Desirability is the quality of being worth pursuing and succeed in a certain cause of action. Various economic factors determine the desirability of a country in international trade and business. A country is desirable if it can participate in international trade and grab a significant market share to achieve its objectives. This paper discusses key factors contributing to a country's desirability.
Trade policy is one of the main factors that contribute to a country's desirability in international trade. Favorable trade policies that promote the importation or subsidizing exports positively affect relative prices of goods and services (Amadeo, 2020). Subsequently, it increases a country's attractiveness to imports and exports. For instance, a country that subsidizes its agricultural products may reduce farming costs, thus encouraging the production of more exports. As a result, this will attract more individuals and private firms willing to venture into farming activities. Conversely, import quotas increase imported goods' prices, reducing the demand for those products in the international markets (Amadeo, 2020). Consequently, this can reduce a country's desirability and attractiveness in international trade.
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Political stability is another significant factor that enhances a country's attractiveness and desirability in international trade. Political stability positively influences the business operations of multinational corporations. Politically stable countries like Switzerland, Canada, Japan, Germany and Australia are more desirable and attractive to many international investors (Amadeo, 2020). Such countries adopt favorable policies towards nations to promote trading activities with them. Wealthy countries increase their international attractiveness by advocating for stable political environments to promote business activities.
Foreign exchange rates also influence a country's attractiveness in international trade. Stable domestic exchange rates increase the stability of export costs in international markets (Amadeo, 2020). Successively, this can reduce a country's trade balance hence promoting the exportation of more products. A country with stable exchange rates is more attractive to investors than a country where exchange rates appreciate significantly.
Furthermore, inflation rates also influence a country's desirability. Suppose a country's inflation rate is increasing rapidly, the prices of a unit product may be extremely higher than a lower-inflation rate nation. Hence, the former will reduce exports, reporting a relative decline in a country's trade balance (Boyle, 2020). As a result, the country's attractiveness and desirability will reduce. On the contrary, a stable inflation rate encourages exports because local prices are equal or close to prices changed in international markets, which causes a balance in international trade.
Foreign currency reserve also impacts a country's attractiveness and desirability in the global markets. A country with enough foreign currency reserve can easily access imported machinery to promote local firms' productivity. A capital base is one of the main determinants that affect the performance and productivity of companies; thus, countries strive to avail enough capital resources to local firms to ensure their continuity. A country with enough foreign currency reserves encourages exports compared to nations with inadequate forex reserves (Boyle, 2020). When a country has enough forex reserves, it can fully fund firms to manufacture export products to meet international market demands.
Lastly, trade regulations can also influence a country's attractiveness and desirability in the intentional markets. Favorable government directives that promote a good business decision-making process in a country can attract potential investors because they will be sure of earning huge profits (Boyle, 2020). For example, countries that do not put many regulatory measures on foreign investors can be the target of potential investors because they can predict their performance rate based on the industry's market performance. Therefore, governments of countries worldwide should adopt favorable regulatory measures that promote local and foreign investors' activities to increase their desirability.
Regional and Global Trade Agreements
Regional trade agreements are working associations made between countries in a certain geographical location or region. Global trade agreements are associations that guide how countries relate in the global markets. Countries enter into trade agreements to create good working environments for business activities. The following are some trade agreements formed in different geographical locations globally.
The North Atlantic Free Trade Agreement is one of the world's largest trade agreements. NAFTA was formed between Mexico, Canada and the United States. Due to NAFTA formation, all trade tariffs between the three countries were eliminated in 2008 to promote free trading activities in the region (Amadeo, 2020). NAFTA was replaced with the United States-Mexico-Canada Agreement (USMCA), which President Donald Trump proposed in September 2018 but took effect on 1st July, 2020.
European Union is another example of a regional trade agreement formed to enhance trading activities among European countries. The EU was formed among 27 countries, all from Europe to create a competitive global marketplace for its members (Amadeo, 2020). EU still exists and is run by three governing bodies, including the European Commission, the European Parliament, and the European Council.
The General Agreement on Tariff and Trade is an international trade agreement that governs the trade relationship between two or more nations across the globe (Amadeo, 2020). The agreement's main purpose is to create a favorable trading environment for countries to market their products in the international markets. GATT still exists and is managed by the international trade community.
References
Amadeo, K. (2020, December 25). Fast facts about the world's largest trade agreement . The Balance. https://www.thebalance.com/facts-about-nafta-statistics-and-accomplishments-3306280
Boyle, M. J. (2020, December 23). What trade agreements do we have with our neighbors? The Balance. https://www.thebalance.com/u-s-regional-trade-agreements-3306275
