The term globalization can only be defined as a state whereby the world nations come together to the unity of purpose due to some cross-cutting issues that include economics, culture, environment, technology as well as politics. These interactions lead to what is popularly known as global interdependence. Through these interactions, people can interact as if they were in the same locality thereby sharing a lot in common with residents of the same village. Global interdependence further gave rise to economic interdependence among nations of the world of which the American economy is no exception. Global interdependence consequentially leads to global economic interdependence. This idea is anchored on the fact that all economic participants belong to a trading-networked which is usually globally intertwined. This is made evident since there is not a single economy that can efficiently meet all its requirements. The interdependence of world economies has been a subject of extensive research and study leading to different perceptions determined by context as well as scale. Some methods have been put forward to measure the degree and extent of global economic interdependence, and these include the following:
1. Geopolitical Approach
The geopolitical approach argues that economic interdependence arises out of the need for states to obtain goods that they don’t produce and are required for their industries as well as for their national defense 1 . This further leads to vertical and horizontal interdependence. The vertical relationship explains how a change in prices in one country causes an effect on the other country. On the other hand, a parallel relationship is a concept that is used to calculate and measure the levels of investments and transactions, as well as bilateral trade between the two countries, involved 2 . The data obtained is then used to establish economic interdependence.
Delegate your assignment to our experts and they will do the rest.
2. Hierarchical Network Approach
This approach explains that globalization leads to an increased integration and interaction of the global financial systems leading to a relationship among the countries of the world. The hierarchical network approach works through analyzing the growth clusters as well as the synchronization that occurs in the business cycle. The global economic interdependence is then calculated and measured through a coefficient known as the Pearson's cross-correlation coefficient. Data established from the calculation can then be used to show whether there is a fall or rise in the global economic interdependence. The impacts of globalization can then be shown from such data obtained from the calculations.
3. Exit Model Approach
This model seeks to measure economic relationship as a function of financial exit costs with the assumption that these expenses may not necessarily affect the political conflicts and atmosphere. However, measuring these costs about interdependence usually proves to be a significant challenge due to a large number of countries involved 3 . This problem could be overcome by interacting trade activity data and the bilateral price elasticity data thereby representing market structures as well as the degree of the potential exit costs.
4. The American economic system
An economic system can be referred to as a set of laws and regulations as well as institutions established by a sovereign nation that is used to determine ownership of financial resources, trading activities that involve the buying and selling of goods including all the production processes of the country.(A.U.C.) Like many world economies, the American economy comprises of its citizens, Labor organizations, business groups as well as the societal units and formations 4 . These economic groupings found in the American economy give rise to consumers, producers, investors, and workers. The American government is responsible for formulating national economic policies that in one way or the other directly or indirectly affect the economy (A.U.C.). The consumers and workers further team up to lobby for their rights in case of unfavorable government policies that affect their welfare as workers.
The American economic system is one in which both the producers and consumers have the freedom to conduct trade thereby determining the kind of goods and services produced in the economy. This implies that the prices of goods and services are dependent upon the forces of demand and supply. Therefore the guiding principle is that none of the participants is in total control of the production process hence enabling them to operate in harmony. This creates an impression that the consumers own the goods and services produced 5 . Additionally, factors of production including labor, capital, entrepreneurship and natural resources such as land are controlled by individuals as well as private businesses organizations thereby giving both the consumers and producers an opportunity to conduct trade in a free market economy.
6. Interdependence of the American Economy to Foreign Economies
Economic necessity is defined as the relationship that exists between nations and regions of the world for the sole purpose of exchanging economic variables that include goods and services as well as financial tie-ups 6 . This further promotes specialization since countries will tend to focus their production on what they have as a nation. The American economy also depends on the other world economies, and this has been made largely possible through global interdependence.
The dependence of the American economy to other foreign economies has been aided by some financial flows that include the importation and exportation of goods about the per capita income of the population or the national income. A rise in the national income will automatically indicate that the economy is doing well in exporting its goods to the foreign economies hence showing a higher level of interdependence between the American economy and the international economies. Labor is another important indicator of the interdependence of the American economy and foreign economies 7 . Higher levels of migration into and out of the country imply higher levels of labor mobility thereby leading to the greater economic interdependence between the American economy and the rest of the world economies.
Moreover, an increase in technological inventions will result in higher cooperation among countries including the American economy. Technology produced in the American economy will be utilized and adapted by other foreign nations hence interdependence. Lastly, the American economy is also linked to international economies through direct capital investments hence interdependence.
7. Benefits of Direct Foreign Investment as an aspect of Globalization
Rapid globalization has witnessed an increase in direct foreign investment for past few years that have gone by. Foreign direct investment has continued to be an integral component of the international economic systems hence promoting development worldwide 8 . Therefore foreign direct investment can be taken to mean development that seeks to obtain a lasting interest in the economy of another country by allowing the investor to influence the management of the project thereby creating sustainable relations with the country. Foreign direct investments are beneficial since it promotes economic growth. This is possible since it increases resource efficiency in the host country as well as increasing the overall productivity. This, in turn, supplements the income of the domestic investments of the host nations hence growth.
Foreign direct investment also plays a significant role in integrating the economies of the host countries to the international economies through trade and investments. The Increased opportunities for business will promote trans-border trade hence harmonizing the global economy. Additionally, the global business networks will be strengthened leading to the emergence of subsidiaries hence promoting exports and imports 9 . Foreign direct investment will also promote technological transfers and adaptation to the host countries. The technological spillovers will tend to elevate the levels of technology among the business community of the host country thereby promoting efficiency and ease of doing things. Moreover, the technological gap between the foreign investors and the local traders will significantly be reduced.
Bibliographies
Bright, Charles. "Global Interdependence: The World after 1945. Edited by Akira Iriye. A History of the World. Edited by Akira Iriye and Jürgen Osterhammel. Cambridge, MA: Harvard University Press/Belknap, 2014. Pp. vi+ 997. $39.95." (2016).
Clemente, Dave. Cyber Security and Global Interdependence: What Is Critical?. Chatham House, Royal Institute of International Affairs, 2013.
Huang, Shupei, Haizhong An, Xiangyun Gao, Shaobo Wen, and Xiaoliang Jia. "The global interdependence among oil-equity nexuses." Energy 107 (2016): 259-271.
Iriye, Akira, ed. Global interdependence: the world after 1945. Belknap Press of Harvard University Press, 2014.
Merriel, A., R. Mitchell, and L. C. Loh. "Human resources for health: global interdependence and the value of reciprocity." Public health 129, no. 11 (2015): 1547-1548.
