International Business Environment Strategy 571

1. International Business EnvironmentStrategy 571 Dennis Quinn & James Vreeland Final Exam – 6 May @ 6:30

2. Chinese Leader Firmly Defends Currency and Trade Policies • Premier Wen Jiabao sharply defended China’s currency and trade policies on Sunday against what he called foreign “finger-pointing,” charging instead that the developed world seeks to force unfair changes in those policies “just for the purposes of increasing their own exports.” • In a more than two hour news conference at the close of China’s annual legislative session, Mr. Wen repeated that China will keep its currency, the renminbi, “basically stable” despite calls by the United States and other developed nations to let its value increase. • He also repeated the concerns he voiced a year ago, at China’s last legislative session, that the United States is failing to rebuild its own economy and maintain the value of the dollar. Protecting the dollar, which dropped sharply since the global crisis began in late 2008, is a matter of “national credibility” for the United States, he said.

8. Source: http://en.wikipedia.org/wiki/Impossible_trinity

9. Post-Bretton Woods (1973 (±) to present) Capital mobility (open flows to FDI, e.g.)  Exchange Rates Domestic Fixed/Floating Monetary & Fiscal Policy Management

10. Background notes – open economy macroeconomics • If a country chooses to forgo capital controls, that country can predictably only achieve EITHER a stable exchange rate or domestic monetary and fiscal autonomy BUT NOT BOTH. A) A country that wants to have open capital markets and monetary policy autonomy has to be willing to let its exchange rate float. B) A country that wants to have open capital markets and stable exchange rates has to be willing to let its interest rates and its fiscal deficit used to defend the exchange rate (as with the Gold Standard) C) A country that wants to have a stable exchange rate AND independent fiscal and monetary policies will have to impose some capital controls (see figure on capital controls) • For example, the U.S. has maintained open capital accounts with few controls since the 1940s, the U.S. has a strong independent bank that sets monetary policies, and a strong legislature that likes to spend more than it taxes. Hence, the U.S. sacrifices a stable exchange rate and allows the dollar to float • Smaller EU countries, Hong Kong, Singapore, and Panama (e.g.) want the benefits of open capital markets (low cost of capital, high FDI, being a financial center, e.g.) AND a stable exchange rate (pricing of imports and exports). These countries give up fiscal and monetary policy autonomy. Countries in the Gold Standard era did this. • Thailand (1990s), Indonesia (1990s), and Argentina (1990s to 2001) are famous failures of countries seeking to maintain fiscal and monetary policy autonomy, manage or fix an exchange rate, and maintain open capital accounts • Many emerging market countries maintain fiscal and monetary autonomy and practice either fixed or “dirty float” exchange rate policies. They impose capital controls to a greater or less extent. China, India, Argentina, Brazil, Malaysia, Ukraine, and Russia are contemporary examples of such countries.

13. from Prof. Nollen 13

14. Investment projects – 10-15 page text3000~ words -only 6 weekends to do the work • “Nollen” questions: what, why, where, how, when; choose a firm and look abroad for FDI • http://www.library.georgetown.edu/guides/foreigninvest/ • http://resources.library.georgetown.edu/libdata/page.phtml?page_id=52 • http://www.export.gov/mrktresearch/index.asp (you have to register as a student) • IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (capital rules – copy relevant country section)

17. Policy Forecasting rationally ignorant votersin contestable markets Goals→ Strategies → Institutions →Public policy available and actors outcomes voters party elites

18. Voting turn out – 1992-2008 sources: Federal Election Commission; www.infoplease.com

20. R  R D  D R  R R  R D  R R  D R  D D R

21. Keynes in one slide • Y = I + G+ C + (ex/im) • Role of expectations • If consumers have poor expectations, won’t consume (save instead) • If businesses/banks have poor expectations, won’t invest or lend (manage to cash) • What’s left? ($800 billion stimulus (+/-))

26. Investment projects • “Nollen” questions: what, why, where, how, when; choose a firm and look abroad • http://www.library.georgetown.edu/guides/foreigninvest/ • http://resources.library.georgetown.edu/libdata/page.phtml?page_id=52 • http://www.export.gov/mrktresearch/index.asp (you have to register as a student) • IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (capital rules – copy relevant country section)

27. Vietnam • 1) How attractive is Vietnam as an investment opportunity? • 2) we have three companies we will consider. what recommendations do you have for them whether to enter, how to enter, and when to enter. • 3) what are the factors leading to successful investment in Vietnam?

29. Vietnam & US tradeFree trade increases the domestic price of the goods that are exported ANDincreases the return to the abundant factor (Vietnam – Labor; US – K; tech; NRes; HSkilled L)

35. Why trade? • What determines the exports and imports of a nation or a firm? • Why does India export software?

36. Ricardo, Comparative Advantage (England-Portugal)

37. Ricardo, Comparative Advantage (England-Portugal)

39. Exhibit 7b – HBS “India on the Move”

45. Export Intensity in Manufacturing 45

46. Source: Dean, Lovely, and Mora, 2009, Journal of Asian Economics, 20:596-610.