Economics
Context: Two wars (Russia’s invasion of Ukraine and an economic war – a geopolitical confrontation between two superpowers – the US and China) are raging in 2022, which have undermined the assumption of “hyper-globalisation”.
About hyper globalisation:
- The term ‘Hyper-globalisation’ is used to describe the dramatic increase in international trade witnessed for about a decade and a half from the early 1990s.
- It led to an unprecedented movement of capital and of people.
- Capital and labour flowed across the world.
- In a hyper-globalised world, countries produce things in which they have comparative advantage and import those others can make at lower opportunity cost.
- For example, Indonesia and Malaysia produce palm oil; and Ukraine and Russia produce sunflower oil.
- They have comparative advantages in the palm oil and sunflower oil.
- Therefore, Indonesia alone is the largest exporter of palm oil.
- Three forces of hyper-globalization:
- Economic force in which extensive growth in global trade creates cross-border economic integration,
- Human communications force via the Internet in which instant and global communication of social media and the Internet are changing norms of human communication blurring social barriers, and
- Technological disruption force coming from new innovations in technology driven by Internet-of-Things (IoT), big data, and Artificial Intelligence (AI) bringing massive economic and rapid social changes leading to a world of Singularity.
- Palm oil example:
- Recently, Indonesia, the world’s largest producer and exporter of the palm oil has been experiencing domestic shortages of the same.
- This led to spike in the domestic palm oil prices in Indonesia and the world (including India).
- Therefore, Indonesia has announced to ban all exports.
Source: Indian Express
Previous Year Question
Q.1) Consider the following statements:
- Tight monetary policy of US Federal Reserve could lead to capital flight.
- Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
- Devaluation of domestic currency decreases the currency risk associated with ECBS.
Which of the statements given above are correct? (2022)
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
