Causes and Consequences of Economic Imbalances: Comparison of US-Asia and Europe
(Sprache: Englisch)
In the past ten years, huge economic imbalances among US-Asia as well as eurozone countries have built up which have led to numerous crisis situations. Thus, the goal of this book is to find out if economic imbalances are sustainable or if they need to be...
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In the past ten years, huge economic imbalances among US-Asia as well as eurozone countries have built up which have led to numerous crisis situations. Thus, the goal of this book is to find out if economic imbalances are sustainable or if they need to be rebalanced? What role do distinct national policies play? The author is going to compare the imbalances of US-China with the intra-euro imbalances of Germany, Spain and Italy. Firstly, the historical development of the economic imbalances is presented in order to point out the unprecedented height of the mentioned imbalances. Furthermore, the author is analyzing the causes of imbalances by presenting the development of the competitiveness, the saving-/investment rates, the financial markets as well as the different national policies. It is shown that distinct national policies were the underlying causes for the development of such high economic imbalances. After having seen the historical development as well as the causes, the author describes the possible costs and benefits of having imbalances as well as the implications of the global financial crisis and the current European crisis. Due to the increasing globalization, the financial crisis spread fast and led to huge losses and decreasing investor s trust in European countries. This resulted in the European crisis which subsequently could also endanger the global economy. Because of the huge crisis impact, traditional and alternative balancing channels are also compared. Despite supporting measures such as restrictive fiscal policies and financial assistance, Europe is still suffering from an economic downturn whereas the US returned to a slow economic recovery. At the end, the author concludes that global imbalances need to be rebalanced in order not to avoid reaching an unsustainable level. The occurring as well as rebalancing of economic imbalances highly depends on distinct national policies. Unless the international coordination and cooperation increases,
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economic imbalances will continue to occur and will lead to economic crises when reaching an unsustainable level.
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Text Sample:Chapter 4., Consequences of Imbalances on the Economy:
Referring to the given definition of global imbalances, they are caused by distortions or/and may pose risks to the global economy. Risks include macroeconomic as well as financial implications for the world economy. This is connected to the pessimistic view mentioned in the introduction which sees a high risk of further crises when keeping global imbalances. In contrast to that, with reference to the optimistic view it may be desirable to hold economic imbalances in a globalized world in order to more efficiently allocate resources. Therefore, the author is going to analyze possible benefits as well as costs of economic imbalances and examine the implications of the global financial crisis as well as of the current European crises.
4.1, Benefits of Economic Imbalances:
The optimistic view of economic imbalances refers to the increasing optimal allocation of resources in a globalized world with the help of a growing financial as well as trade integration. According to theory, it is said to be beneficial for the growth of a nation as well as its welfare, if the country runs current account surpluses over an extended period of time.
Concerning the trade integration, it is favorable for some countries to export more than to import in order to push their own economy if the domestic demand is not sufficient. Because of the increasing demand in the foreign countries while having a moderate domestic demand, the surplus countries exports can grow steadily. By following the strategy of an export-led growth a country s own economy can grow and lead to an improved living standard. This can be seen in Germany as well as China. China followed an export-led growth strategy which resulted in the economic imbalances and was mirrored by USA s current account deficits due to the increasing domestic demand in the US. Thus, China could benefit from the US demand and overcome its own missing domestic demand.
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Germany as well did profit from the Euro introduction and its resulting growing exports whereas Spain accumulated high current account deficits. A trade imbalance can also be beneficial for deficit countries. Due to a decreasing output or lower productivity, countries could overcome this weakness by importing more than exporting. However, the growing imports need to be financed. The mentioned deficit countries could only finance them by being able to borrow cheap. This fits to the optimistic view of current account deficits which states that by being able to borrow from foreign countries, countries can grow beyond what they are domestically capable of.
Globalization in the finance sector can lead to a better allocation of savings- and investments in the world economy. Due to differences in financial markets, it indicates that countries can earn higher returns by using the international financial market. A deficit country can borrow from a foreign country and then it may invest the borrowed money in foreign markets which are more profitable than the domestic markets. This leads to a higher return on assets than on liabilities which one can see in the US. China has been exporting capital to the US which kept the US long-term interest rate down. The Southern European countries such as Spain also benefited from low borrowing costs as a result of the European financial integration in the form of the monetary union.
Hence, economic imbalances such as growing current account deficits might not necessarily lead to the risks as long as they are sustainable. According to Bracke et al., current account deficits can be considered to be sustainable as long as they are below the country s GDP growth rate. Thus, this assumption will be looked at during the presentation of the crises implications after having presented the costs which can be caused by economic imbalances.
Globalization in the finance sector can lead to a better allocation of savings- and investments in the world economy. Due to differences in financial markets, it indicates that countries can earn higher returns by using the international financial market. A deficit country can borrow from a foreign country and then it may invest the borrowed money in foreign markets which are more profitable than the domestic markets. This leads to a higher return on assets than on liabilities which one can see in the US. China has been exporting capital to the US which kept the US long-term interest rate down. The Southern European countries such as Spain also benefited from low borrowing costs as a result of the European financial integration in the form of the monetary union.
Hence, economic imbalances such as growing current account deficits might not necessarily lead to the risks as long as they are sustainable. According to Bracke et al., current account deficits can be considered to be sustainable as long as they are below the country s GDP growth rate. Thus, this assumption will be looked at during the presentation of the crises implications after having presented the costs which can be caused by economic imbalances.
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Bibliographische Angaben
- Autor: Ariane Hillig
- 2014, Ungekürzte Ausgabe, 86 Seiten, 27 Abbildungen, Maße: 15,5 x 22 cm, Kartoniert (TB), Englisch
- Verlag: Anchor Academic Publishing
- ISBN-10: 3954892383
- ISBN-13: 9783954892389
Sprache:
Englisch
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