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Main Dictionary E

Expansion

Expansion is the spread in the economic space of the activities of economic entities, the expansion of existing economic ties.

Expansion explained

The pursuit of profit, proceeding in competition for profitable investment of capital, markets, sources of raw materials, etc., is the main incentive to economic expansion. In the modern world economic expansion takes the form of the search and struggle for niches in the world markets, in the international division of labor. The winning party in this struggle becomes a firm, branch, the country which will fit into the found niche, will establish manufacture and the subsequent sale of competitive production. 

This is confirmed by examples of penetration of goods of some countries, which succeeded in finding their niche, into markets of other countries. For example, the expansion of Chinese producers in the world market of cheap cotton products.

For developed countries, the most attractive targets for economic expansion are Third World countries. In these regions you can expect to make large profits by selling goods at prices lower than local but higher than in your own country, thereby capturing the markets for these products. Economic expansion to developed countries is carried out by investing in the economy.

Types of Expansion

Trade. Opportunities for trade expansion are increasing because of trade liberalization, the removal of restrictions on trade between countries, and the blurring of customs barriers. For example, in 1947 the level of import duties was at 50-60%, but in the early 1990s it was only 9.6%.

Export policy is carried out, as a rule, with the financial support of the state, which seeks to improve the competitiveness of national products on world markets by providing producers with tax benefits, export subsidies, credit and other privileges.

Credit policy is the one aimed at stimulating credit relations in the country and the issue of money. The policy of cheap money is applied in conditions of growing unemployment and cyclical reduction of production volumes. The tools used by the Central Bank in the implementation of credit expansion:

  • purchase of treasuries, bonds, and other securities from commercial banks and the public;
  • reduction of the refinancing rate;
  • lowering of the reserve rate.

As a result of the above measures, the transmission mechanism is activated, leading to:

  • reduction of interest rates of commercial banks;
  • an increase in the money supply;
  • the growth of investment expenditures of enterprises;
  • an increase in the real net national product.

Ultimately, credit expansion leads to an increase in net exports. 

Institutional. Institutional development is a process of transformations having a quantitative-qualitative form. These processes are carried out in interaction with political, economic, and social institutions. An institutional environment is the one where these metamorphoses take place, but they manifest not in changes of rules and laws, but at the level of various institutions.

Investment. Under the conditions of intensified competition in the financial and economic sphere and the global economic growth slowdown, caused by the world economic crisis, which has changed the balance of forces in the world market, foreign direct investment is becoming a priority area for financial institutions, aimed at achieving long-term strategic goals. The decrease in the profitability of operations in national financial markets and the strengthening of capital concentration determined the expansion of geographical directions of international economic expansion of modern financial institutions.

Foreign direct investments bring with them new jobs, modern equipment and new technologies. At the same time, the wide network of branches, subsidiaries, etc. created by transnational corporations allows them to benefit from the advantages enjoyed by local producers. Foreign direct investment is directed not only to developing countries, but also to developed countries. For example, the expansion of Japanese capital into the U.S. auto industry.

In order for the expansion of economic actors to meet the requirements of integration while not affecting the national interests of individual countries, in each case a certain measure of combination of protectionist protection of producers within the country and openness of the economy must be established.

Economic expansion is nowadays not only a scientific term, but also a form of human development, which takes place at all levels of the economy and affects all economic subjects of a certain country or region.

In this regard, it is advisable to direct further research to a deeper and more comprehensive understanding of the development paradigm of economic expansion, its new and key element - investment expansion and the way of its implementation in the world arena.

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