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Economic Growth in a More Integrated World. What is economic growth? Sources of economic growth Factor movement Labor Movements Capital Movements Multinational Corporations . Economic Growth.

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economic growth in a more integrated world
Economic Growth in a More Integrated World
  • What is economic growth?
  • Sources of economic growth
  • Factor movement
      • Labor Movements
      • Capital Movements
  • Multinational Corporations
economic growth
Economic Growth
  • Economic growth refers to an increase in the real output of the economy: An outward shift of the production possibilities frontier
  • Sources of economic growth:
          • Increases in the quantities of resources
          • Technological progress
  • Exogenous and endogenous sources of growth
  • The income effect of economic growth
trade and economic growth
Trade and Economic Growth
  • Does (international) trade contribute to economic growth?
  • Economic growth and terms of trade
  • The challenges developing countries face in increasingly globalized economy
        • Inadequate savings/investments
        • Rapid population growth and relatively small labor force
        • Deteriorating terms of trade
        • Weak “institutions” (economic, political, social)
        • And AIDS
the world bank s classification of the nation states gdp per capita by country group 2000
The World Bank’s Classification of the Nation States$GDP PER CAPITA BY COUNTRY GROUP2000
  • Low Income 426
  • Lower Middle 1,146
  • Upper Middle 4,900
  • High Income 27,609
  • Middle East and N.Afc 2,235
the structural differences
The structural differences:
  • Labor:

Labor force participation

Female labor force participation

Skilled and semiskilled labor

  • Capital:

Physical capital

Human capital

Infrastructure

Physical infrastructure

Institutional infrastructure

Social/Cultural infrastructure

  • Capital Stock and Labor Productivity
balanced growth more inputs
Balanced Growth: More Inputs
  • Balanced growth: Proportional increases in labor and capital

Food

C1

U1

Co

P1

Uo

Po

Cloth

o

will balanced growth necessarily increase welfare
Will balanced growth necessarily increase welfare?
  • Population increase vs. labor force increase
  • The effect of growth on terms of trade
        • The small country case
        • The large country case
        • When a number of small countries exporting the same product grow simultaneously
growth effects
Growth Effects
  • Income Effect
  • Price or Terms-of-trade effect
  • Effects on trading partner
  • Trade effect
  • Production effects
      • In the case resource growth
      • In the case technological progress
growth and terms of trade
Growth and Terms of Trade

(Immiserizing Growth)

F

Uo

U2

TT: (Pc/Pf)

U1

TT’: (Pc/Pf)’

P2

(Pc/Pf) > (Pc/Pf)’

P1

Po

TT’

TT

TT

C

o

growth and terms of trade1
Growth and Terms of Trade

F

U2

TT: Pc/Pf

TT’: (Pc/Pf)’

(Pc/Pf) > (Pc/Pf)’

U1

Uo

P2

P1

Po

TT’

TT

TT

o

C

factor mobility
Factor Mobility
  • Recall factor price equalization theorem
  • Labor mobility: migration/immigration
  • Capital mobility:
          • Portfolio investments
          • Direct investments
          • Multinational corporations

Horizontal MNEs

Vertical MNEs

Conglomerates

a simple model
A Simple Model

Wa

Wb

S

S’

Tax

wao

Wb1

Wb1

wbo

D:VMPLb

D’:

VMPLa(1-t)

D:VMPLa

Ob

Oa

Total Labor

a simple model1
A Simple Model

rb

ra

S

S’

rao

rb1

ra1

rbo

D:VMPKb

D:VMPKa

Ob

Oa

Total Capital

multinational enterprises
Multinational Enterprises

An MNE is a firm that owns, controls and manages production or service facilities in two or more countries

      • Horizontally integrated MNEs
      • Vertically integrated MNEs
      • Conglomerates
  • Capital arbitrage
  • The location theory
  • Bypassing trade barriers: R&Ds and FDIs
      • Are MNEs substitutes or complements to trade?
      • Do MNEs facilitate transfer of technology?
      • Do MNEs exploit and abuse their host countries?

MNEs and Economic Development

  • Saving, investment and economic growth
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