Lecture 1 Overview of the World Economy Econ 340.

Lecture 1Overview of the World Economy

Econ 340

Lecture 2: Institutions 2

Announcements

• We will start discussing news next week, on Monday Jan 19. You should be watching for international economic news.

• GSI: Dan Jaqua– Office: 125 Lorch– Hours:

• Tuesdays 10-11:30 AM• Wednesdays 1:30-3 PM

Lecture 1: Overview 3

Lecture 1 Outline

Overview of the World Economy• “Globalization”• Elements of the World Economy• Ways that Countries Interact

– Trade– Capital Flows– Migration

• Policies that Affect Others


Overview of the World Economy

• “Globalization”– Means different things to different people

• My definitions (see my online Glossary):1. The increasing world-wide integration of markets for

goods, services and capital.

2. Also the role of MNCs, IMF, WTO, World Bank.

3. Elsewhere: domination by United States.

• Some see good, others bad– Bad: reading by powell – Good: reading by Bhagwati Both make valid

points. Read to see what they are.


Overview of the World Economy• “Globalization”

– Some aspects of globalization declined with the world recession of 2008

– The Economist, on Nov 15, 2014, reported “Signs of Life”:

• Globalization is back• Various measures of globalization (though not

all) have risen past their previous peaks• The “depth” of trade (its volume) has increased• The “breadth” of trade (number of borders

crossed) has not fully recovered



• International Economics– Is NOT about countries– It IS about interactions among countries


Lecture 1 Outline






• World Economy consists of– Countries: a few hundred

(CIA lists about 240)

(WTO has 160 members)– People: over 7 billion

(7.216 b. 1/5/15, compare 320 m. US)– Land: about 15 times the US


(Aside, on getting information)

An excellent source of information about countries is the CIA World Fact Book

(Just Google “fact book”)



• World Economy consists of

– GDP (2013 est., per CIA, in US$)• World:Total = $87.25 trillion

per capita = $13,100• US: Total = $16.72 trillion

per capita = $52,800



• Implication– US is very unusual

• Very rich – US has less than 5% of world population but almost

20% of world income


Lecture 1 Outline






• Ways that countries interact economically

– Trade (per CIA, 2013 est.)• World exports: $18.71 trillion

(compare world GDP of $87 trillion)• World trade has grown faster than world GDP

most years– But not during 2008-9, due to world recession



• See tables below for– Who trades most?– Who trades with whom?– Share of trade in GDP– US:

• What do we export/import? • To/from whom?


Who Trades the Most?($ b. & % share, 2013)

Exporters Importers

Value Share Value Share

EU-28* 2307 15.3 US 2329 15.4China 2209 14.7 EU-28* 2235 14.8US 1580 10.5 China 1950 12.9Japan 715 4.8 Japan 833 5.5Korea, S. 560 3.7 Hng Kng 622 4.1World 15047 100.0 World 15121 100.0

*EU external only

Source: WTO, International Trade Statistics, 2014, Table I.8


Who Trades the Most?

• Developed countries are the biggest traders

• China is catching up, in trade volume – It was the #3 exporter six years ago when I

taught the course; now it’s #2 and closing in on EU.

– Others are gaining as well: Four years ago Canada was #5 exporter. Three years ago that was S Korea



• See Economist from about a year ago: “Trading Up: Picking the world champion of trade”– China claimed to have surpassed US. True

only for goods, not goods + services• But with time China will pass US in both

– China’s trade per GDP is much larger than the US, but below world average

– Much of the value in China’s exports is imported inputs, thus low “value added.”



• “Emerging Markets” in general are catching up to, or surpassing, the developed countries– In GDP, trade, and more– See Economics Focus from The Economist,

“Why the Tail Wags the Dog”


Who Trades with Whom?($ b., 2013, Intra- and inter-regional merchandise trade)

Source: WTO, International Trade Statistics, 2014, Table I.4

Destination:

Origin: North Amer.

Latin Amer.

Eur. Asia Africa Other

North Amer. 1189 216 368 501 40 97

Latin Amer. 178 195 121 178 20 27

Europe 506 129 4560 667 222 473

Asia 1012 191 855 3076 188 399

Africa 54 30 216 160 97 20

Other 143 20 549 841 51 310

World 3082 782 6669 5423 618 1326


• North America, Europe, and Asia trade mostly within their group

• Poorer regions – Latin America, Africa – trade mostly with the richer regions

• This reflects what is not so clear in the table:– Rich countries trade most with each other– Poor countries trade most with rich countries

• But their trade with each other is growing


What Does the World Trade?($ b. 2013 & annual % growth rates, merchandise exports)

Source: WTO, International Trade Statistics, 2014, Table II.1

Value 00-05 05-13 2009 2010 2011 2012 2013

All Products 17,590

Agriculture 1,745 9 9 –12 15 22 0 6

Fuel&Mining 3,997 16 10 –36 33 35 2 –3

Manuf. 11,848 9 6 –20 19 15 0 3


What Does the World Trade?

• Biggest traded category: manufactures• Fastest growing, then shrinking, then

growing: “fuels & mining”

Why? • Because this is the value of trade, and prices

of oil and other raw materials were rising, and then falling.

• But within Manufactures, Iron & Steel is even more volatile:




Reason: Very sensitive to investment, thus to expansion and contraction.

Value 00-05 05-13 2009 2010 2011 2012 2013

All Products 17,590

Agriculture 1,745 9 9 –12 15 22 0 6

Fuel&Mining 3,997 16 10 –36 33 35 2 –3

Manuf. 11,848 9 6 –20 19 15 0 3

Iron & Steel 454 17 6 –45 30 25 –8 –6




Value 00-05 05-13 2009 2010 2011 2012 2013

All Products 17,590

Agriculture 1,745 9 9 –12 15 22 0 6

Fuel&Mining 3,997 16 10 –36 33 35 2 –3

Manuf. 11,848 9 6 –20 19 15 0 3

Iron & Steel 454 17 6 –45 30 25 –8 –6

Automotive 1,348 10 5 –31 29 18 1 4

Note too: Trade in cars is more than 10% of trade in manufactures, and also volatile.


What Does the US Trade?($ b. 2011)

Exports Imports

Total 1,497.4 2,235.8

Agriculture 140.0

Petroleum 462.3

Industrial supplies 496.4 319.8

Capital goods, exc. auto 493.2 513.4

Automotive 133.1 255.2

Other non-ag 234.6

Other non-petrol 685.1

Source: Economic Report of the President, Feb 2013, Table B-104.


What Does the US Trade?

• US imports are much larger than US exports– (We’ll see what that means later in the

course.)• US is a big…

– Exporter of agricultural products– Importer of oil– Exporter and importer of capital goods (i.e.,

machines for making things)


Importance of Trade for Countries?(GDP in US$ b., Exports % of GDP,

Selected countries, 2012)GDP Exports/GDP

United States 16720 9%Japan 5007 14%Germany 3593 42%Canada 1825 25%India 1670 19%Mexico 1327 28%Netherlands 722 80%Singapore 296 139%Philippines 272 17%Nepal 19 5%

Source: CIA World Fact Book


Importance of Trade for Countries?

• Even though we trade more than most, US trade is a smaller part of US GDP than for many other countries

• Others that are low: Japan, Nepal (even lower than US)

• Note Singapore: Exports can be more than GDP.– Reason: Exports are made using imported

inputs, so value of exports includes imports.


Importance of Trade for Countries?A Few More of Interest

GDP Exports/GDP

China 9330 24%Hong Kong 272 168%Korea, South 1198 47%Korea, North (2009) 28 7%Burma 59 15%Syria 65 6%Israel 273 22%

Source: CIA World Fact Book


Lecture 1 Outline







– Capital Flows• Financial (holdings of financial assets abroad)• Real (international ownership of real assets)




– Capital Flows• Financial (holdings of financial assets abroad)

» Currency» Bank deposits» Bonds – private and government» Stocks» Bank loans

• Real (international ownership of real assets)




– Capital Flows• Financial (holdings of financial assets abroad)• Real (international ownership of real assets)

» Real estate» Capital assets (plant and equipment)» Stocks (equities) if ownership share is large» Other

Data, below, are stocks (i.e, amounts at a point in time)


US Investment Position($ trillion at market value, year-end 2011)

Source: Economic Report of the President, Feb 2013, Table B-107

We “Own” US Assets Abroad

We “Owe” Foreign Assets in US

Total 16.43 20.58 US Gov’t 0.71 4.28 Private financial 11.03 13.40 Private real 4.68 2.91

Compare: US GDP in 2012 = $16.02 trillion


US Investment Position

• (Qualification: “Owe” isn’t quite right. This includes all assets in the US owned by foreigners, including land, buildings, etc. Not just what we’ve borrowed.)

• Lessons:– US is a large net “debtor” (result of our

spending more than we earn)– Most of this today is government, but some is

private


Lecture 1 Outline






• Other ways that countries interact economically

– Migration• Temporary

– Guest workers– Day workers

• Permanent• In practice, most (all?) countries limit migration

severely


Lecture 1 Outline







– Policies that affect other countries• Direct• Indirect




– Policies that affect other countries• Direct

– Trade policies (tariffs, quotas)– Foreign aid– Capital controls– Exchange rate management– Immigration restrictions

• Indirect



• Aside on Tariffs– We will be dealing a lot with these– See reading by Hufbauer and Grieco:

• US tariffs are much lower than they used to be (average 4% now, vs. 40% in 1946)

• US has gained a great deal from lowering tariffs• US still has much to gain from further lowering• But there are also severe costs for some people

and firms who compete with imports



• Aside on Tariffs– Tariffs could go up:

• WTO enforces only upper limits on tariffs• Actual tariffs in many countries are below these

limits, and could legally rise• There was danger that the recent world

recession would push countries to do that. – They didn’t – at least not much.



• Aside on Tariffs– 45% of US exports go to developing

countries– US tariffs are much higher against

developing countries than against developed countries




– Policies that affect other countries• Indirect

– Subsidies (esp. agriculture)» US farm subsidies > foreign aid (see CGD reading)

– Macro policies (monetary, fiscal)» Exchange-rate policies

– Environmental policies– Standards

» Labor» Health & safety» Norms


Next Time

• Institutions of the International Economy– What are they?

• The WTO• The IMF• The World Bank• The OECD

– What’s happening (or not happening) now?

Lecture 1 Overview of the World Economy Econ 340.

Documents

Transcript of Lecture 1 Overview of the World Economy Econ 340.