Essay About Current Account Balance And World Trade

Global Analysis
Global Analysis PaperBased off of factors such as GDP, trade % to GDP, GDP per capita, current account balance, contribution to WTO, and rank in world trade, I came to the conclusion that in comparison between the Dominican Republic, Greece, Thailand, United Arab Emirates, and Yemen, Thailand seems to be performing the best and Yemen seems to be performing the worst. In addition, United Arab Emirates was a close second behind Thailand, as the two countries have very similar numbers. However, because Thailand had a higher GDP (in millions) ($406, 949) than United Arab Emirates ($371,353), I’ve chose to go with Thailand for analytical purposes in this article. Refer to Exhibit 1 below for complete data chart of the five countries.There is no surprise why Thailand and Yemen seems to differ from each other significantly when being compared. Before jumping into contributing factors such as GDP, I’d like to give a brief background on the two countries first. It’s important to note the economic freedom score of both the countries. Economic freedom is the freedom to trade, produce and consume any goods without the use of force, fraud and theft. This is what the General Agreement on Tariffs and Trade (GATT) was all about. It sought heavily to answer the following question: ‘How do we create an economy that fosters world peace?’ The answer was simple. It was through this idea of economic interdependence. Economic interdependence was the assumption that as long as two or more nations were dependent upon each other for their supply chains – they couldn’t go to war with each other. And then once the World Trade Organization (WTO) was introduced, it was all about global prosperity. According to www.wto.org, “The goal is to ensure that trade flows as smoothly, predictably and freely as possible”.  Taking a look at the best and worst countries that I’ve selected, let’s put the economic interdependence theory into perspective. According to heritage.org, Thailand’s economic freedom score is 67.1, making its economy the 53rd freest in the 2018 Index. Due to the continuing declining stability of Yemen’s economy, numerical grading of their overall economic freedom could not be resumed in the 2018 index. This tells us that the country is experiencing a rough time and may have been for many years prior.In doing more research, it was brought to my attention that a civil war back in 2015 was the result of Yemen’s declining economy. This has taken a toll on the entire country and has destroyed their infrastructure, causing them to have to rebuild their economy. Yemen looked to rebuild their economy through protection factors such as inflation.  In the Effects of Tariffs and quotas article, Professor Peter Debaere explains, “There are many ways to protect an industry. One can for example, impose high quality and safety standards on foreign products” (Debaere, 2009). Doesn’t this go against WTO and GAAT idea of trade? If so, why would Yemen move towards this direction? The Effects of Tariffs and quotas article goes on to explain, “The government, of course, will also benefit from tariffs. Because the government has many alternative ways to raise taxes such as direct and indirect taxes, tariff revenues typically are not a big consideration in developed countries. But for developing countries, things are different; they may not have a system in place to successfully raise income or excise taxes. Additional tariff revenue may be a nonnegligible factor in their stand on protection” (Debaere, 2009).Looking at GDP, Thailand’s grew from 2.9% in 2015 to 3.2%, while Yemen fell -9.8% in 2016 compared to last year. From a dollar perspective, Thailand’s GDP (in mllions) was $406, 949 while Yemen’s was $27,318. That’s a difference of $379,621 million! Why is it that Thailand had a substantial dollar amount in GDP higher than Yemen? The answer is because on one end of the spectrum, you have a country (Thailand), who’s open to trading freely and as a result is reaping many benefits from it. Thailand is the 20th largest export economy in the world and the 21st most complex economy according to the Economic Complexity Index (ECI). In 2015, Thailand exported $231B and imported $190B, resulting in a positive trade balance of $40.6B. In 2015 the GDP of Thailand was $395B and its GDP per capita was $16.3k. According to www.heritage.org,

To enhance its free-enterprise system and generally pro-investment policies, the government has gradually made Thailand’s regulatory framework more efficient and transparent to better integrate the economy into the global marketplace. Business-formation procedures have been streamlined and the financial sector opened to competition. The level of trade freedom is relatively high, although nontariff barriers continue to undercut gains from trade. Political instability continues to undermine the investment climate, and the judicial system remains vulnerable to political interference. Government integrity is undermined by pervasive corruption.Yemen on the other hand, doesn’t care that much about trade, as their main focus is rebuilding. Yemen is the 128th largest export economy in the world and the 101st most complex economy according to the Economic Complexity Index (ECI). In 2015, Yemen exported $2.05B and imported $8.5B, resulting in a negative trade balance of $6.44B. In 2015 the GDP of Yemen was $37.7B and its GDP per capita was $2.82k. According to www.heritage.org, “Trade is moderately important to Yemen’s economy; the combined value of exports and imports equals 28 percent of GDP. The average applied tariff rate is 5.1 percent. Ongoing conflict deters international trade and investment. The economy is largely cash-based, and the small financial system remains dominated by the state.”Looking at the current account balance, Thailand, (11.4%), and United Arab Emirates, (2.4%) were the only accounts to have an account surplus. Greece (-.06%), Dominican Republic, (-1.5%), and Yemen (-5.6%) all are operating with negative current account balances, running a current account deficit. In a Note on the Balance of Payments article, Professor Louis Wells explains, “In fact, a deficit in, say, the trade accounts or the current account is not necessarily bad; at times it is perfectly appropriate for a country to run a deficit. The analyst must examine the whole record of transactions to extract meaning from the balance of payments”. In examination of Yemen, if you look at how the country has been operating over the past few years, you can see that they are not trending in the right direction. According to tradingeconomics.com,“Yemen recorded a current account deficit of 1920 USD Million in 2016. Current account in Yemen averaged -376.78 USD Million from 1990 until 2016, reaching an all-time high of 1337 USD Million in 2000 and a record low of -2527 USD Million in 2009. Thailand recorded a current account surplus of 5210.64 USD Million in January of 2018. Current account in Thailand averaged 594.26 USD Million from 1991 until 2018, reaching an all-time high of 7594.30 USD Million in February of 2016 and a record low of -3745.26 USD Million in April of 2013”