FOREIGN TRADE DEPENDENCE AND INTERDEPENDENCE: AN INFLUENCE ON THE RESILIENCE OF THE NATIONAL ECONOMY

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1 FOREIGN TRADE DEPENDENCE AND INTERDEPENDENCE: AN INFLUENCE ON THE RESILIENCE OF THE NATIONAL ECONOMY Alina BOYKO ABSTRACT Globalization leads to a convergence of the regulation mechanisms of economic relations and eliminates differences between national economies. Economic interconnectedness and interdependence determined by a movement of goods and services, financial and human resources, information spreading. The growing economic interdependence is intensifying the capability of trade relations to transfer the impulses both positive and negative from one national economy to another. During , repeatedly waves of economic and financial crises began in one country or group of countries and later spread in the rest of world economy. Keywords: Foreign Trade, Globalization, Dependence, Interdependence, National Economy, Resilience JEL Classification: E 66, F 59, F 15 INTRODUCTION In the early 21st century, fundamental socio-economic transformations demonstrated the increasing of the world-system unity and the economic vulnerability of the most countries under the influence dynamic spreading different nature crises in the global economic environment. For the modern world are inherent such epochal trends as globalization, financialization, socialization, informatization, intellectualization together with such traditional phenomena as democracy, freedom, liberalization. In general, economic globalization has become the dominant of the contemporary world development in the broadest sense. Globalization has formed also globalized nature challenges in environment, demographic, technological and financial spheres. Globalization affects unevenly and asymmetrically on national economic development. It may destabilize national economies, but concurrently globalization affects positively on lengthening and deepening their interaction, forming the ability to optimally concentrate resources in the most effective areas and expansion of the alternatives of their choice. According to these points,

2 this study aims to assess the impact of foreign trade on the national economy's resilience in globalization. RESULTS As noted above, globalization leads to a convergence the regulation mechanisms of economic relations and eliminates differences between national economies due to the speed of dissemination of information and access to resources and markets geographically remote considerably. The interconnectedness and interdependence of national economies most determines movement of goods and services, financial and human resources, spreading the information. Certainly foreign trade relations have an influence on economic independence and resilience of the national economy. The economic history of countries has revealing examples. Formerly underdeveloped and economically backward countries became wealthy and powerful countries mainly as a result of their successful trade policy, while other countries became negligible from the height of national greatness as a result of failed foreign trade relations. In the history of nations there are the examples where nations lost their independence and even ceased to exist politically mainly because their trading system did not promote the preservation and strengthening of their economic independence and stability of their economies (List, 1981, p. 23). In spite of the fact that world production increased significantly in , countries are different in national production orientation toward the world market. There are various models of foreign trade: some of them are mainly focused on increasing exports, others on increasing imports, or on the development of domestic production and economy. The effectiveness of their implementation depends on the stage of the national economic development. In this context, the German economist F. List noted that on the early stages of development of some economies, absolute freedom is advantageous in their trade relations with more developed countries (List, 1981, p. 25). Economic development is accomplishable later on by using the constraints in foreign trade; as a result of such policy a country will rise to the level of the countries, which were ahead economically. This approach has been successfully implemented in social and economic development strategies of China, which were proposed and realized by Deng Xiaoping in , Hu Jintao and Wen Jiabao in In this context, a paradox of invader (Ermolenko, 2011, p ) means that some countries receive an impetus to growth through interacting with countries with the higher economic development, based on increasing a

3 competition, adopting a progressive management experience, adaptation to the better practices and higher standards of management. Foreign trade is increasing in scale in globalization times, but also its character is changing. It should be also underlined that foreign trade has turned from a medium of exchange of the surplus of industrial and agricultural products into an instrument of economic cooperation and influence. In the second half of 20th at the beginning of 21st century, international trade is characterized by such feature exports grows considerably faster than industrial production and GDP (table 1). Table 1. World merchandise exports, production and gross domestic product, Total index Agriculture products Fuel mining products (Index, 2005 = 100) to and Manufactures Exports times times Production 11 times 61 times Total index times Agriculture products Fuel mining products and times times Manufactures

4 to GDP times Total index times Source: World merchandise exports, production and gross domestic product, : International trade statistics 2013, World Trade Organization, 2013, p In relation to 1950 in 2010 Index of industrial production and GDP increased in 8.5 times, and the physical volume of exports nearly 30 times. If in the early 50's of 20th century, world exports was mainly 10% of world industrial production and GDP, then at the beginning of 21st century about 30%. This indicates an increase in the level of involvement of national economies into the international division of labor and reflects the trend of increasing involvement of most economies in international exchange. It should be emphasized that the share of foreign trade in GDP is lesser for large countries, but higher for small countries, while for all these countries this indicator is gradually increasing. In particular, in there was a tendency to increasing the openness of national economies around the world, which also indicates the increasing internationalization of national production. During this period the export quota in transitional economies increased from 6,3 to 35,6%, in developed economies from 19,5 to 28,2%, in the newly industrialized countries of Asia from 45.2 to 74.2%, in developing economies from 26,1 to 41,8%. As a result the economic dependence and interdependence between countries has increased as well. Comparison the export and import quotas for countries suggests the greatest openness of national economies precisely countries, which operated under the Guidelines of Washington Consensus in the early 90's of 20th century, and these countries currently are modernizing their socio-political and economic systems. These countries include CIS (Commonwealth of Independent States) economies and newly industrialized Asian countries. These countries are more open economically in contrast to developed countries (including the United States, Japan, and Australia) and China, India, Brazil, Argentina, which are more closed economically and oriented to the domestic market. Therefore, they are more vulnerable to short-term fluctuations in international markets and to external challenges and risks. In view

5 of this, the extent and nature of world trade induces to consideration the determinants and mechanisms of foreign trade influence on the resilience of national economies in terms of growth economic openness and interdependence. Actually, the interdependence is regarded by scientists as a positive phenomenon, which means that the economies promote the development of each other. The argument of this position is that producers in different countries have the opportunity to actively use the advantages of international division of labor. In this case, mutual exchange of goods allows them to concentrate their manufacturing resources on producing those goods for which they have the economic and technological advantages in comparison with the producers from other countries. Thus, economic interdependence allows each country and its producers to expand their local production by attracting industrial and scientific potentials of other countries. This synergy promotes accelerated development of most countries. However, it can be practically realized only if the economic interdependence is balanced. An achievement of the balanced economic interdependence is impossible in virtue of the competition, survival of the stronger, uneven distribution of resources. Typically, such situation exists between countries at different levels of their economic development, and leads to unilateral economic development of dependent country whose economy provides not only its own economic needs, but also needs of other countries. The production of agricultural products, raw materials, fuel, converts economically dependent countries into agro-raw materials appendage to the more developed countries. In the 50's and 60's of 20th century, one-sided economic dependence existed in the relation between industrialized countries and developing countries. At the end of the 20 th century, some developing economies could change that situation. Moreover, according to experts, these economies will shape the global economy in the nearest future and to 2050 (World in 2050, 2013, p. 1 3). The share of GDP of developed economies in the global economy each year will be reduced. Such forecasts are proved by the trends of world trade flows in the geographical distribution. In particular, in 2012 about 55% of world exports went to developed economies, in 2000 around 70%. In this share, about 70% is still implemented between developed economies, and about 25% of goods are coming into the developing economies, and about 5% into the CIS. In turn, developing economies export to developed economies about 70% of total volume, about 20% of goods is sold in their mutual trade, and 5% goes to the CIS.

6 North America South and Central America Europe CIS Africa Middle East Asia World The highest concentration of world trade flows is retained in the exports of China, the United States and the European Union, despite the decline in their share from 51% in 2005 to 47% of world exports in 2012 (International Trade Statistics 2012, 2012, p. 33). At the same time the share of Chinese exports and imports in the global value tends to increase. The newly industrialized countries of South East Asia (South Korea, Singapore, and Hong Kong) have done a significant breakthrough in global trade. These countries are among the 20 largest exporting countries of the world. In 2012, their share of world exports was 17,6%, while the share of all developing economies together 42,8% (which is about 140 countries) (UNCTAD Handbook of Statistics 2012, 2012, p. 2). Currently, there is a gradual reorientation of trade flows in favor of Asia, South and Central America and the CIS, while decreasing the share of such regions as Europe and North America, as a result of a low productivity of the developed economies (Trade and Development Report 2013, 2013, p. 1 10). About 39% of world exports and imports fall to the share of Western Europe, 17% North America, 29% Asia, 4% Latin America, 4% the Middle East and 3% the CIS and Africa (table 2). Table 2. Intra- and inter-regional merchandise trade, 2012 Destination World, Billion dollars Share of regional trade flows in each region's total merchandise exports, % World, ,6 3,6 41,9 2,6 3,2 4,2 26,3 100,0 World, ,9 4,0 39,4 2,7 3,0 3,8 28,4 100,0 World, ,4 4,2 38,6 3,0 3,0 3,8 28,8 100,0 World, ,9 4,4 36,6 3,1 3,2 4,0 29,7 100,0 North America 48,6 9,1 16,0 0,8 1,6 3,2 20,6 100,0 South and Central America 24,9 26,9 17,0 1,1 2,8 2,3 23,0 100,0 Europe 7,7 1,9 68,6 3,8 3,3 3,3 10,1 100,0 CIS 4,6 0,9 54,3 18,5 1,7 2,5 15,7 100,0 Africa 11,7 4,8 38,2 0,3 12,8 2,7 25,3 100,0

7 Middle East 8,7 0,8 11,0 0,5 2,9 8,6 54,2 100,0 Asia 17,3 3,5 15,2 2,1 3,1 4,6 53,4 100,0 Source: Intra- and inter-regional merchandise trade 2013, World Trade Organization, 2013, p. 21. The trends in the geographical orientation of merchandise trade are evidence of different phases in the business cycle of individual regions. In particular, at the beginning of 19th century, there is rapid economic growth in Asia and Latin America against the backdrop of slow development and recession in Europe and North America. CONSLUSIONS Vulnerability of national economies and, conversely, their ability to develop into a permanent and unpredictable shocks converts resilience as a property of the system into one of the key categories of research, a critically-important object for monitoring, and management decisions. In recent years in a world practice, there are worked out methodological principles for the evaluation of national resilience, the soundness of the financial systems of the country that serve as the basis for the development of methodological tools for monitoring and evaluating the resilience of the economic system. The ability of the national economy to counter the spread of external crises and maintain their structural and functional parameters mainly depends on the intrinsic properties of subsystems and their interconnections. Therefore, combining the above evaluation features, and monitoring the influence of foreign trade on resilience of the national economy provide a new quality of analysis, modeling and forecasting for economic development of the country. BIBLIOGRAPHY 1. Agricultural Policy Monitoring and Evaluation 2013: OECD Countries and Emerging Economies. (2013). Paris: OECD Publishing. 2. Balance of payments and external debt of Ukraine (2013). Kyiv: National Bank of Ukraine. 3. Boyko A.V. (2014). The resilience of the national economy: theory, methodology, practice. Kyiv: Institute of Economics and Forecasting, National Academy of Sciences of Ukraine. 4. Competitiveness of Russia in Global economic space. (2011). Report Materials of the Institute Scientific Council. Moscow: Russian Academy of Sciences, Institute for international economy and international relations.

8 5. Ermolenko V.A. (2011). Entropic processes in the context of historical development. In Editor Y.I. Yekhanurov, A.V. Shehda. Theoretical and applied problems of economy (335 p.). Kyiv: Publishing and Printing center Kyiv University. 6. Global Risks 2013 (eighth edition). (2013). Geneva: World Economic Forum Publishing. 7. International Trade Statistics Yearbook (2013). New York: WTO Publishing. 8. List F. (1891). The National System of Political Economy. St. Petersburg. 9. Methodical recommendations for calculating the level of economic security of Ukraine. (2013). Act of the Ministry of Economic Development and Trade of Ukraine, Retrieved from Ricardo D. (1955). The Principles of Political Economy and Taxation: Essay. Moscow: State Publishing of Political Literature. 11. Smith A. (2007). An Inquiry into the Nature and Causes of the Wealth of Nations. Moscow: EKSMO. 12. The Global Competitiveness Report (2014) Geneva: World Economic Forum Publishing. 13. Trade and Development Report (2013). Geneva: UNCTAD Publishing. 14. UNCTAD Handbook of Statistics (2013). Geneva: UNCTAD Publishing. 15. World in 2050: The BRICs and beyond: prospects, challenges and opportunities. (2013). UK: PwC Economics. Contact: ALINA BOYKO Associate Professor, Department of Economic Theory and Competition Policy, Kyiv National University of Trade and Economics, 02156, Kіоtо street 19, Kyiv, Ukraine