Economic Systems, Comparative Advantage:Which economic systems would be most suitable for a country: centrally planned, mixed economy, or market economy?
Economic Systems, Comparative Advantage
An international business must understand the economic system embraced by the host country and its implications. Moreover, there are powerful economic arguments in support of international trade and they provide a useful perspective on international business.
Research economic systems using your textbook, Argosy University online library resources, and the Internet. Respond to the following:
- Which economic systems would be most suitable for a country: centrally planned, mixed economy, or market economy? Since Canada is the #1 trading partner with the USA, focus specifically on Canada. Research Canada’s mixed economy and comparing it to the American economy covering any comparative advantages of Canada. State any assumptions you make and give reasons for your position.
When asked which economic system would be most beneficial for a country, we must examine what each system involves. Within a centrally planned economy, the government maintains ownership of the resources, factories, and the land which they all rest upon. This means that the government dictates just shy of all economic decisions. A mixed economy equally divides the factory, land, and resources between government and private ownership. However, the government does tend to control more of the resources for which it deems most important. This brings us to a market economy. Here, the lion’s share of resources, land, and factories are owned by the private sector. In order for this type of market to operate at optimally it must have free enterprise, free choice, and price flexibility (Wild, 2016, p. 81-83).
Canada and the United States enjoy and prosper from a very strong trade relationship. Setting this relationship up for success can be linked to the 1989 Canada-US Free Trade Agreement and the 1994 North American Free Trade Agreement (this also includes Mexico). This greatly enhanced economic and trade integration amongst the two countries (CIA, 2018). According to an International Monetary Fund (IMF) World Economic Outlook report, Canada’s projected growth in 2018 is 2.1 percent with a slight decrease next year to 2 percent (Panetta & Canadian Press, 2018). This year’s projected growth for Canada is down a whole point from last year’s.
Nonetheless, Canada’s economy is on solid ground. They were able to hold strong through the decline in world oil prices over the last few years. This is evident in the fact that they now rank third in the world behind Venezuela and Saudi Arabia in proved oil reserves (CIA, 2018). Additionally, Canada is the principal supplier of energy sources to the United States with natural gas, oil, and electric power (CIA, 2018). Canada has also experienced a thriving labor market with the addition of roughly 343,000 jobs year to date (Cléroux, 2018).
Since the United States and Canada share such a large boarder and have well established trade agreements, it is of no surprise that Canada is the primary supplier for so many resources. With similar market-based economic systems, I believe that the two countries will continue to prosper from one another for quite some time.
Central Intelligence Agency World Factbook (CIA). (2018). Retrieved from https://www.cia.gov/library/publications/the-world-factbook/fields/2116.html#ca
Cléroux, P. (2018). 2018 Economic outlook for the Canadian economy. Retrieved from https://www.bdc.ca/en/blog/pages/2018-economic-outlook-global-growth-brings-good-news-canadian-entrepreneurs.aspx
Panetta, A., & Canadian Press. (2018, April 17). Canadian economy will still grow in 2018, just at a slightly slower pace, IMF predicts. Retrieved from http://business.financialpost.com/news/economy/imf-canadian-economy-will-still-grow- in-2018-just-a-little-less
Wild, J. J. (2016). International Business: The Challenge of Globalization, 8th Edition. [Argosy University]. Retrieved from https://digitalbookshelf.argosy.edu/#/books/9781323424698/