global econ Essay

An economy at its core is really just the production and consumption of goods and services of a community. Essentially an economy is how we survive as a civilization, which is why productivity and efficiency is essential. This is where specialization comes into play. Specialization is a focus or concentration on a specific task, objective, or function for maximum efficiency. Interdependence stems from specialization, causing economies to depend on each other for the goods and services they cannot provide for themselves. Interdependence creates risk because economies have to depend on other economies for the goods or services they do not produce themselves. When the good or service is provided the way the parties agreed then trust arises. When trust counters risk, there must be economic governance. I will argue in this paper that the key to success for any global economy is to specialize in as many economic sectors as possible, which is known as sectoral diversification. After the collapse of the Soviet Union in 1991 Russia suffered an economic collapse, with millions being thrown into poverty while corruption and crime spread rapidly. Russia experienced a Market Failure1. Since the collapse Russia has tried to develop a market economy and achieve economic growth. Russia’s economy was put under a lot of stress from the transition into a market economy. Declining productivity and a chronic fiscal deficit led to their 1998 economic crisis. Russia swiftly bounced back from the August 1998 financial crash. The main reason for their fast recovery is that world oil prices rapidly raised during 1999-2000. This allowed Russia to run a large trade surplus in 1999 and 2000. Russia is a good example of openness2, because of their oil trade. In 2011, Russia became the world’s leading oil producer, surpassing Saudi Arabia; Russia is the second-largest producer of natural gas; Russia holds the world’s largest natural gas reserves, the second-largest coal reserves, and the eigth-largest crude oil reserves (indexmundi). This abundance of fossil fuels is a good example of natural capital3. Until Russia’s admission into the World Trade Organization they did not allow outside petroleum companies to extract any of their oil this is called protectionism4. But after Russia’s admission in to the WTO they are now under the organizations regulation, which allows foreign companies to extract their resources, this is called heteronomy. Russia even has oil refineries since oil extraction and production is such a big portion of their economy, this is known as Scales of value addedness. Fossil fuels are a good sector to be specialized in, but because of this sectoral concentration5 Russia has a reliance on commodity exports which makes them vulnerable to boom and bust cycles. Russia’s economy suffered another market failure as a result of the 2008-09 global economic crises when oil prices plummeted. The government has embarked on an ambitious program to reduce this dependency and build up the country’s high technology sectors. The Brazilian economy experienced rapid growth and considerable diversification between 1950 and 1961 as a result of import-substitution industrialization. Traditional industries, such as textiles, food products, and clothing, declined, while the transport equipment, machinery, electric equipment and appliances, and chemical industries expanded (countrystudies). The Brazilian military government was the authoritarian military dictatorship, which ruled Brazil from March 31, 1964 to March 15, 1985. While the nation was under this military hierarchy6 their economy was not very efficient7 therefore the economy did not prosper. When they were relieved of this military dictatorship their economy had a lot of room to grow. The Brazilian economy is both capital intensive and labor intensive. Brazil is characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil’s economy outweighs

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