Obstacles for economic policy coordinations

Abstract

There are three main obstacles to successful coordination of international economic policy. They are enforcement, uncertainty, and corruption (Frankel, 1990; Tanzi & Davoodi, 1998). World trade organization is the only global trade organization which deals with the trade laws. So enforcing the laws uniformly among the nations is one of the main problems. And the countries uncertainty about the laws, in the long run, is another problem. Finally, corruption will decrease the productivity of the investment due to some companies who invest in a country’s trade for kickbacks or for bribes.

“What are some obstacles to successful international economic policy coordination?”

For successful coordination of international economic policy, there are three main obstacles: enforcement, uncertainty, and corruption (Frankel, 1990; Tanzi & Davoodi, 1998). "The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations" (World Trade Organization, n.d.). The problem with only one organization to supervise all trade is the difficulty of this. Not every country is a member of the WTO and there are only 150 countries that are members of this organization out of the whole world. Therefore it is impossible for all of the trade policies to be enforced around the world.

Uncertainty is the second obstacle that can emerge. Countries that enter a trade agreement are unsure as to what will happen in the long run. The questions that may appear will be about their jobs, inflation, sovereignty, environment, etc and the list continues. It’s important to know or predict the outcome of the agreements. So with every business venture it is important to always keep the lines of communication open and also to do the proper research.

Corruption is another issue that can occur. Some companies might invest in a country in hope of kickbacks or bribes. The result is that, paradoxically, some public investment can end up reducing a country's growth because; the average productivity of the investment will drop even though the share of public investment in gross domestic product (the total of all goods and services produced in a country in a given year) may have risen (Tanzi & Davoodi, 1998). The country that is thought as "giving the bribe" gets hurt in the long run.

References

• Frankel, J.A. (1990, September 25). International nominal targeting (int): A proposal for overcoming obstacles to policy coordination. http://ksghome.harvard.edu/~jfrankel/MONTDUMM.R51.PDF
• Tanzi, V. & Davoodi, H. (1998, March). Roads to nowhere: How corruption in public investment hurts growth. http://www.imf.org/external/pubs/ft/issues12/index.htm