Oct 15, 2020 in Economics

The recent deterioration of the relationships between the United States of America and the Bolivian Republic of Venezuela undermined not only the Venezuelan business, but its whole economy. The country experiences its hardest times: it is not able to pay the public; international trade decreased dramatically; investments are stopped together with old and new business. One can see how many small, medium, and large companies cease their operation in Venezuela. 

In the era of globalization, no country can stay apart from other economical players because all of them are interdependent. This research proposal aims at discussing the importance of the raised question and increasing awareness about the current situation in the both countries. Both countries will be presented and analyzed taking into account the current state of their relationships. The main focus will be on the causes of the problem and its consequences. Based on this information and the analysis, several recommendations will be given.

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Rationale for the study

Introduction

The economic relationships between the Bolivian Republic of Venezuela and the United States of America have been established in the 19th century. However, during the last century, the diplomatic relationships are not stable, which causes problems in business activity in those countries. Hundreds of small and large American companies are leaving the Venezuelan market, and millions people lose their jobs. This leads to political, social, and even demographic problems inside the country. Moreover, this situation influences the American economy. The international trade between the two countries did not stop after hostility emerged between their governments. Both of them keep exporting and importing a high variety of products, especially oil, which is of a great importance for their income and GDP. However, instead of stabilizing the situation and reaching any sort of agreement, the countries set more and more obstacles.

Statement of a Problem

The Bolivian Republic of Venezuela is among the ten biggest oil exporters in the world (Trading Economics, 2016). Thus, it plays the important role in international relationships. Over 90% of all the exports of this country is oil, and the rest are manufactured goods, food, and precious metals. The USA remains the biggest exporter and the most important trading partner (about 40%).Even though the mutual export and import fell down, the bilateral trade reached $23.9 billion last year (U.S. Department of State, 2016). Among the main exports from the USA, Venezuela receives petroleum, machinery, food and autos, while the imports are concentrated on the crude oil and manufacturing goods. About 500 American companies operate in the Bolivian Republic of Venezuela. Recently, all of them experienced unfavorable business conditions in any possible form. 

Our Process

Among the problems that were created by the Venezuelan government, there are (International Business Publications, 2016):

  • restriction of bank loans,
  • limited access to dollars,
  • strict regulations,
  • price control,
  • nationalization of companies,
  • price inflation of over 35%,
  • lack of transparency, regulations and widely accepted standards,
  • aggressive tax collection.

The US giants such as Coca-Cola, Kimberly Clark, General Mills, Bridgestone America, EFCO, and Clorox left the Venezuelan market (Bergen, 2016). It is understandable because there is no other way to improve ROI (Return on Investment) ratio of the company in such conditions. As a result, these actions exacerbated the international relationships with the USA and other countries and turned investors away from this market. The negative effects of business closures lead to higher and long-term unemployment (millions of people are out of work), high taxes on business (the government tries to get profit wherever it is possible), complicated bureaucracy process (which lets corruption prosper), as well as decrease in sales and production (less companies, less production). The export of Venezuela decreased by more than 60% from 2011 to 2015 (Workman, 2016). 

As countries do not exist apart from each other, the massive business closure in one country affects the other: 

  • American investors are losing their profit and dividends; 
  • the volumes of bilateral trade and as a result the mutual profit reduce; 
  • American CEOs and managerial staff are losing their jobs;
  • the companies have to cope with huge monetary loses and fall in their rating etc.

Every company depends on another companies because it needs to buy raw materials and equipment, do advertising, transport goods, and so on. Thus, the reduction in the activity of one company immediately causes the problems for other ones. In some time, this economy will suffer a recession at all possible levels, and if it becomes financially unstable, the country might even experience a default. Venezuela is not far from this condition with its $120 billion foreign debt (Warrick, 2016). 

In order to solve this problem, both countries need to understand that they cannot continue such hostile relationships, set priorities, and achieve consensus. It should be reach on all levels of both economies: from companies to the governments.

Review of the literature

This assignment needed a deep examination of the subject. Thus, numerous sources were used on the preparation stage. Many authors have been discussed the questions regarding this topic; however, none of them analyzed it completely. For the overview, I have taken the information from the fact books such as Trading Economics, U.S. Department of State, Venezuela Business and Investment Opportunities Yearbook, and the review of Daniel Workman. 

To understand better the realia, I also studied the most recent news articles and the analytical reviews. Thereby, I have used the publications of Brittney Warrick and Franz von Bergen.

Methodology

Data Collection

The data for the analysis will be collected through different stages:

  1. Finding the general information about the countries’ profiles and factual data (fact books, official websites);
  2. Finding the documentation about the current economic and political situation in both countries and their status in the international relations (articles written by the professional analysts, news);
  3. Finding statistical data on bilateral trade between the USA and Venezuela (The World Bank, World-Statistics.org, Bureau of Economic Analysis).

After gathering all the necessary data, the complex analysis will be carried out.

Data Analysis

In order to understand the scale of the problem and find the possible solutions, the practical part of work will be accomplished through the economic impact analysis. As the input-output model is not enough for such work, it is necessary to use one of the complex econometric models. In this assignment, the REMI model will be used as it not only shows how industry influences other sectors, but also helps to forecast the influences by future economic changes. 

In order to expand this analysis, I am going to consider economic, social, and legal changes within the country. It will also include the trends of the international trade, population, and migration of the workforce. After this complex analysis, I will be able to make conclusions and give the necessary recommendations.

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