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 not to allow multinational enterprises into Abkhazia. On the positive side, forbidding the entry of MNEs will allow the growth of domestic firms, as national champions can thrive without international competition, and Abkhazia can pursue infant industry protection. However, MNEs could bring an influx of capital to the Abkhazian economy and provide jobs to Abkhazians, bolstering the economy and growing both imports and exports. By keeping them out, you are losing out on these potential benefits.

Lastly, your decision to join international institutions will likely help Abkhazia. Foreign aid will boost your economy (for more on the benefits and risks of foreign aid, see Chapter 10), and you will have a forum to solve any international disputes. Additionally, your willingness to embrace the international community is a boon to your international trade, as regional trade blocs and international trade organizations provide you with trade partners, further boosting your nascent economy. Overall, you have taken bold steps to embrace the global economy, and will now enjoy the benefits and weather the costs of that decision.