The current global economic crisis has been labeled by economists as the worst economic crisis since the Great Depression and the domino effect of the crisis has culminated in the decline of consumer spending, demise of established businesses in key industry sectors and heightened government burden in developed countries (United Nations: 1). Indeed, in the United Nations' "Global Outlook: Economic Situation and Prospects 2009", the United Nations comments that "it was never meant to happen again, but the world economy is now mired in a severe financial crisis since the Great Depression" (United Nations, 1). Moreover, the global nature of the economic crisis has not only had a domino impact on national economies, infrastructure and the retail sector; it has also served as a barrier to quick recovery (United Nations, 2).
[...] Additionally, in further considering the importance of international trade and FDI to the UK economy and sustainability going forward, it is submitted that an understanding of the macroeconomic rationale for the current financial crisis is imperative. Indeed, the current financial crisis has brought renewed academic attention to macroeconomic theory with some commentators arguing that the traditional paradigm of macroeconomic theory contributed to failures to foresee the current economic crisis (Akerlof & Shiller 167). The underlying basis of macroeconomic theory is the interrelationship between performance and behavior in decision making regarding national economies along with a consideration of the various determinants of economic activity (Michl 20). [...]
[...] For example, Seager suggests that central catalyst was the fall of Lehman Brothers and overall, the last twelve months has resulted in a severe inward investment slump and refers to the investment report of the UN Conference on Trade and Development which demonstrates that “Investment in Britain was hit much harder by the global downturn than almost any other country. It marks a sharp change of fortunes for the UK, which had long liked to boast that it grabs the lions share of foreign investment flowing into the European Union” (Seager 2009). [...]
[...] Moreover, Ormerod posits that a central causal factor for this imbalance was the macroeconomic assumption that the “interest payments receivable exactly covered the risks involved on the loans” led to the assumption that there was no need to tie up capital that could be lent out for a profit and therefore portfolio of loans on this assumption” (Ormerod www.paulormerod.com/pdf/accsjuly09.pdf). Additionally, this imbalance was compounded by the fact that the domino ripple of defaults triggered by the collapse of the US housing bubble was not foreseen. [...]
[...] Therefore, whilst the current economic situation clearly highlights the importance of international trade and FDI to the UK's economic recovery, it is submitted that the UK's reliance on FDI and international trade has left gaps in domestic economic development. This neglect of the national sector has perpetuated the difficulty of the UK in getting out of the recent recession and clearly presses the need for the UK economic policy to achieve a balance between domestic development and reliance on FDI going forward. [...]
[...] University of Toronto Press Beardshaw, J., & Ross, A. Economics. Pearson Blundell-Wignall, A. The Current Financial Crisis: Causes and Policy Issues. Retrieved from www.oecd.org/dataoecd/47/26/41942872.pdf accessed November 2009 Colander, D. Post Walrasian macroeconomics: beyond the dynamic stochastic general equilibrium model. Cambridge University Press Girma, S., & Greenway, D. Who Benefits from Foreign Direct Investment in the UK? Scottish Journal of Political Economy pp.119-33. Retrieved at [...]
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