GLOBAL ECONOMY

Global economy

Global economy

Introduction

The conclusion of World War 2 marked the beginning of a new era for the global economy. Governments embraced foreign trade, and actively adopted policies, and strategies to increase the presence of foreign investment. National leaders and economists identified international trade as paramount for economic growth, a drastic shift away from the isolationist policies during the war.

Discussion

With an open economic policy, and a new stance on cooperation, international trade grew consistently and quickly during the1950's and 60's. During the second half of last century, the absolute value of product exports from democratic countries grew from $53 billion to $112.3 billion, with an annual rate of increase of 6 percent. This accelerated to 8 percent in the 1960's. Such increases were even greater than those had in the half century preceding 1914, and since 1973 such annual growth rates had slowed to an erratic 4 percent.

The results of the Bretton Woods system were most noted during the 1950's and 1960's were the increases in world trade steadily outgrew world output. From 1953 to 1963 for example, trade in manufactured goods grew by 83 percent, conversely, manufacturing output increased by only 54 percent.

Newly industrialized and developed countries particularly benefited from Bretton Woods, as they experienced growth through trade. By 1973 inter-trade between developed countries was responsible for more than 54 percent of world trade. This growth in intra-trade was parallel with the movement toward manufactured goods. Industrial economies increasingly engaged in trade of similar end-products and subsequently traded components from various stages of production.

As the commencement of the Second World War saw many governments adopt a closed, albeit protectionist trade policy, these barriers were gradually lifted as peace was restored. Through political negotiations; concessions and allowances, nations were able to reestablish trade agreements and apply new liberal policies which would be seen as the major cause of the post-war trade boom.

The General Agreement on Trade and Tariffs is recognized as the pinnacle of these negotiations. At the Geneva conference, over 123 proposals were discussed, encompassing over 50,000 articles. This agreement was ratified in 1947 by 23 nations, and highlighted by the United States which had effectively reduced its import duties by more than 50 percent by the mid-1950.

Regardless of the initiative taken by the United States, the remaining original parties made only superficial concessions. The formation of GATT does not appear to have stimulated a rapid liberalization of world trade in the decade after 1947. As GATT did not have the capacity to resolve European trading issues, it led to the formation of the European Economic Community (EEC) in the 1960's, which later produced a uniform external tariff among six nations. Only in the late 1960s, following the Kennedy Round negotiations did the signatories effectively reduce tariffs. Countries started to decrease tariffs in the 1950s and 1960s. As a result, free trade was not immediately felt, but rather through gradual and continual negotiations. The initial purpose of the GATT was to negotiate tariff concessions among members and to ...