of income and employment, living standard are linked to the economies of its trading partners. This linkage takes the form of international movements of goods and services, labor, business enterprise, investment funds, and technology. Indeed, national economic policies cannot be formulated without evaluating their probable impact on the economies of other countries. The high degree of economic interdependence among todays economies reflects the historical evolution of the worlds economic and political order. The main elements of interdependence are: [iii, p. 1-2] Trade: goods, services, raw materials, energy Finance: foreign debt, foreign investment, exchange rates Business: multinational corporations, global production Thus, the national economies of the various countries mesh into an international economic system through the media of international trade, international capital movements and other international transactions (Fig 2.2). The relations are: Mutually conditioned Interrelated

International economic relations

International economic system

Fig. 2.2. International economic system The basic elements of the international economic system are the following (fig. 2.3) Countries, groups of countries Regulation mechanism on different levels (national, international and supranational) International markets International economic relations

National economic systems Regulative institutions IE System International economic relations Fig. 2.3. Structure of international economic system So, the international economic system refers to the arrangements and institutions that unite the worlds economies in one global marketplace. The global economic system allows nations to engage in international trade, exchanging goods and services. The system also allows labor and capital to move more freely around the world. Main principles of development of the international economic system Evolutionary accordingly to the action of the objective economic laws (models of economic development) System approach development of the economic system is realized as the development of the system of interdependent elements and relations, when changes in one element eventually lead to the changes of other elements and the whole system. Equivalence of the exchange IE Relations are profitable for all the participants. Gains from international trade International economic activity

2.2. International economic relations

International economic relations (IERs) is a system of economic relations in manufacturing, distribution, exchange and consumptions of products out of national borders (fig. 2.4) This system includes subjects, forms and levels of international economic relations that are developing in a quite specific environment. Subjects of IE relations - participants of the IE relations that are able to act relatively independently and actively with the purpose of realization of their mainly economic interests The main subjects of the international economic relations are: individuals (natural persons) mainly entrepreneurs; legal persons companies, state and its bodies, international organization. All forms of the international economic relations are interrelated and interdependent. The main of them are: International trade purchase, sale, or exchange of goods and services across national borders; International movement of capital movement of capital between countries in a search of more profitable utilization International movement of labour movement of able to work citizens mostly due to the economic reasons International movement of technology These IERs are connected by the international currency-financial and credit relationships and their development leads to the international economic integration. Levels of the IE relations - the level of intensiveness of the interaction: Economic contacts the simplest economic relations, have episodic character and are regulated by solitary contracts;

Interaction stable economic relations on the basis of long-term international contracts and agreements; Cooperation firm economic relations on the basis of mutual long-term agreements; International economic integration interconnection of the economies of two or more countries in the process of internationalization; mutual economic policy with the elements of national regulation.

Social-cultural environment

Political-legal environment Subjects of international economic relations jects of international economic relations households companies governments international organizations

Forms of international economic relations Int. trade Int. movement of capital Int. movement of labour

World currency system (system of monetary relations) Levels of international economic relations contacts interaction cooperation integration Economic environment

Fig. 2.4. System of international economic relations The environment of the international economic relations should be considered from the point of view of its impact:

Information environment

Factors of direct impact external microenvironment Factors of indirect impact external macroenvironment The peculiarities of the IER environment Interrelation of political, legal, social-cultural, economic and infrastructure elements of the environment Relative uncertainty of the environment Dynamic contradiction IER environment is stable due to the stability of the environments of the countries, BUT it is dynamic and flexible due to the integration processes, information and communication systems The organization of the international economic relations has its principles that are described in the Charter of Economic Rights and Duties of States (United Nations, 1974). Economic as well as political and other relations among States shall be governed, inter alia, by the following principles [iv]: Sovereignty, territorial integrity and political independence of States; Sovereign equality of all States; Non-aggression; Non-intervention; Mutual and equitable benefit; Peaceful coexistence; Equal rights and self-determination of peoples; Peaceful settlement of disputes; Remedying of injustices which have been brought about by force and which deprive a nation of the natural means necessary for its normal development; Fulfillment in good faith of international obligations; Respect for human rights and international obligations; No attempt to seek hegemony and spheres of influence; Promotion of international social justice; International co-operation for development; Free access to and from the sea by land-locked countries within the framework of the above principles.

2.3. Main tendencies of development of the international economic system

The development of the international economic system is a long and everlasting process. Today it is characterized by the following tendencies (fig. 2.5): liberalization of the foreign economic relations of countries that leads to internationalization; unification and standardization in different spheres of international economic activity; changes in management of the world economy; transnationalization of production; regionalization and globalization of economic activity. Regionalization (1) Internatinalization Transnationalization Fig. 2.5. Main tendencies of development of IES Globalization Regionalization (2)

Internationalization is an objective process of convergence of national economies in the form of increasing interdependence of economic subjects from different countries, increasing involvement of enterprises in international markets, international exchange of goods, movement of capitals and labour. One should distinct internationalization of production, internalization of capital and internationalization of economic activity. Internationalization of production means establishment of stable relations between companies of different countries that makes the manufacturing process in one country a part of manufacturing process in the global scope. It means a steadily transition of production beyond the bounds of a separate country. Internationalization of production causes internationalization of capital. Internationalization of capital is the process of interweaving and integration of national capitals in the form of creation of companies abroad, development of credit capital etc. Internationalization of economic activity is the convergence of economies of different countries in the form of increasing productive interdependence, extension of international trade, movement of capitals and labour, mutual impact of the main economic processes in the countries including prices, interest rates etc. It is based on international division of labour and internationalization of production, internationalization of capital and creation of transnational corporations. There are three main stages of development of the internationalization of economic activity. During the first stage (the end of XVIII the end of XIX) the internationalization was based on the interaction of national economies due to simple cooperation. International trade was dominant is these relations. The second stage (the end of XIX the middle XX) is characterized by sophisticated cooperation on the basis of international division of labour. The third stage (since the mid of XX) is characterized by a complex internationalization of production (that covers all subsystems of economy, almost all countries, all productive and non-productive spheres). Transnationalization is a key tendency of the modern stage of internationalization. It appears in the growing number of international companies and extension of their activity as well as in creation in intra-corporate international markets that cover the majority of the world flows of goods, services, capital and labour. Regionalization can be conceived as the growth of societal integration within a given region, including the undirected processes of social and economic interaction among the units [v]. As a dynamic process, it can be best understood as a continuing process of forming regions as geopolitical units, as organized political cooperation within a particular group of states, and/or as regional communities such as pluralistic security communities Globalization is a new, higher step of internationalization. Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence. However, globalization is usually recognized as being driven by a combination of economic, technological, socio-cultural, political, and biological factors [vi].

Discussion questions and assignments

1. Read the article of Irma Adelman The genesis of the current global economic system [Electronic source]. Available at : http://are.berkeley.edu/~adelman/KEYNOTE.html 2. Describe the principles of organization of the international economic relations on the basis of the Charter of Economic Rights and Duties of States

Encyclopdia Britannica Online [Electronic source] Available at : http://www.britannica.com/EBchecked/topic/178493/economic-system - Title from the screen
i

.. [] : . / ... . : -, 2002. . 16-17

ii iii iv

Carbaugh R.J. International Economics [Text] : 10-th ed. Thomson, 2005. .1-2

Charter of Economic Rights and Duties of States [Electronic source] : UN Documents / General Assembly of Unated Nations, December 1974. Available at : http://documents.un.org Kacowicz A. M. Regionalization, Globalization, and Nationalism: Convergent, Divergent, or Overlapping? [Electronic source] : Working Paper #262 / Arie M. Kacowicz // University of Oslo, 1998. Available at : http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.110.1929&rep=rep1&type=pdf Title from the screen
v

vi

Globalization [Electronic source] / Wikipedia, 2010 Available at http://en.wikipedia.org/wiki/Globalization#cite_note-1 Title from the screen