Today, the macroeconomics of producer countries cannot work and develop in isolation from foreign economic relations. Since states consume more products than they produce, the development of international trade comes out on top. At the same time, both sides benefit, both the importing and exporting countries.
Benefits of International Trade
As a result of the growth of international trade, the domestic economy of the country is developing, the number of sales markets for products is increasing. This leads to an increase in GDP, stabilization of the national currency, and an increase in the welfare of the population. As a result, it is possible to reduce taxation on export-import of products, which also has a positive effect on the balance of the economic situation in the country.
Recently, there has been an increase in the movement of capital between countries. A state investing its capital in the economy of another state not only increases its capital, but also develops a certain sector of the economy that will be able to export its products in the reverse order. This will enable the investor to develop his own specific industry, which is impossible to develop in his state due to the lack of the necessary resource, or production is expensive in relation to the exporter.
For example, locating your production in other countries where raw materials are cheaper, wage costs are lower, and taxation is more loyal to investments. At the same time, the host country receives an increase in tax revenues to the budget, the creation of new jobs and the most important development of certain sectors of the economy.
Economic unions and an open economy
The open economy is widely integrated into the overall economic system. Determine the main features characteristic of an open economy:
- participation in the interstate division of labor (one country produces raw materials, the second one processes this raw material, the third one produces a consumer product);
- absence of obstacles in the export-import of goods, both consumer and raw materials;
- free movement of capital between countries.
An open economy is conventionally divided into two types: an open economy of a small type and an open economy of a large type.
Small economy is the creation of economic unions between countries (for example, the Customs Union, the European Union). In these unions, cooperation of production, investment of funds, the use of the product of industry and funds of the states belonging to this union is widely used.
A large economy has a significant share of the world's savings and investment, as a result, has a greater impact on all world prices and resource allocations.
In any economic system, everything is interconnected, therefore the macroeconomic model of the economy includes operational activities both in the domestic and foreign markets. This is an open economy.
