Global Economic Issues

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

9. 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

10. 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

11. 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.

12. 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%

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

14. 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.

16. 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

18. 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.

19. 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

21. 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

23. 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.

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

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

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

27. Population • India—Tripled • 1950 • 2006

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

29. 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.

30. 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.

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

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

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

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

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

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

37. Population & Economy • Taiwan • 1956 • 2011

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

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

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

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

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

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

44. 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.

45. 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

46. 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!!!

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

48. 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

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

50. 1960 - 1995