Market Economy and Econmic Growth

Slide 1:Market Economy and Econmic GrowthSpecial Lecture on Contemporary Oct 27, 2004 Ajou University

Yonghun JUNG Vice President Asia Pacific Energy Research Centre, Tokyo

Slide 2:Main Points

Globalization of the world Transportation and Telecommunication Coercion, Control, Competition Economic growth Our situation in terms of Resource, Technology and Market China in Perspective Energy in Korea For you�.

Slide 3:Globalization

Coercion � control � competition Democratization Technology Finance Role of international financial organizations Information Self-sufficiency is the road to poverty Non-action can be protected only until others do see the opportunity somewhere else

Slide 4:Net Long-Term Resource Flow to Developing Economies

(Source) World Bank (2001) Declining trend of financial flow to the developing countries.

Slide 5:Economic Growth

Resources: Capital, land, labor Technology Development � Solow Residual steam engine, automobile, computer International trade Market � provide incentives for efficient allocation of the resources Demand UK and USA American railroad

Slide 6:International Trade

How have economic structures changed in the last two centuries? Multinatioal: scale of economic actors is much greater the capacity for the organization of human activity over time and space has increased the quality, quantity, and velocity of information available to economic actors has increased the nature of the products and the nature of production has changed - new product and tech�y

Slide 7:What is the cause of change?

Changes in scale, information, organization, and product and production alters the nature of the global economy. Technological change is the main cause of change. Why is technological change so important? It reduces costs, sometimes in exponential terms Increase productivity Change the production process in a more efficient way Creates new products Changes the relationship of factors of production- e.g., less energy intensive

Slide 8:Our situation

Resources Capital resources: Japan and USA Natural resources Human resources: chinese student Technology Basic Manufacturing: Steel, Ship building ICT Market Regulation, Public Monopoly, Entry Barrier Reform only on equity not on efficiency

Slide 9:China in Perspective

Almost two decades of two digit economic growth High economic growth for the next two decades expected � 3 regions Resources Human resources: Ph.D in the US Western region: abundant resources Technology Space technology ICT technology Electric appliance technology � �Haier� Market Liberalization and privatization Strong demand base

Slide 10:

�Black cat, white cat. It doesn�t matter. All that matters is that it catches mice�. - Deng Xiaoping

Slide 11:Energy in Korea

Rising Energy Demand Public Monopoly Near 100% import dependence Asian premium Many big projects Sakhalin, Irkutsk, Yakutsk Power interconnection Domestic energy Nuclear, New and renewable

Slide 12:Economics of National Oil Security

(Source) Tietenberg (1996) The initial equilibrium is at (Q5, P0) where Q1 is from the domestic source and (Q5-Q1) is from foreign supply. When the disruption took place that the amount (Q5-Q1) disappear from the market, the price will immediately jump up to P2 momentarily as the domestic supply needs some lead time to catch up with sudden surge in demand. Later the price will goes down where the domestic supply meets the domestic demand (at Q3) The most important point we can draw from this diagram is the fact that inelastic demand and supply will lead to higher price in terms of its mean and variance. Northeast Asia in this sense is the most vulnerable in the world. One proof is the existence of so called �Asian Premium�The initial equilibrium is at (Q5, P0) where Q1 is from the domestic source and (Q5-Q1) is from foreign supply. When the disruption took place that the amount (Q5-Q1) disappear from the market, the price will immediately jump up to P2 momentarily as the domestic supply needs some lead time to catch up with sudden surge in demand. Later the price will goes down where the domestic supply meets the domestic demand (at Q3) The most important point we can draw from this diagram is the fact that inelastic demand and supply will lead to higher price in terms of its mean and variance. Northeast Asia in this sense is the most vulnerable in the world. One proof is the existence of so called �Asian Premium�

Slide 13:Oil Import DependenceB98, by region

Regionally different, generally rising (Source) APERC (1998) The high long run energy import dependency, particularly in Asian economies, highlights the need for securing and facilitating energy supplies. This points to the need for consideration of further oil stockpiling initiatives, promoting supply infrastructure investment to facilitate greater supplies of energy and also energy efficiency and deregulatory programmes.The high long run energy import dependency, particularly in Asian economies, highlights the need for securing and facilitating energy supplies. This points to the need for consideration of further oil stockpiling initiatives, promoting supply infrastructure investment to facilitate greater supplies of energy and also energy efficiency and deregulatory programmes.

Slide 14: EU estimates of costs for various energy sources without subsidies and taxes (taxes in general affect fossil fuels, notably oil). Gives insight of the amount of subsidies required. A forthcoming IEA publication �The value of renewables� will also analyse the cost of renewable energy. Solar also is an industry with high levels of toxic contamination. EU estimates of costs for various energy sources without subsidies and taxes (taxes in general affect fossil fuels, notably oil). Gives insight of the amount of subsidies required. A forthcoming IEA publication �The value of renewables� will also analyse the cost of renewable energy. Solar also is an industry with high levels of toxic contamination.

Slide 15:Natural Gas Pipeline Projects in the NE Asia

Recently, many natural gas initiatives have been proposed for Northeast and Southeast Asia. In the former, the proposals are linked with the development of various natural gas resources in East Siberia or the Far East region of the Russian Federation, including Sakhalin, to ship gas to China, Korea and Japan. Several bilateral and multilateral contacts have been initiated. Recently, many natural gas initiatives have been proposed for Northeast and Southeast Asia. In the former, the proposals are linked with the development of various natural gas resources in East Siberia or the Far East region of the Russian Federation, including Sakhalin, to ship gas to China, Korea and Japan. Several bilateral and multilateral contacts have been initiated.

Slide 16:For an economist

Avoid extremes � �balance� Max. Speed of the perfectly safe car Population scaremongers Environmental exhibitionist Avoid too simplified causality Beaver, Oil crisis Look out for the terra incognita US patent office �Think� yourself Extensive and daily reading Return to basics Question, question, and question (nothing for granted) No value in judgement Not �bad or goo�, but �appropriate or in appropriate�

Slide 17:�An emotional load of valuation conflicts presses for rationalization, creating blindness at some spots, stimulating an urge for knowledge at others, and, in general, causing conceptions of reality to deviate from truth in determined directions.�

Gunnar Myrdal Lastly I want to share with you a long sentence written by Gunnar Myrdal who is one of the most influential social scientist in our time.Lastly I want to share with you a long sentence written by Gunnar Myrdal who is one of the most influential social scientist in our time.

Slide 18:A lesson

I do not know what I may appear to the world; but to myself I seem to have been only like a boy playing on the seashore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me. Sir Isaac Newton (1642-1727) From Brewster, Memoirs of Newton (1855)