Factors of Economic Interdependence

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Economic interdependence is prominent phenomenon whereby countries dependent on each other for the resources they do not have. Resources are scattered unevenly across the globe, and no country can fully rely on itself without having to depend on the resources from other countries. Nonetheless, many factors have fuelled this type of interdependence between countries.

Multinational Corporations

Multinational corporations have played a significant role in promoting the economic interdependence among countries with different levels of development. A common trend is when industrialized countries that lack a certain raw material take to establish their labor-intensive processing industries in developing countries having that particular raw material. The developing countries will then benefit from fair prices of goods produced in their own countries, as well as from job opportunities created by the labor-intensive processing industries. In this case, both developed and developing countries will benefit from equitable distribution of worldwide resources (labor and raw materials). This deepens economic interdependence among countries.

Transportation and Communication

Transportation and communication networks that link different countries with different levels of development have been key factors that have promoted economic interdependence. This is because raw materials, capital and manufactured goods are scattered unequally around the world, so that no country has all the resources it requires. To get these resources, transportation and communication systems must come in handy as they provide the means by which countries can exchange labor, raw materials or capital. This can be noticed when trucks transport frozen vegetables to markets miles from places where they are produced or when airplanes transport large business passengers thousands of miles to other countries.

International Flow of Capital

The massive international flow of capital in form of direct investments, public and private loans, and shares in stock markets through the financial institutions have increased economic interdependence. They have provided financial resources essential for investment, so that developing countries have been able to benefit widely by acquiring loans or capital shares. International capital flow has also enabled the expansion of markets in different regions of the world. According to Association of South Eastern Asian Nations’ (ASEAN) estimates, as of 1999, private capital flows to developing countries was approximately worth U.S. $300 billion per annum, compared to less than US $50 billion before the beginning of the 1990s.

Energy

The role of energy in the global economic growth and prosperity cannot be ignored as a factor of economic interdependence. Countries across the globe have made economic and energy links, such as the OPEC countries (Organization of the Petroleum Producing Countries), to establish relationships in producing oil and exporting to countries that cannot produce oil. For example, petroleum is shipped from Africa, Asia and Latin America to the United States, Western Europe or Japan. In return, electronics and processed food from these countries are then shipped to Africa, Asia and Latin America.

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