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What Is Economic Interdependence?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 16 September 2014
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Economic interdependence is a system in which one party depends on other parties to obtain resources, such as food and minerals, for convenience or daily living. This system typically affects many layers of society, including countries and regions, people and businesses. One reason for economic interdependence is specialization, because most people within a society will be unable to obtain resources without specialized knowledge and equipment. The major problem with economic interdependence is that, if one party fails to obtain resources, the other parties will suffer.

In a society run by economic interdependence, most entities are largely supplied with resources by other entities. For example, in a farm economy, most people can make their own food and are dependent on the land, not on each other; with interdependence, most people are unable to grow food and are dependent on farmers, groceries and other entities to supply them with food. Labor is divided in such a way that most people work toward providing a service or resource for other entities, but the people rarely work to directly supply themselves with a specific service or resource.

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Societies with economic interdependence typically experience this interdependence on many levels. People are dependent on other people and businesses to supply them with necessary resources. The businesses are dependent on other businesses, and sometimes other countries and regions, to create a product or obtain resources. Entire countries and regions may be dependent on other countries and regions to supply them with resources. Some entities in this society may be independent, but most are not.

A major reason for economic interdependence is specialization. For example, if a business specializes in making gold jewelry, the business cannot usually obtain gold by itself. Instead, it depends on people — miners and other businesses — to get the gold it needs to finish the product. This is beneficial to the business because, even though it needs other entities to exist, the business can focus on specializing in a service or product rather than having to sprawl out and rapidly master many services to fulfill the needs of their main service or product.

The problem with economic interdependence is that each entity is entirely dependent on other entities. If one entity fails to get resources, then the other entities will be unable to finish their service or product. When a business cannot get an essential resource, such as food, this can cause people to starve; at best, such a failure may simply result in an inconvenience, such as a lack of new jewelry.

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ddljohn
Post 3

I think there is a movement away from this interdependence in especially poor urban areas in the US. In Washington D.C. for example, many people are starting to grow fruits and vegetables in their garden to have direct access to food.

burcinc
Post 2

@fify-- I don't agree with you.

Producing things without any dependency is against the major theory of economics called comparative advantage. Countries must be interdependent in order to attain a variety of goods at the lowest cost possible. If countries produce whatever they have a comparative advantage in and then trade with others, all countries will be able to benefit from these goods at a lower cost.

So economic interdependence is in everyone's advantage. I don't believe that any country that cares for its economic well-being would refuse to trade with others. If a country does this, it will only weaken their economy and make life more difficult for people who live there.

fify
Post 1

I think economic interdependence is a bad idea, especially when this interdependence is between countries.

For example, we are dependent on many countries like China for materials we need to produce things here in the US. But if our political relations with China turned bad and we stopped trading with one another, we would no longer be able to produce those goods.

This seems like an extremely fragile system. I think countries should try to produce as many goods as possible without any interdependence. Because you never know what might happen in the future.

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