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Global Economic Issues

Global Economic Issues. Gregory W. Stutes. Global Village. Do we live in a global village? Do events around the world affect us as quickly as if they happened in our own village? Events can be experienced simultaneously throughout the world. How does this affect economic globalization?.

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Global Economic Issues

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  1. Global Economic Issues Gregory W. Stutes

  2. Global Village • Do we live in a global village? • Do events around the world affect us as quickly as if they happened in our own village? • Events can be experienced simultaneously throughout the world. • How does this affect economic globalization?

  3. Overview of the Recent History • 1950s—Not Global • Between WWI, Immigration restriction of the 1920s, the Great Depression, and WWI, we were focused on our own economies. • USA was the one great economic power • Western Europe had been an economic power, but need to rebuild from war • Japan was no longer poor, but its major growth was in the future • Russia and Eastern Europe were moving from war to their centrally planned economies • Latin America was middle income with great inequality • Middle East still had not experienced the great oil exports • Asia and Sub-Saharan Africa were poor

  4. Our Starting Point to Examine the WorldPer Capita GDP • The amount of goods and services produced within a nation per person. • The average level of production.

  5. World Economy and Population in 1950

  6. How are we measuring the size of these economies in US$ • They all have their own currencies so we must convert to US$ • Can we use the market rate? No! It jumps around too much • We use purchasing power parity exchange rate • What does it cost in US $ to buy a basket of goods. • What does it cost in Euros, Yen, Etc. • Use that information to calculate an exchange rate. • Gives a result similar to the long term average exchange rate.

  7. International Comparison Project • Run by the World Bank • They sort out these PPP issues • Typical pattern is prices are different across countries. • With the same income you can buy different amounts in each country

  8. For Example: China • Prices were about 42 percent cheaper in China back then • Just using exchange rate does not capture how cheap it was to live in China • The PPP makes low price countries bigger

  9. Can we do this? • Can we compare in a meaningful way the goods that are purchased in: • New York • Los Angles • Tokyo • New Delhi • Moscow • La Paz • Beijing

  10. Were we always this disconnected? • No! In 1910 the level of connection was comparable to the 1980s • Many economic historians argue that international trade was the prime reason for America’s 19th century surge to the top.

  11. Export/GDP Ratio in 1950 • USA—3% • Europe—9% • France—6% • Germany—8% • We should expect Europe to be high because they are small countries that must trade. • China, India, Japan, Taiwan—2 to 3% • Korea—1% • Latin America—6%

  12. Roots of Modern Globalization • New Global Institutions • National Commitments to Globalization • Changes in Technologies

  13. New Global Institutions • General Agreement on Tariffs and Trade (GATT) • 1947—Goal was to reduce tariffs and barriers to trade. • Became the World Trade Organization (WTO) in 1995 • International Monetary Fund (IMF) • 45 nations met in Bretton Woods, NH to secure financial stability, facilitate international trade, promote growth and reduce poverty.

  14. New Global Institutions • International Bank for Reconstruction and Development (IBRD) • Started to provide loads to help rebuild Europe after the War. • Also provided assistance to small countries that could not participate in international financial markets. • Morphed into the World Bank

  15. National Commitments to Globalization • The period between the Wars experienced a drop in international trade. The restrictions placed on Germany and the Smott-Hawley Tariff are two famous examples • Most countries believed this hurt their economy and took a new attitude after WWII.

  16. National Commitments to Globalization • European Coal and Steel Community (ECSC) • Belgium, Germany, France, Italy, Luxembourg, and the Netherlands. • Japan starts to build its export sector • USA explores markets abroad • Beginning of a great push to globalization

  17. Changes in Technology • Costs of transportation and communication • Highways and Cars • Air travel and freight • Larger ships like tankers and container ships • Containerization • Telephones • FAX • Internet

  18. What was it like at the start of the 21st Century? • Start by noting that this is just an exercise to explore. • Europe today is not the same as 1950s Europe. • USSR in not the same as Russia • I will spend some time talking about the impact of the Great Recession. But not here.

  19. Population • The world population doubled in the second half of the 20th century. • 1950 • 2006

  20. Population • USA—We nearly doubled • 1950 • 2006

  21. Population • China—More than doubled with a one child policy • 1950 • 2006

  22. Population • India—Tripled • 1950 • 2006

  23. Population • Africa—More than tripled • 1950 • 2006

  24. Economy • The global economy grew more than 8 times from 1950 to 2005. • If the economy grows by 8 times and the pop grows by 2.5 time • You get a tripling on average for the economic output per person in the world. • This, obviously, was distributed unequally.

  25. Who were the gainers/losers • The share of the worlds economy shift toward Asia. • USA and Western Europe had a smaller percentage of the worlds output.

  26. Economy • USA—Our share decreased, but we continue to hold strong despite what we hear. • 1950 • 2006

  27. Economy • Japan—Their share of world output more than doubled. • 1950 • 2006

  28. Economy • China—Their share of the world’s economy more than doubled. • 1950 • 2006

  29. Economy • India—Rises, but not much. • 1950 • 2006

  30. Economy & Population • Latin America—Not much change for population or the economy. • 1950 • 2006

  31. Economy • Africa—Sinks to the bottom. • 1950 • 2006

  32. Population & Economy • Taiwan • 1956 • 2011

  33. GDP/Capita 2x to 1/3 above • 1950 • 2006

  34. GDP/Capita 4X to 1/3 above • 1950 • 2006

  35. GDP/Capita 20X to 9X • 1950 • 2006

  36. GDP/Capita 14X to 14X • 1950 • 2006

  37. GDP/Capita 10X to 25X • 1950 • 2006

  38. Asia’s Rise—Africa’s Fall • 1950 • 2006

  39. Trade in Goods and Services • Exports as a share of GDP were 7% in 1950 • Today they are about 25% • Huge flows of financial capital • In the mid-2000, the US economic was attracting $700-$800 billion a year from financial investors outside the US. • Foreign Exchange markets routinely trade $3 trillion per day.

  40. Will we continue? • We will be the richest nation for some time. • We will have the highest per capita GDP • But • Other countries are moving closer • China will be able to produce more than the US • But not on per capita terms

  41. China • China has had a HUGE transformation • They have been growing at 8 – 10% • At that rate you double every decade. • Imagine a 20 year old worker in 1980 • Doubles in the 80s • Doubles in the 90s • Doubles in the 00s • That is a factor of 8 and the worker is in her 50s!!!

  42. Challenges • Inequality • Poverty • Resources • Urbanization • Water • Oil

  43. How will this affect the US • Global economic growth will be less dependent on the US. • US will not be able to control the pace of change. • US will not be able to control world oil prices. • US does not control growth rates in foreign countries. • US does not have overwhelming power in commercial technology. • US does not control flows of international financial capital. • US does not control the value of its currency

  44. Present this section after gdp and cpi • But before solow

  45. 1960 - 1995

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