Final answer:
The OECD aids international trade and financial transactions by harmonizing regulations and promoting policy reforms, reducing trade barriers, and supporting human capital development, despite practical challenges such as avoiding international taxation and managing volatile capital flows.
Step-by-step explanation:
The OECD (Organisation for Economic Co-operation and Development) plays a significant role in facilitating international trade and financial transactions. The OECD, through its research, policy recommendations, and setting of international standards, helps harmonize regulations and reduce barriers to trade, making it easier for participating countries to engage in cross-border transactions. By providing reliable economic data and analysis, the OECD supports governments in formulating policies that can lead to a more open and transparent global financial environment.
National governments impose taxes, and the idea of taxing international financial transactions, such as with a Tobin tax, has its challenges. Firms, for example, could operate out of nations like the Grand Caymans to avoid these taxes. Moreover, if goods and services are to be traded internationally, accompanying financial payments must also cross borders, necessitating involvement in international capital movements. Restricting financial flows could be nearly impossible and counterproductive for countries engaged in international trade.
During the late 1990s, the Asian Financial Crisis highlighted the volatility that can occur when international capital flows reverse quickly, showing the need for careful economic management. The OECD supports market-oriented economic reforms, such as improvements in health and education, also acknowledged as human capital development, which is necessary to foster economic growth and stability.