Policies in a global context GapFill

The emergence of a globalised economy creates a number of new problems in macroeconomic management. 

Firstly, the effectiveness of  transnational corporationssubsidiesmonetary policyfootloose is restricted by the increasing influence of international developments on prices. As developed economies have become increasingly reliant on importing goods from countries in the developed world, such as China, commodity prices are likely to be increasingly affected by economic performance in the exporting country, rather than the actions of a country's central monetary authority.

A second issue is the use of supply-side polices, some of which are restricted by contemporary trade arrangements, narrowing the ability of governments to invest strategically in their economies. Restrictions are often placed on  monetary policiessubsidiesinaccurate informationshocks, for example, as they are deemed to give one side of a trade arrangement an unfair advantage over the other by reducing the cost of the production process and thus making the commodity more internationally competitive. 

Thirdly,   capital flightfootloosesubsidiesshocks have become a major contemporary issue. With so many different economies becoming increasingly integrated, the frequency and severity of crises have increased considerably in recent years, adding to uncertainty and making the economic environment more challenging for investors and policymakers alike. Technological advances in information and communication technology have also intensified the speed at which contagion can spread, creating an increased problem of  transnational corporationsinaccurate informationtransfer pricingfootloose for policymakers to contend with when formulating macroeconomic responses to crises.

Fourthly, the power of  footloosecapital flighttransnational corporationsshocks presents challenges to governments; in particular their '  footlooseshockssubsidiesinaccurate information' nature, meaning they can relocate across national borders with ease and at low cost, makes their influence over macroeconomic policy greater − especially as they tend to be very large employers generating a significant proportion of economic growth. Another problem policymakers have struggled to respond to is  transnational corporationsshockstransfer pricingsubsidies: the ability of such firms to set prices when exchanging commodities along their own global supply chains, thus manipulating the market in their favour.

Finally, a related issue is that of tax avoidance: legal means of relocating certain aspects of a business to areas with a low tax regime. This is an issue for government revenue as many of the largest firms with the biggest tax bills are able to at least partially avoid paying their contributions, while government attempts to clamp down on such schemes run the risk of  transfer pricingcapital flightfootlooseshocks.