Chapter 9: International Economics: Basic Theory and Core Institutions

Outcome:

You have opted for a fairly open economy, which will allow you to take advantage of the global market. Each of your decisions comes with some pros and some cons. Let's look at them briefly, one by one.

You have opted to retain the Russian ruble. This has a lot of benefits. It provides a measure of continuity for your population and economy, maintains a joint currency with Russia, your primary trading partner, and provides a measure of security against the volatility of a new currency. While potential trade partners in the West (e.g. the United States or the European Union) might oppose your decision for political reasons, it does make sense to your regional trade partners, and trade form those partners comprises a significant majority of your trade.

Next, you have chosen to allow multinational enterprises into Abkhazia. On the positive side, MNEs will bring an influx of capital to the Abkhazian economy and provide jobs to Abkhazians, bolstering the domestic economy and growing both imports and exports. However, MNEs will also hinder the development of domestic firms, as large foreign conglomerates will make it difficult for Abkhazian companies to compete.

Lastly, you have chosen not to join international institutions. Given that you have embraced the global economy, this is a tricky decision. You have jumped into the international economic community without joining the institutions that guide it. International partners are hesitant to trade with or invest in Abkhazia, and your international economic action is constrained. If you are going to maintain an open economy, you will likely want to move toward membership in international institutions soon.