Impact of Emerging Economies on International Trade

Over the past two decades, globalization has served as a hallmark of contemporary development and hailed for an increase in the number of emerging economies particularly in Eastern Europe, India, and China. They now compete closely with global giants such as the United States, Germany, Britain, and Japan making them one of the most remarkable developments in recent times. Although the exponential increase in the number is generally regarded as a progressive development, many fail to comprehensively review the full impact of emerging economies on international trade. One of the least explored subjects is the increased standing of emerging economies in Eastern Europe and the South East Asia region as a direct consequence of a relative increase in investments and their role in mainstream global production.  The consensus amongst pundits is that this trend is likely to continue into the near future and bound to prove beneficial to select emerging economies. China and India, as two of the largest emerging economies, have particularly enjoyed cumulative growth within the past decade and are steadily working towards regaining their dominance in international trade. Half of the total global production is done by China which is why most developing nations regard it as an imminent threat to their longstanding positions (Klasen, 2020). On the other hand, Russia has emerged as an economic powerhouse in Eastern Europe after weathering the so-called “transition recession” experienced in the early 1990s. This paper will, therefore, identify the main consequences of the presence of emerging economies on international trade and on top high-income economies.

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Creating new commercial opportunities

The emergence of new economies has been hailed as a novel development capable of addressing age-old global inequalities attributed to the dominance of Western countries in international trade. Their prominence within this particular sphere is responsible for occasioning favorable competition between them and transnational corporations from traditional leaders in the field. Emerging economies first address concerns that such entities only seek to increase profits while paying little to no attention to concerns voiced by the resident population. This is typically the case in low-income countries known for implementing low environmental standards in a bid to attract transnational corporations for business. The emergence of new entrants such as Brazil, Russia, India, and China (BRIC economies) now provides new opportunities for development as first highlighted by the World Trade Organization.

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 One of the most prominent impacts of emerging economies on international trade is leveling of the playing field, which then creates a unique opportunity to make cumulative gains and ultimately reduce paucity. China, for instance, has recorded an improvement in its Gross Domestic Product (GDP) from $ 949, 19 in 2000 to $ 44 in 2013 (Jain, 2017, p. 57). The participation of emerging economies in international trade, thus, creates access to loftier markets, allowing many to proceed without any hindrance while focusing steadily on expansion. Additionally, countries such as China and India have now become an essential part of international supply chains which subsequently creates a wide range of opportunities its local populations by playing the outsource function. This is further bolstered by technology flow internationally which has been credited for introducing new service jobs for individuals well-versed in nascent innovations. Improved access to capital flow also elevates the net foreign direct investment while serving as an active participant in preventing the “brain drain” phenomenon which had previously left many developing countries with limited skilled labor.

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Transforming the configuration of Foreign Direct Investment (FDI)

Prior to the emergence of the BRIC economies, the international trade was dominated by world powers hell-bent on spreading their influence through multinational corporations. This allowed them to make a great deal of FDIs in target companies, guaranteeing control over developing nation-states. Cognizance of this little-known known and rarely explored subject has now led many emerging countries to transform their configuration of FDI to regain control over their countries. An effective strategy employed by such nations such as India and China now involves the acquisition of local assets to reduce the influence of advanced economies on international trade through multinational corporations as their proxies. India, in particular, has been keen on bidding for local assets eyed by global economies such as the United States and Britain improve its share of inward foreign direct investment.  China has also been keen on implementing a similar approach. In fact, it records one of the highest foreign direct investments amongst contemporaries with similar GDPs. This new development is responsible for a spike in transaction volumes with an overall increase in shares, from 18.9% in 2000 to an impressive 34.1 % in 2003 (“Assessing the trade-related sources of productivity growth in emerging economies,” 2013). A transformation in the FDI has, therefore, led to an increase in the value of acquisitions and a critical base for expansion abroad.

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What to expect in the next 20-50 years

Emerging economies have successfully managed to improve their demand for raw material which is currently linked to the rapid expansion of commodity markets witnessed globally.  This has created stiff competition with high-income Western countries and Japan especially owing to the recent move by contenders to enhance their manufacturing potential (Dorozyzski & Marszałek, 2017). The said raw materials are acquired through an overall increase in imports as one of the most effective frameworks to apply when targeting growth.  This strategy has been beneficial to China and likely to become popular among emerging economies in the next 20-30 years. Additionally, this drive towards increasing the importation of raw materials and improving production capabilities is likely to increase global non-renewable energy consumption and may influence climate change. Additionally, an increased focus on manufacturing by emerging economies will increase the consumption of metals such as steel, aluminum, and zinc which will ultimately play a central role in closing the resource per capita gap currently witnessed in international trade.  It is highly likely that emerging nations will continue with their rapid growth streak and further increase their demand for the aforementioned raw materials as they continue to experience growth.

Conclusion           

Emerging economies such as Brazil, Russia, India, and China represent a relatively recent phenomenon which may have far-reaching implications for international trade. Their neck to neck competition with traditional global giants such as the United States, Germany, Britain, and Japan is bound to create new commercial opportunities and ultimately transform the pattern of Foreign Direct Investment (FDI). The international market should, thus, expect an increased demand for raw materials, production potential, and closing of the resource per capita gap in relation to high-income countries.

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