Economics

This is paper will dwell on the different types of agglomeration economies and the bid rent theory and review the factors influencing location requirements for certain kinds of firms. Agglomeration economic dwells on the savings or benefits firms realize by clustering together (SdS), it is frequently associated with the collective use of the infrastructure of transportation, communications facilities and other services (JGS). Bid rent is the amount of money one is willing to offer to acquire a certain piece of land.

The scope of this paper will delve on these two main subjects. Of importance will be to find out factors influencing the location of certain firms or enterprises at certain location in the city. Explanations will be drawn from using the bid rent theory and various other economic theories.  Sources used will mostly be online sources as there are quicker to access and can easily be compared with other sources for aptness and authenticity

1.0 Introduction
The decision process individuals and firms go through when deciding on the best location for a certain business or firm is one worth studying.  The theory of agglomeration economies helps us to understand this in much detail. The advantages associated with firms being located in a certain area are very crucial for the company managers as well as for city planners who want to attract investment into their city.

Perhaps the most important factor before any decision to locate a firm in a certain area is that of costs. Firms will tend to move into areas where operational costs are low e.g. low taxes, cheap labor, lower rent etc.

The bid rent model (diagram above) delves on the function of profit maximization in the presence of comparative, multipurpose and impulse shopping behavior. (Findarticles 2010) Thus at the core of any decision to locate a firm, is the issue of profit maximization and reduction of costs.

In this paper we are going to review the various factors that will influence the location of
a head quarters office of a financial institution
a department of a public agency dealing directly with the public
a call centre
an accountants office
a research establishment

This will all be done using the theories outlined in the abstract and the subsequent paragraph. Each firm operates in a different environment and hence has different needs.  They each serve different customers.  The factors that will influence each firms location decision will be decided based on a trade off to be more accessible to clients as possible but to also keep costs very low.

2.0 Location of a headquarters firm of a financial institution
The headquarters of a financial institution is the central and most important place of a financial companys operations. A financial institutions headquarters will need to be located at a place where it is very visible and accessible. Many financial company headquarters are located in the worlds financial hubs such as London, Hong Kong and New York wall street being a very good example.

2.1 Important factors in the location of financial institutions
According to Burgess theory as demonstrated above the city is arranged as concentric zones. The central business district tends to have the most expensive rent per square kilometer. The headquarters of a financial institution will likely be situated in the central business district. The reasons being
Easy access financial institutions headquarters have to be easily accessible to main lines of transport such as airport, train station. This is to allow easy access by employees to attend company meetings and for other stakeholders to access them.

Closer location to other financial institutions for easier sharing of data, network facilities, infrastructure etc. Infrastructure is also of utmost importance in the CBD, communication, transportation and other essential facilities need are guaranteed to be present.

Image reasons. The headquarters of a financial institution can also act as a marketing icon of the company thus its location is of great importance to the company. A stylish building located in the central business district portrays a good image of the company.

In terms of rent, the financial institution can afford the high charges charged at the CBD thus this will not be a major issue for the income.

There are many other reasons why the headquarters of a financial institution may likely be located in the CBD. The ones outlined above are usually the main ones. However it is possible and becoming for the headquarters of a financial institution to be located close to a university or other place of higher learning. This is to easily attract young talent.

3.0 Location of a Public agency dealing directly with the public
A public agency dealing directly with the public will most likely be located in the community itself thus in a residential area. In Burgess concentric model theory (fig.1) this area will most likely be C, D andor E.  The main reason being that it has to be closest as possible to the people it serves.  A public agency could be a community centre, police, clinic etc.

A public agency is funded by tax money so thus it cannot afford being in the central business district. Such a location will produce a backlash from the public. It also needs to be very accessible to the public thus its location close to where people live. Economies of agglomeration theory does not apply to the location of a public agency dealing directly with the people  because it is usually a non-profit, and hence has no need for the advantages derived from closer location to a similar industry.

3.1 Benefits of public agency in a residential neighborhood
The main benefits of a public agency being located in the community are that
Cheaper rent tax payers money is saved.
Nearer the people thus their needs can be aptly accessed and served.

Even though the majority of public agents will most likely fall into the category mentioned above a few will not. There are some public agencies which have been commercialized or privatized. Though they still serve the community, they are out to make profit. For these public agencies being located in the Central business district would be much more preferable for them as they can gain easier access to more clients and access financial, communication and other essential services.  The theory of economies of agglomeration will only be applicable if more companies venture into this service thus the advantages of being located in the same place may apply.

4.0 Factors that will influence the location of a call centre.
The location of a call centre like any other industry can determine if the call centre will succeed or not.  Call center managers do not have to worry about a storefront to attract walk-in customers to sell a service or product. Most call centers are back offices, and thus, the productsservices are sold or acquired over the phone or by e-mail. (SearchCRM 2010)  There is no need for a call centre to be located in the central business district or other highly visible places like the headquarters of a financial institution for example.

4.1 Site Selection of a call centre
Factors that will influence the selection of a call centre are likely to be
Labor and wages Access to cheap labor is very crucial. In fact the main reason why most firms outsource to call centers is because they want to lower costs.  Without an available and affordable labor pool that has the necessary skills, the call center will not be able to function, no matter the community or legislative environment.

Local fringe benefits Local fringe benefit can vary from place to place. They may include lower taxes, tax breaks, beautiful scenery, etc.

Education and language skills Call centre jobs require educated and very skilled people.  Location of a call centre close to a place where skills can be easily be recruited is important.

Telemarketing laws  need to make it easier to run a call centre in that area
Telecommunication infrastructure Perhaps this is the most important.  The success of a call centre will rest on the sound infrastructure in that area. Bad telephone network will make it difficult for calls to get and thus the centre will lose business.

Like the public agencies offering services to the public above, call centers do not have to be concentrated in a certain area. The benefits associated with being located close to each other will be minimal.

5.0 Location of an Accountants office
An accountant is responsible for recording, analyzing and reporting of a firms financial data. Using laid down principles of accounting an accountant will analyze a companys financial information such as net profit, EBIT, costs etc and advice managers on the best possible solutions. As an important stakeholder in the company, an accountants office will usually be located within the firm itself.

5.1 Environmental and work conditions
In deciding the location of an accountants office there are some other factors that may need to be considered. An article which details some of the key factors to take into consideration when deciding the location of an office states, Location is one of the most key factors to success in your business. Does your work space need to be presentable Does it need to be accessible Does it need to be geographically specific (Officefront 2010). Indeed these are some of the key factors that need to be considered when deciding on the location of an accountants office.

A clean and healthy working environment is important when considering the location of an accountant. The office should not be located in an area where too much sunlight penetrates, or smoke and noise from polluting industries nearby come through. These factors would be de-motivating and thus the company may find it difficult to attract and retain skilled labor such as that of an accountant.

With respect to rent, office space will need to be in alignment with the overall revenue and cost plans of the company. For a company wishing to incur small operations costs, a location close to the central business district will not be ideal. Cheaper office space can be found in investment zones, or tax free zones.

6.0 Research Establishment Location Factors
A research establishment serves as a place of higher learning and where so many discoveries are made. Many universities and colleges usually have their research centers attached to them. It is common for a medical school, or IT institute to have a research arm attached to it.  The location of a research establishment is influenced by the need to be close to the parent research institution and of course easier access to skilled labor and in some cases the kind of materiel that is going to be researched.

6.1 Key factors
Availability of skilled workers and nearness to university.
Many research centers are usually located close to a university this is to enable the centre to easily recruit skilled personal to work in the research centre. In some cases students carry out part of their studies at the research institute easy access to and from the university is very important here.
 Research subsidies, tax breaks and other incentives
There may be subsidies provided in certain locations, to attract potential industry to the location. For example, transport subsidies or even potential tax breaks offered to industry for locating at a given location. Such subsides can be a real financial incentive, that may well overshadow a few disadvantages of the actual location. (Helium 2010) In this regard certain subsidies targeted at stimulating research and innovation in a certain area, will make it suitable for a research institution to be located there.

6.1Economies of Agglomeration Research Establishment
A research establishment may benefit from economies of agglomeration which will come about as a result of synergy of related establishments in the area.  Industries can also reap benefits of economies of scale by location close to firms engaged in similar industries through the sharing of facilities, knowledge, and expertise and manpower resources. Industries located near to related industries enjoy the benefits of industrial linkages. (Helium 2010).  The research establishment can share information with surrounding research establishments.

7.0 Summary and conclusion
They essay has outlined some of the most important factors which are often considered when deciding the best place to locate a firm or organization.  As may have been seen in the whole essay certain key factors are crucial to almost every business.  The relation between revenues and costs of rented buildings is also very important. A financial institution can afford to have its headquarters in a high rent area as its revenues and cost structure may allow it. On the other had there is not much use for a research establishment or public agency to be located in a high rent area, rather access to skills and the community is more important.

Firms can derive a lot of advantages by being located close to other similar firms. The theory of economies of agglomeration states these advantages as the more related firms that are clustered together, the lower the cost of production (firms have competing multiple suppliers, greater specialization and division of labor result) and the greater the market that the firm can sell into. Even when multiple firms in the same sector (competitors) cluster, there may be advantages because that cluster attracts more suppliers and customers than a single firm could alone. Cities form and grow to exploit economies of agglomeration.

The concept of gross fixed capital formation is mostly applied in national accounts. This concept has been in use since 1930s. Some of the national accounts which use this concept includes UNSNA and NIPS. Gross fixed capital formation involves additions to fixed assets in a business. It is obtained by considering the total assets in a business which includes purchased assets. The total assets are obtained by deducting the all fixed assets which have been disposed off (Foss, 1994). This can be done on personal business, households and even government. The data used in calculating the gross fixed capital formation is made available by statistical agencies. These agencies are involved in compiling data which is made available on annual basis or even quarterly. Economic growth can be traced by considering this indicator. Gross fixed capital formation is used as an indicator for business progress. It gives future business activity.

Gross fixed capital formation is normally related to gross domestic product (GDP). It is indicated as a percentage of the gross domestic product. This is normally done in the private sector. This indicator is arrived at by considering the additional assets. All disposals are deducted from the assets. The disposed assets may be tangible or intangible. Some of these assets include machinery and equipment. Others include buildings and vehicles. This indicator also considers any additional value on assets. Private sector uses this indicator in making decision on investment.

Gross fixed capital formation considers the net additional investment. This new investment affects fixed capital assets which are controlled by businesses, households and government. A business activity level can be determined by using economic indicators. The data provided on gross fixed capital formation may be used as an economic indicator to determine the progress of a business activity (Fischer, 2004). This indicator does not portray the total investment in a business. This is because there are several omissions. These omissions include inventories stocks, financial assets. There are also other operating costs which are excluded. Gross fixed capital formation is a value which is obtained by considering all additions made on fixed assets. Disposals are normally deducted to arrive to a flow value. Value addition on assets is also considered. Machinery and equipment may acquire new value after some improvements done on them. It is not necessary that all the assets are tangible. Some assets such as software are intangible. Machinery and equipment are taken to be the main types of assets. There are some assets which are not included in gross fixed capital formation. Some of these include armaments, land, household equipment amongst others. Depreciation of assets is not considered in GFCF. This is why is referred to as gross. This brings about some confusion since the measure of GFCF is geared towards net additions. Some activities which change the value of assets is not included in the measure of GFCF. These include damages and destruction on fixed assets (George, 2005). This causes alterations to fixed assets since they have to be introduced to repair.

In conclusion, gross fixed capital formation is a value which is expressed in terms of the gross domestic product. It involves all net additions to fixed asset less disposals. Disposals of fixed assets such as machinery and equipment is valued and deducted from the total assets. This ratio is used as an economic indicator for business progress. It can be used as measure of the total investment of a business since some assets such as land are excluded.

This section contains a summary of the contents of thesis proposal.

Table of contents
This is the list of items contained in the document. The page numbers are provided to each item in the list of contents.

Acknowledgement
Write down the people and organizations that helped complete the research.

Chapter one

Introduction
The definition of the terms poverty and inequality will be given at this stage. In addition, the measures to reduce poverty and inequality will be listed after the definitions. The relationship between the two will be explained as the last paragraph.

Thesis title
A comparative analysis of poverty and inequality, measures and its application in Egypt. A case study of . (Name of a town in Egypt to be studied as the sample survey area)

Thesis objective
Major objective To study the impact of poverty and inequality on the economy of Egypt.

Minor objectives
To evaluate the measures to reduce poverty and inequality in Egypt
To assess the living standards of the various classes of people in Egypt
To investigate the impact of poverty and inequality on the national economic activities
(Add others)

Importance or the research
To reduce poverty and inequality in the country
Suggest to the government on how to reduce poverty in the country
Improve the living standards of the people
(Add others)

Problems encountered in the research
Lack of funds
Inexperienced research assistants
Lack of cooperation from the interviewers
(Add others)

Chapter two
Literature review
Relevant information about the topic of study on studies done by other people

Chapter Three
Methodology
Methods of collecting data, for example, questionnaires, interviews, photographs, case study
Sources of data Primary data sources and secondary data sources
Methods of selecting the samples
The skills required of the research personnel

Analysis
The tools of analyzing the data collected, for example, standard deviation, mean, logit probit models, qualitative data analysis tools, ANNOVA, linear programming,

Results of the research
Give the data obtained (the results) from the analysis part of the research

Discussion
Explain the data in relation to the objectives of the study. Integrate both minor and major objectives into the discussion about the results obtained.

Chapter Four
Conclusion and recommendations
Give a summary of the findings of the research. Summarize all the contents of the thesis.
Give a direction of the research study.

Appendices
Budget of the research
Tables and diagrams used in the document
References used in the document

RESEARCH OUTLINE
Introduction
Introduce the essay by writing down the meaning of the research. A brief history about research in the subject selected and some few details about poverty, inequality and the economy of Egypt. Hypothesis Question Impact of Poverty and Inequality on Economy

Provide a general overview about poverty and inequality and their impacts on the economy of any nation. How does Poverty and inequality impact economy in Egyptprovide a specific analysis of poverty and inequality on the economy of Egypt. Poverty

Definition Give several definitions according to different authors.
Measures Elaborate on the possible methods to reduce or eliminate poverty within any economic system. Inequality

Definition
MeasuresLink between Poverty and Inequality Show the relationship between poverty and inequalityApplication of Poverty and Inequality on Egypt Use the case study of the economy of Egypt to show the impact of poverty and inequality.

Conclusion
Provide a summary about what you have learned about the topic. Give a direction to the essay.

When we talk about we are mainly focusing on the phenomena of Globalization that is reshaping this world into a new globalized economy. This globalized economy experiences trickle down effects, and thus simultaneously affects the demand and supply of various factors of production.

Globalization has positive and negative impacts. The proposers of positive affect argue the opportunity exploration that is created by the globalization. On the other hand, the critiques argue that globalization is a threat for the political sovereignty and economic prosperity. At the heart of the argument lies the impact of globalization on the job losses and downward pressure experienced by the people due to international macroeconomic settings.

Macroeconomic situations
We need to analyze the potential job losses and the downward pressure that is being created on the labor market due to macroeconomic situations. By this we can easily analyze the cost of workers when they are outsourced into the global world. When outsourcing people, they usually argue over the number of jobs gained versus the number of jobs lost. The countries that are based on importing will be at a loss, whereas the exporting countries will rise in its industrial sectors, and similarly jobs will be created. Whenever an office premises it outsourced to a different country, especially in a labor abundant country where the cost of labor is very cheap, and then the people will loose jobs in the country from where the offic4e has been relocated. On the other hand, people will in the other country and experience a gain due to the inflow of new foreign direct investment in their economy.

When we look at the impact of labor in global scenario, and the impact of globalization over the labor markets, we may develop perspectives. One is the view of already developed countries, whereas the other view is that of developing labor abundant countries. In developed of nations, the labor impact is subjected primarily to two areas of interest, one is the trade and the other is the FDI whereas, in developing countries, the discussion is broadened by including the effects of financial capital flows and IMF stabilization policies.

Situation in United States of America
In USA the labor has lost his jobs due to the emergence of low-cost labor abundant countries. In between 1973 and 1996, USA saw a decline of 19 percent in the wages of non-supervisory labor. In USA, labor has lost both, its buying power and industrial jobs whereas, these technologies and capital employing labor is becoming the activities of other countries. The people in USA are now engaged in low paying services jobs rather than high paying primary jobs such as wives going out to work for meeting both ends meet, washing each others clothes, cooking meals for each other etc.

The buying power of American labor was declining by 1 percent per annum before the 1996-98 increment in the minimum wage. During 1997-1998 when Asian Tigers and Russia went into a financial meltdown. This gave a chance to USA to increase the buying power of labor. In 1979, a US worker had to work for 23 weeks after which he can afford an average priced car, whereas a decade after to buy a same car he had to work 32 weeks. This reflected a diminishing trend in the buying power of the labor in US over a period of time.

Developing Economies
We can see a rise in the labor market of countries such as Malaysia, China, South Korea, Indonesia, Taiwan, India, and Philippines at the expense of the labor of developed nations in western world. With the expansion of money transfer system, global outsourcing, and telecommunication advancement, we will see a lot of shift of labor intensive production activities from the western world to the developing world as they are ready to do the work at a fraction of a cost in comparison with any normal American or Briton.

We saw the developed countries such as Germany, Sweden and Japan protecting their country against the odds of labor and capital. But now they are also found shifting towards cheap labor markets. They have to do this in order to remain competitive in the world market, or else they will be defeated by some other cheap producer. These countries saw the capital fleeing from their countries in search of cheap production cost and so they also decide to move with the trends and moved towards those countries that offer low labor cost due to their labor abundant nature of the country.

Commercial activities
We see a rise in the commercial activities, increasing profit trends, and jobs due to the economic multiplier that is activated when industries are established in a state. A nation that is rich in commercial activities will have proper infrastructure to provide people with labor protection laws, environmental laws, medical and health facilities, retirement programs, unemployment benefits, and social security. This is all done to protect the labor of that country from the potential harms whereas, in developing nations it is quite opposite. There are no such programs that can facilitate the labor, and most of the structural adjustment policies restrict the provision of such support.

Societal impact
The most important issue to be discussed in this labor concerns is the societal impacts due to the changes in a countrys financial structure. Even of this imbalance continues over the next decade and the economies began to decline due to the loss in their finances, they may go for war rather than trade. But we see a completely new perspective in the corporate imperialism. If the economies around the global are experiencing a downward trend due this the capital invested abroad encounters with the capital invested in the boundaries of home country, both type of capitals will continue to cannibalize each other. They will engage in a process known as capital destroying capital. At that time it will be extremely difficult to manage the resources, be it human resources or capital resources in its more effective manner.

China
In the past few years we have seen the emergence of China in the overseas market as the low-wage manufacturer. Chinese manufactures one third of the products that are foreigner-owned plants, majority of them belongs to Japan. China usually imports machinery and components from Japan in order to sustain its economic well  being and persist its cheap and abundant labor advantage. The Asian financial crisis that arose in 1997-1998 can also be attributed to the entrance of China in the low cost manufacturing business and was still able to undercut its competition from the countries belonging to the region of Asian Tigers.

Richard Freeman, a Harvard Labour economist, stated in a paper that was prepared for Federal Reserve Bank during the Boston Conference in 2006. he said that since the entrance of India, Former soviet Bloc, and China has lead to the expansion of their labor force twice as much as from 1.46 billion to 2.93 billion.

World Economic Outlook
In May 2007 World Economic Outlook was published by International Monetary Fund. The purpose of this was to analyze the growth of the global labor force. It weighted the labor force of each country by checking its level of participation on the globalized economic activities. This was measured by using the ration of exports to GDP. Once the analysis was carried out, International Monetary fund concluded that the world has seen a rise of fourfold in the last decades regarding the effectiveness of the global labor force. Now in todays world, the developed nations are accessing the pool of global labor force via numerous channels and Medias. This can include the immigrations, importing final goods and outsourcing the production of intermediaries.

The pooling of global labor has had a major impact on the labor wages in the developed countries.  There has also been a change ion the distribution in the national income between wages and profits.  Since 1980, international Monetary Fund has stated a declining trend in the labor share of national income of these advanced economies. The shift is estimated to be about 8. The impact can be clearly seen from this graph.

In 1960s and 1970c we saw a steady rise in the labors share in national income, but in recent years it has seem to drop down in the industrial countries. The reasons have been the temporary and cyclical factors that have caused the disturbance. However, the persistent nature of the decline suggests that it has been also due to the structural changes that are goin on in the economies (Guscina, 4).
Another major impact is that of technology that is helping the countries to raise the per capita income by applying such technologies that can increase the productivity of labors. It allows for more efficient allocation of resource, and hence aids in the economic development and the raise in labors share in national income.

Richard Freeman concluded in his report for the Boston Federal Reserve conference that since the entry of ex-Soviet Union, Chin and India, the world has seen a dramatic shift in the global capital-labor ratio massively against workers. These developing countries have currently worked on the provision of expanding higher education which has flooded their local market with highly educated and well skilled employees. This increment in the well qualified labor supply has helped the developing economies to compete with those developed nations that are facing the problem of high labor wage disadvantage.

According to the estimated of Richard Freeman, as the global labor force doubled itself, it also reduced the capital  labor ratio in the globalised economy. This reduction was seen by 40  - 50 . For the sake of simplicity we can say that as the supply of labor tends to rise, we experience a decline in the wages of that labor. As the labor increases relatively to its capital, its price that is calculated in terms of wages is diminished.

Economist in July 2006 stated that due the emergence of China as the cheap manufacturer has flooded the market with labor and has made the capital quite scarce in relation to its labor resource. This has resulted in rise in the relative returns on capital due to its scarcity. This rise is reflected in the balance sheets of the advanced such as America and Japan, whose profits after tax has risen in proportion of GDP.

The financial times in October 20060 concluded that all the western advanced economies has seen a rise in their profits due to a number of factors. The most is being the decline that is being witnessed in labours share of national income.

Labor Productivity Growth
China, India, and other developing economies are seemed to have been rising in labor productivity also. This has halted the United States workers welfare to a large extent. It does have a great ion the economies of well developed nations mainly due to the fact that workers in United States including the firms in which they are employed, or were employed, are losing grounds in the international trade. This is mainly due to the rapid productivity in the overseas countries due to the cheap and abundant labor available with them. This will have two effects on the economy of United States, either a gain, or a loss. Consumers in United States can be at a benefit due to the import of cheap products from the developing nations, whereas some exporters from the United States will find it easy to gain competitive edge by accessing cheap intermediate products from overseas.

Labor productivity growth can be defined as the ability of a country to produce more output per hour worked. An economy is seemed to be rising when it becomes wealthier due to the strong labor productivity growth rate. In this situation the living standards increases and the short-term pressures can be easily tempered. But if the developing economies like China and India will strengthen more in labor productivity terms, this will negatively affect the labor utilization of the existing advanced economies. Their labor seems to have been displaced if the developed countries producers found cheap grounds for their business activities.

We see a rise in the labor productivity growth in the developing countries especially China and India are the two giants that are emerging as the economic superpowers. Other states include from the regions of developing Asia and Eastern Europe. China and India are seen growth rates above 4 percent per year.

If we want to analyze the effect of labor abundant economies with the advanced economies, we can compare United Sates of America with the rest of the world. In the rest of the world we are including the names of developing nations of South Korea, Russia, Mexico, Indonesia, India, China and Brazil. In our chart 2 we are measuring the productivity growth for each country. The data is for 1999-2005 period. In that data we can see that China, Russia, South Korea, and India saw a robust growth in that period, however, Mexico, Brazil and Indonesia saw a slower growth in comparison with USA. The United States of America at that time was having a growth rate of 2.

We may consider the Labor productivity growth as the engine of economic growth. If the labor is utilized efficiently and effectively, we may see strong emerging economies like China and India that are quickly catching up with the western markets. They are not only catching up with those advanced economies but are also becoming for the gigantic job losses in the developed countries. Moreover consumers are also more interested in gains by buying a cheap imported product produced by developing economies business hubs.

Conclusion
To conclude we can say that for firms working globally they may have two basic options. One is to offer low wages and ignore the environmental laws and other regulations. The second way is to achieve higher productivity and then produce high quality goods and services. If a free trade agreement is adopted in the first option, the producers will be at a tough completion, similarly high gains. If the second option is adopted, then the will work for the societal benefits as well as their firms value maximization. They will seek competitive advantages by offering innovative products developed by applying productivity enhancing techniques. Another important step for these organizations is to secure the labor gains. Labor should be given their due share in increasing the productivity in the form of increased income. If the producer the benefits to their employees, then only employees would see a rise in their purchasing power.

The GCC is economically and politically prepared to evolve into a monetary union through a single currency.

The GCC, formed in 1981 by six Arab states, is an economic power holding about half of the worlds oil reserves and a fifth of gas reserves.

The GCC and a currency union are a perfect match.

A currency union is the use of a single currency across a region having the same monetary policies under one administration. The Euro serves as the best example of a successful use of a currency union.

The impacts of a currency union to a regions economy range from elimination of currency exchange risks, promotion of regional competitiveness, trade enhancement, investment and tourism, corporate health and expansion improvement and encourages financial discipline and transparency. Costs of having one may include losing national monetary, fiscal and exchange rate policies.

Looking into the traditional measures of OCA (optimum currency area), GCC may well be the next European Union.

Being prepared for a shift to a currency union requires the establishment of institutions that will push forth the realization of a single workable currency.

GCC shares a homogeneous cultural experience and history. The success of a currency union is imminent given the regions economic soundness and healthy politics. Dangers that lurk, i.e. China and the Greek crisis, must be addressed through a political union, an important monetary union prerogative.

With the success of the European Union, a monetary union with a single currency in a region bordered by the East and the West is a long time coming. It will be the new face of economic development and political dynamism.

The GCC Monetary and Economic Union
On May 25, 1981, Bahrain, Oman, Kuwait, Qatar, Saudi Arabia and UAE formed the Cooperation Council for the Arab States of the Gulf or GCC (Laabas and Limam, 2002). The GCC now holds 45 percent of the worlds proven oil reserves and 17 percent gas reserves (Fasano, 2003) making it a global economic powerhouse. Relevant to the establishment of this regional bloc was the achievement of economic cooperation and integration, which was outlined in the GCC Charter and Economic Agreement 1981 (Cooperation Council for the Arab States of the Gulf  SG, n.d.). The push towards a unified region of interdependent nations was clear in the GCCs Economic Agreement. Provided in Article (22) of the said agreement, it says

Member States shall coordinate their financial, monetary and banking policies and increase cooperation among the Monetary Agencies and Central Banks, including unification of currency to support the anticipated economic integration among them (Cooperation Council for the Arab States of the Gulf  SG, n.d.).

After talks about a monetary union and a single currency were postponed in the nineties, the Bahrain Summit of December 2000 re-discussed the issue with he US dollar chosen as a common peg (Cooperation Council for the Arab States of the Gulf  SG, n.d.). To realize the common currency or currency union, a monetary union must first be formed. Below is a timetable of the formation of the Monetary Union (per GCC-SG online publication)

The Supreme Council in December 2001 approved the timetable for establishing the union.
Schedule also required the members to maintain a level of economic performance relevant to convergence criteria (i.e. monetary union by 2005) and eventually a single currency by January 2010. Per GCC-SG

For the purpose of achieving the GCC Monetary and Economic Union including introduction of the single currency, Member States shall meet the requirements of that union, according to a specific time schedule, and achieve a high level of convergence among Member States in all economic policies, particularly the financial and monetary policies and the banking legislation, and develop criteria to ensure proximity of the significant economic performance averages for achieving financial and monetary stability, such as deficit rates, indebtedness and rates.

At the 26th Session in Abu Dhabi December 2005, two convergence criteria were set to be followed (a) the monetary convergence criteria inflation rates, interest rates and sufficiency of the foreign cash reserves, and the (b) financial convergence criteria annual deficit ratio of the government finance to GNP and the ratio of the public debt to GNP.

At the 28th Session in Doha December 2007, newer instructions for alternatives in managing the proposed single currency through a monetary authority were proposed.

GCC and Currency Union A Perfect Match
A currency union is the use of a single currency across a region having same monetary policies under one administration. The proposed Gulf currency, dubbed as Gulfo, will use this petro-currency of their own displacing the US dollar as the pricing currency for their oil contracts (Evans-Pritchard, 2010).

The impacts of having a currency union are wide as they are varied. It is projected that benefits will be observed on intra-GCC Trade, tourism and investment, exchange currency risks of the GCC states will be eliminated and will improve stock markets mergers or procure corporations within the GCC will be encouraged regional competitiveness will be promoted and lastly there will be an enhanced transparency and financial discipline in the region (Cooperation Council for the Arab States of the Gulf  SG, n.d.).

Fasano (2003) seconded these benefits saying that the move towards a monetary union should improve the efficiency of financial services, lower transaction costs, and increase transparency in prices of goods and services, and thereby facilitate appropriate investment decisions. In the words of Tenreyro and Barro (2002) theoretically, a currency union enhances trade, increases price co-movements, and decreases co-movement of shocks to real GDP (consistent with the view that currency unions lead to greater specialization). They further reiterated that it also leads to better consumption behavior and production decisions.

Costs of a monetary union are a loss of national monetary and exchange rate policies, as well as changes in economic structures and trade patterns may lead to different growth and inflation effects and fiscal policies, especially incentive policies, may create unfair competition (Fasano, 2003).
       
The OCA (Optimum Currency Area) Criteria
Laabas and Limam (2002) argue that the GCC is yet to fulfil the traditional optimal currency area (OCA) criteria, as the structure of economies in the Gulf is still oil-dominated with limited intra-regional trade. They further describe the OCA as a region where it is optimal to have its own currency and its own monetary policy. OCA would allow exchange rates to be fixed because multiple exchange rates have high transaction costs (costs to predict exchange rate movements, cost of convert currency, and cost to manage reserves for intra-regional trade) (Laabas and Limam, 2002).

The OCA criteria include openness, factor mobility, degree of commodity diversification, similarity of production structure, price and wage flexibility, similarity of inflation rates, degree of policy integration, and political factors. It is important to analyze these criteria one by one to prove that the GCC is ready for monetary union through a single currency.

Openness. GCC is not ready as most goods are tradable (oil as main product). The exchange rate is an ineffective corrective tool due to inelastic demand for imports. (Laabas and Limam, 2002). Countries that are highly dependent on trade like the GCC will be easily affected by external shocks.

Factor Mobility. Factor mobility serves as a substitute for exchange rates to correct shocks. GCC was still not on labor (Laabas and Limam, 2002). However, eight years later after Laabas and Limam study, GCC labor markets were analysed as flexible (i.e.labor can move freely), although two-thirds of its labor force are foreign (subject to complex visa procedures) (Razzak, 2010). Razzak further points out that most locals work for the government so it is unlikely that they will leave their jobs. But according to Pugel and Lindert (2002), the EU experience actually did not meet this criterion when it first started because labor mobility across borders was low even within the EU countries. On this measure, GCC is ahead of the EU.

Degree of Commodity Diversification. Diversified economies are better at facing shocks and other terms of trade. GCC is still heavily dependent on oil and it does not use the exchange rate as a policy adjustment instrument but through government expenditures (Laabas and Limam, 2002). To compensate for lack of diversified intra-industry trade, specialization and sophistication of industries are viable solutions (Laabas and Limam, 2002).

Similarity of Production Structure. A common production structure often led member states to experience symmetric shocks. GCC has it as oil dominates its production processes (Laabas and Limam, 2002).

Price and Wage Flexibility. Although there is limited flexibility of prices and wage, GCC is still fit to qualify for a currency union (Laabas and Limam, 2002). With price of oil tied to international changes in price, all domestic prices, including the price of labor, would tend to fluctuate with the changes in oil price.

Similarity of Inflation Rates. Inflation rates are pro-cyclical picking pace during oil price hikes and decreasing during slumps (Laabas and Limam, 2002). All countries of the gulf having to export almost the same product - oil and oil-based products- inflation rates would behave similarly.

Degree of Policy Integration. The same policy attitudes can be seen per Article 4 of GCC charter (Laabas and Limam, 2002). As stipulated in their 1981 Economic Agreement, it is expected that the member countries will share the same policies for the common good.

Political Factors. Political factors might be more important than economic criteria, experience says. GCC is very committed. It is praised for taking pragmatic approaches towards integration (Laabas and Limam, 2002).

According to the analysis of Laabas and Limam (2002), GCC met five of the eight criteria (4, 5, 6, 7,  8) in the OCA eligibility test. However, it is yet to fulfil some pre-conditions to be fully currency union-ready (I.e. intra-regional trade) (Laabas and Limam, 2002). Six of eight as improvements in factor mobility especially on labor have given the GCC an upper hand in their quest for a unified currency. But deep in their analysis, they made a comment on the eligibility test basing on the European Unions history. It showed many EU member countries did not meet the criteria at the beginning. The OCA criteria are also argued as generally met ex post rather than ex ante(Laabas and Limam, 2002).

The Power of Political Will
To develop as a region with one monetary authority and one currency, a policy mix of decentralized fiscal policies and a centralized monetary approach are expected (Fasano, 2003). Having a decentralized supranational monetary authority, a common central bank and national central banks will only require a stronger fiscal policy and political will (Fasano, 2003). Laabas and Limam (2002) argue that a commitment to a fixed exchange rate system and a strong political resolve are the factors to consider for a favourable currency union. Like the ECB, which is independent from national political influence and cannot accept or seek instructions from national governments (Dornbusch, Fischer, and Startz, 1998), the proposed central authority must also be politically correct in its decisions.

Looking Ahead
There are concerns that the region is trying to run before it can walk (Evans-Pritchard, 2010). The euro is the GCCs model. Europe took 40 years to this point, taking 11 years for the coins and notes to reach the deepest of streets (Evans-Pritchard, 2010). It may be seen as something premature but taking into consideration the relative preparedness of the GCC as analysed by the OCA criteria, the EU seemed to be less prepared when it decided to merge into one monetary group. The EU took slow steps because they have more countries to take into account. The sixteen current members (which will soon become 18) took decades to be part of it. The GCC only expects six at the start. That is a lot easier to manage given the fact that, as Evans-Pritchard (2010) points out, the logic of an Arab currency union is composed of three tenets one language, one Koran, and has not disintegrated in wars. GCC shares a remarkable degree of cultural and political homogeneity (Fasano, 2003).

As stated above, GCC motivation and commitment are clear and present. Now, to address the current problems and systemic failures, natural or artificial, the group must first need a commission, a court, and a bank (Evans-Pritchard, 2010). With these institutions, GCC will be able to break down basic barriers to trade and capital flows- its main problem as shown in the OCA test. By reducing domestic market segmentation and strengthening national labor laws and policies (expatriate versus local), while ensuring a smooth flow of cross-border workers from the member states (Fasano, 2003), this can be directly treated. As countries adjust to the fixed exchange rate of a monetary union, this will be controlled and removed as a deterrent factor. This should not be difficult as current real (flexible) exchange rates in GCC are closely related, sharing the same stochastic trend (Laabas and Limam, 2002). With this striking similarity, the GCC has in effect been exercising a somewhat fixed exchange rate in its monetary transactions long before it decided to have a single currency.

Other threats will still exist, nevertheless. The Saudi dominance has been seen by critics ever since the plan of a monetary union was brought up. Saudia Arabia may dominate the currency (Evans-Pritchard, 2010). Saudi Arabia may play the same role as the powerful counties in the EU. To avoid the Greek crisis, which struggled to compete with other EU members (certainly a product of differing competitiveness among the Euro member states), a central fiscal authority and political union must first be built with the monetary union (Evans-Pritchard, 2010). This will provide a safety net for less competitive Gulf States.

Another problem is China. China exports cheap products. This already forced poorer Arab states to protect their industries (Evans-Pritchard, 2010). The Asian giant is operating in economies of scale being able to target areas where it can profit. For the Gulf States, a way of  adjustment to national imbalances is for resources to move from areas of weak demand to areas of strong demand (Pugel and Lindert, 2002). Pugel and Lindert (2002) also explains that countries may use its high capital mobility to employ underutilized resources like unemployed labor. The GCC as earlier have high capital mobility and that much of labor in the GCC is foreign. As evidence, the Gulf has redirected foreign labor to sectors like construction and IT through the example of Dubai. This is also the Chinese way.

Conclusion
Europe has seen the success of a monetary union that was made by decades of lobbying in every nation wanting to be part of the most powerful economic bloc in history. In the Gulf, they are first in Asia and second in the world to advance towards a single currency. Borne out of the 1981 agreement on economic integration and cooperation, the GCCs goal of putting every line of national monetary and exchange rate policies into one single approach is already paying dividends. The push towards the end of that goal must go on. The GCC has prepared enough economically all the fundamental facets of integration. With its dynamic political flare and unparalleled political sincerity, the world will see a new model of economic development and politics at the crossroads where the East meets the West.

As of January 20, 2009, total US federal debt amounted to more than 10.6 trillion. This was a 85.5 increase in more than eight years. The borrowing cap ceiling stood at 8.1 trillion. Two years previously, the US Congress raised the ceiling by an additional  1 trillion, approximately 70 of the GDP. Apparently, Congress used this method to deal with an increasing debt celing in previous years. Borrowing limit was raised in 2002 and 2003. On October 4, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 aimed at raising the current debt ceiling to more than  11 trillion.

Currently, the federal debt rose by 1.4 trillion. Indeed, current federal debt amounted to more than  12 trillion (Garcia, 2009). Although US public debt is definitely the largest in size, the proportion of GDP to debt indicates that it is lower than Japan (anout 83 of GDP). According to some economists, total debt will continue to rise (to nearly 100 of GDP) in the last two years of the Obama administration. This may be correct as the Obama administration is set to increase provisions for widening the borrowing ceiling. Some econmists put the figure at 200 but clearly this is an exaggeration.

US trade deficit to China amounted to  200 billion. Former President Bush and President Obama asked China to lift its currency (Yuan). China promised to lift its currency, also as a means to provide the Chinese economy from overheating (San Luis, 2009). If the Chinese currency appreciates, the value of Chinese exports falls relative to other goods. If the Chinese currency depreciates, Chinese goods are bought at a much higher price, say in the US, increasing its overall value. Setting the Yuan at a lower currency standing (or even degrade it to a floating status) restores the balance.

This measure is also beneficial to the Chinese economy. As the Yuan continues to appreciate, the economy overheats. It produces more and more export goods (because higher prices in the world market is an incentive for suppliers). The demand for export goods increases  both in the domestic and foreign markets. In the United States, the effects are more profound. The currency appreciation increases the trade deficit of the United States to China. US export goods are continuously pounded by domestic economic contradictions.

Inflation and unemployment are also major economic issues of the country today. Inflation reached its double figure in early 2009. Unemployment stood at 13 - the highest since the Carter administration. The world economic recession (2009) is the main culprit. As domestic demand falls, production falls by an equal proportion. Firms have no choice but to decrease its labor force  a standard response of a weakening market (because wages tend to be inflexible in the short-run). Now, coupled with an increasing money supply, the market faces scarcity of key resources, leading frantically to a double-digit inflation. From econominc theory, the relationship between inflation and unemployment is inversely related (Phillips Curve). As inflation increases, unemployment decreases (increased job opportunities of an expanding economy). This is not the case with the United States. The fall of domestic consumer goods pushed the market to stagnation, with increasing but controllable levels of inflation.

As of today, the US Congress passed laws which seek to 1) increase consumer spending by providing stimulus packages, 2) raise new taxes, and 3) promote a stable market system. Increasing consumer spending raises expectations in an economy. Indeed, increased consumer spending stimulates the market to produce more goods. Raising new taxes may not be a good stimulus for the market, but it is a good solution for the ballooning budget deficit. Federal savings is expected to rise by about 11.

Promoting a stable market is an ideal concocted measure because congress apparently failed to grasp the true situation of the US economy. The federal government though plans to increase government spending by 20 to stimulate the economy. Expansionary fiscal policy is the key to reinvigorating the economy. This is though a contradiction of the second aim. Increasing government spending will offset the effects of increased taxes. Net effect is expected to favor the economy.

The Federal Reserve is also set to make reforms. Here are as follows 1) decrease money supply by about 15 in the first 3 quarters of the current fiscal year, and then increase it by about 10  in the last quarter, 2) sell foreign assets, and 3) release notes for the ballooning public debt. Decreasing money supply induces to an increase in interest rates. Increasing money supply decreases interest rates. A decrease in interest rates induces to an increase in investment levels. Selling foreign assets expands the economy (expansion). Releasing notes for the debt induces counter effects, thus, balancing the effects of (1) and (2).

One of the primary justifications of privatization or deregulation is to decrease costs, because of the confidence that private organizations develop more cost-efficient systems and operations. Privatization also promises a wide array of consumer choices, diminished market power, and enhanced infrastructure performance. Because of these attractive promises, the U.S. electricity industry underwent a wide range of privatization in federal and state levels. I disagree, that privatization or deregulation has provided major economic benefits of lower electricity prices and controlled market power to society, because deregulated prices continued to increase in comparison with regulated prices, the free markets do not control market power and cost-effectiveness, and that when firms are fewer and workers are weak in bargaining power, privatization can even diminish social welfare.

I disagree, that privatization or deregulation has provided major economic benefits of lower electricity prices and controlled market power to society, because deregulated prices continued to increase in comparison with regulated prices. Using peak-load pricing, the costs of capacity are passed to peak users, and this makes electricity production more efficient, because extra capacity is paid only by those who drive capacity up. At the same time, peak hours determine necessary capacity, so that off-peak consumption can boost without any increases in capacity. Is this what is happening in the deregulated electricity industry No, because evidence shows that power traders and deregulated generators were holding back low cost power during peak periods, and they are also controlling the bidding process to increase prices, such as what happened during the 2000 electricity crisis. When power traders and deregulated generators have become fraudulent, they would not care if electricity prices are low, because it will benefit them more when prices are high.

The free markets do not control market power and cost-effectiveness, because privatization has led to the rising concentration and dominant firm behavior in the U.S. electricity sector. Private companies promote concentration of market power because they can take advantage of the Federal Energy Regulatory Commissions (FERC) permissive merger and acquisition policy. This means that they are increasing their vertical and horizontal integration, which allows them to control electricity prices. The market also failed to become cost-effective, because the industry has been unable to create a pricing system and set of incentives that will lessen discriminatory pricing and service quality problems. Deregulation pricing models do not protect consumers from price manipulation.

Finally, when firms are fewer and workers are weak in bargaining power, privatization can even diminish social welfare. The cost-efficiency improvements that some deregulated industries stress can come from lower wages or layoffs. Studies showed that deregulated firms may be more cost-efficient than government-owned firms, only if the lack of Pareto improvement is ignored. In reality, when there are few firms competing in the market and when workers are de-unionized and have lost bargaining power, these cost-efficiency improvements are traded off with lower social welfare increases.

Privatization has not delivered its promises. Though it can demonstrate economic gains of cost-effectiveness, to some extent, these gains are undermined when electricity prices continue to rise, the free markets do not control market power and cost-effectiveness, and when privatization can even lead to diminished social welfare.