The effect of international trade on UAE Economy

The effect of international trade on UAE Economy Name: Institution: Date: About three decades ago the economy of United Arab Emirates was among the least developed countries, but over time there has been a noticeable improvement in the standards of living. The discovery of oil helped the country to bypass the theoretical stages of development, but other sectors also developed during this period (Abed, 2001). With oil and gas being the backbone of the economy in the country, there has been diversification to other industries. Thus, international trade is now important for the economic growth and development of the country. In 1971 the merger of seven states led to the formation of UAE, Abu Dhabi became the capital city and Dubai is the second biggest city, but also the business center of the country (Abed, 2001). The role of international trade has always had a profound economic impact on the United Arab Emirates. Historically, the country was impoverished and mainly relied on fishing, trading and nomadic farming. Prior to the discovery of oil the main economic activity in the international market involved the exports of pearl (Dobransky, 2011). Thus, from early on international trade facilitated the economic growth of the country, but at this period the economy was not fully open to outsiders and the limited levels of economic integration meant that the economy was not developed. In addition, the country could not export finished products as the manufacturing industry was not vibrant enough. The export of oil especially in the 1970’s has facilitated the growth and opening up of the economy. The economic situation of the UAE is depended on the oil prices, whereby the sale of crude oil allows the country to import goods from her trading partners. In addition, an emphasis on infrastructural development facilitated the export capability of the country, where neighboring countries have used the nation as a transit hub for their exports. Equally, the international trade volumes are dependent on the geo politics prevailing in the Middle East. Of particular concern to the trading partners of UAE is stability of neighboring nations and maritime threat of Iran (Hamdan, 2012). Besides the volatility of the oil process being identified as a threat to international trade, the emergence of the global recession led to the contraction of the economies of many countries. The World Bank data indicators (2013), show that there was a slow down in the economy after the 2008 global recession. yearGDP (current) $US 2003124,346,361,6192004147,824,374,5432005180,617,023,5392006222,105,928,7412007258,150,041,4112008314,844,665,2222009270,334,929,438 2010297,648,476,8482011360,245,074,960 After recession The global financial recession presented new challenges to the countries of the middle, East with the adoption of more protectionist policies from there trade partners because of the overreliance on international trade as a source of growth. The global recession has simultaneously led o the fall in exports and imports since the slow down began in 2008. On one hand was the fall in the prices of most commodities including oil and on the other was the ensuing crunch in global trade. In essence, the demand of oil and petrochemicals fell after the credit crunch leading to a slow down in the economy of UAE (Pradhan, 2009). Even though, the global recession led to the slowdown in the global economy, there has been resurgence in the economy of the emirates, but there are still spill over effects that affect the country’s export potential. The economy of the UAE has been open to investor and the country took advantage of globalization to enhance trade cooperation with her trade partners. After the decline of the in international trade the financial channels of the country suffered greatly due to linkages to global credit and equity markets. Consequently, the government undertook steps to revitalize the banking sector through strengthening the weak links of the banking industry. This was possible with the merger of smaller banks with stronger ones to minimize the negative impact of decline in international trade and reduction in global funding (Prasad et al., 2012). The discovery of the economy following the slowdown in the global economy is also associated with the improvement in the economic outlook of the country through rise in oil exports. According to the IMF the country exported oil and gas worth US $74.6 billions which was projected to rise to US $ 118.4 billion At the same time the revenue from the non hydro carbon industry w...