Loading...

Reflection and Application Report

Open Posted By: surajrudrajnv33 Date: 11/09/2020 Graduate Rewriting & Paraphrasing

Purpose: The objective of this exercise is to help you internalize the knowledge you learned and apply to your career. In this process, you develop your critical thinking skills.

Note: To complete this assignment, you will need to:

1.   Submit one ppt file – the Reflection and Application Report

2.   Submit one word file – three quiz questions (multiple choices)

3.   Respond to at least one peer classmate’s post (Reflection Report)

For detail instruction, please review the attached word file. 

Category: Mathematics & Physics Subjects: Physics Deadline: 12 Hours Budget: $120 - $180 Pages: 2-3 Pages (Short Assignment)

Attachment 1

CHAPTER 2

Global Economic Environment

World, Regional, & National Economies

Chapter Goals

The main goals of this chapter are to:

Present an overview of world trade to re-emphasize the economic linkages among nations.

Describe how WTO and UNCTAD and other global organizations influence trade.

Explore the developments in regional trading blocs and other areas like Eastern Europe.

Discuss the national role in global trade and identify some key countries for business in the coming decade.

Present information on population, urbanization, income, natural physical endowments, and infrastructure and then provide and overview of how these characteristics impact business.

World Economic Environment

  • World trade
  • Balance of payments
  • Commercial policies
  • Global organizations affecting trade
  • Regional economic groups
  • National economic policies

Trade Theories

  • Macro economic theories
  • Absolute Advantage [1776] - Absolute efficiency of production. Adam Smith, Wealth of Nations, New York: Modern Library, 1937.

  • Comparative Advantage [1800] - Relative efficiency of production.
    Ricardo, D. "Principles of Political Economy and Taxation," in The Works and Correspondence of David Ricardo, eds. P.Sraffa & M.H. Dobb, Cambridge: University Press).

  • Heckscher-Ohlin (H-O) MODEL [1933] - Relative factor endowments.

Macro economic trade theories were developed to explain why NATIONS trade.

See also: Leontief Paradox [1968] Readings in International Economics. Statistics do not support earlier theories, but what Leontief did not consider is QUALITY of inputs (e.g., he compared/equated highly educated work force with poorly educated work force).

Macro Economic Trade Theory -Assumptions

  • Closed economy (2 countries, US and Korea).
  • Equal amounts of resources (fixed stock of resources with a total value of $10,000).
  • Production is limited to 2 goods (lumber and steel).
  • Production functions are linear and constant.
  • No government intervention.
  • No transportation or other distribution costs.

Notes:

US stated to have Ascribed (natural) Advantage (land), while Korea stated to have an Acquired (developed) Advantage (high technology manufacturing capability).

Absolute Advantage

Absolute Advantage

Production Possibilities (000s)

Steel Steel

US 10 C KOREA

5 B

2 A

1 B

C Lumber A Lumber

0 100 200 0 50 100 200

"Total World" Production

Point Quantity

A - 100,000 board feet of lumber and 2,000 tons of steel.

B - 150,000 board feet of lumber and 6,000 tons of steel. C - 200,000 board feet of lumber and 10,000 tons of steel.

Note that the points on the production possibilities curve (A, B, and C) are reversed in the two charts. This was done to allow the addition of production possibilities that would yield the ‘Worst’ at point A, ‘Moderately good/bad’ at point B and the ‘Best’ at point C.

In the case of absolute advantage, the two nations each have an advantage over the other in making something. A micro economic example would be a master electrician and a master plumber exchanging services; one being able to do something better and quicker (i.e., for less time and money) than the other. Or, to put it in to terms the students might appreciate – Absolute Advantage theory explains why a financial advisor might use the services of a CPA to prepare tax statements. Both are well-educated and trained to provide specialized services, but they require special knowledge best left to those trained in each area.

Comparative Advantage

Comparative Advantage

Production Possibilities (000s)

Steel Steel

10 A US KOREA

8 C

5 B

4 B

C Lumber A Lumber

0 50 100 0 16 32 100

"Total World" Production

Point Quantity

A - 32,000 board feet of lumber and 10,000 tons of steel.

B - 66,000 board feet of lumber and 9,000 tons of steel.

C - 100,000 board feet of lumber and 8,000 tons of steel.

Note that the points on the production possibilities curve (A, B, and C) are reversed in the two charts. This was done to allow the addition of production possibilities at each point.

In the case of comparative advantage, the one nation can make everything ‘better’ than the other (i.e., cheaper). A micro economic example would be a apprentice electrician and a master builder. The master builder can do a better job of building a home. It might be cheaper, though if the master builder concentrates on the complicated tasks and leave the easier electrical tasks (e.g., wiring a new lamp) to lower the overall cost of building the home. Or, in the case of our CFA (Certified Financial Advisor) and our CPA (Certified Public Accountant) – the Comparative Advantage theory explains why a financial advisor, even though trained in accounting practices might still use the services of a CPA to prepare tax statements. While the CFA COULD prepare their own tax statements, they could earn more money/have more left over by providing services in which they are trained and pay an accountant to provide the services in which they are trained. Again, both are well-educated and trained to provide specialized services, but they require special knowledge best left to those trained in each area.

Balance of Payments

  • The Balance of Payments (BOP) is a summary of a country's economic transactions with the world, for a specified period of time.

  • These transactions are arranged according to the nature of the transactions (reflected in 3 accounts in the U.S.) and whether the transactions result in an inflow (credit) or outflow (debit). This summary is arranged as a double-entry system; that is, credits = debits.

Balance of Payments

  • BoP is an indicator of the international economic health of a nation.
  • The use of the data:
  • help gov. plan monetary, fiscal, foreign exchange, and commercial policies.
  • help strategy global decisions.
  • Use import data:

To determine the major sources of foreign-made products

To gain idea of competitors’ locations

  • Export data:

 where the product was sold?

 identify consumers’ locations

BOP Accounts

  • Current Account.
  • Goods (Merchandise),
  • Services
  • Unilateral Transfers.
  • Capital Account.
  • Includes flows such as direct and portfolio investments, private placements and, bank and government loans.
  • Reserve Account.
  • Includes assets such as monetary gold, special drawing rights and foreign currencies.
  • Errors And Omissions.
  • ‘Plug’ figure used to balance payment and receipt figures.

One source of Balance of Payment information for the United States is the Bureau of Economic Analysis (BEA). The home page of this site is: http://www.bea.gov/; the page that contains actual current balance of payment information is: http://www.bea.gov/bea/uguide.htm#_1_22.

US Balance-of-Payments Accounts 2000

$Millions

Current Account

Credits

Debits

Export of goods, services and income

$1,069,531

Merchandise

773,304

Services

296,227

Income receipts on investments

345,394

Imports of goods, services and income

$-1,797,061

Merchandise

-1,222,772

Services

-215,239

Income payments on investments

-359,050

Unilateral transfers

-53,241

Balance of current account

-435,377

Capital Account

US assets abroad (net)

-553,349

Foreign assets in the US

952,430

Balance on capital account

399,081

Statistical discrepancy

35,616

Balance-of-Payments

  • Current Account Deficit occurs when imports are greater than exports.
  • Current Account Surplus occurs when exports are greater than imports.
  • Capital Account records transactions that involve the purchase or sale of assets.

Commercial Policy Tools
used to affect changes in trade

  • Tariffs/Duties:
  • Ad valorem - percentage of value tax.
  • Specific - per unit tax.
  • Combination - mixture of above.

  • Non-tariff Barriers (NTBs):
  • Subsidies (includes government sponsored research, data, etc.).
  • Quotas (embargoes).
  • Custom's valuations.
  • Exchange rate controls.
  • 'Voluntary' restraint agreements.
  • 'Buy local' restrictions (state and local as well).
  • Standards and specifications (food and drug).
  • Currency restrictions.
  • Countervailing duties.

Tariffs

Subsidies

Subsidies

Import Quotas and Voluntary Export Restraints

Local Content Requirements

A specific

fraction of a

good must be

domestically

produced.

A specific

fraction of a

good must be

domestically

produced.

Physical

amount

Value

Widely used

by developing

countries to

develop their

manufacturing

base.

Used by developed

countries to

protect local jobs

and industry from

foreign competition.

Administrative Policies

  • Bureaucratic rules designed to make it difficult for imports to enter a country.
  • Japanese ‘masters’ in imposing rules.
  • Tulip bulbs.
  • Federal Express.

Antidumping Policies

  • Selling goods into a foreign market below production costs, or
  • Selling below “fair market value”.
  • Used to unload excess production.
  • Or, predatory pricing.
  • Antidumping policies are used to:

- punish foreign firms.

  • Protect local industry from “unfair” practices.
  • Impose “countervailing” duties.

Agricultural Subsidies

  • Developed nations spend > $300b/year to subsidize their farmers.
  • Why?
  • EU set a min. price for butter €3,282/ton
  • EU subsidize sugar beet producers /w min guarantee price
  • US subsidize cotton farmer; guarantee $.70/pound.
  • Consequences?

The Costs of Protectionism

  • Import tariffs  to protect US firms and employees from the effects of low-cost foreign competitors
  • These tariffs removed an incentive for firms in the protected industries to become more efficient.

 Slow down economic progress

  • Results: Sugar price increase 40%

Textile price increase 70%

  • In 1996, import protection cost US cons. $223.4 b in higher prices.

Commercial Policies
The Pros and Cons of Government Regulation of
International Trade

  • Pros:
  • Cost of unemployment is high.
  • Provides time to start up (or retool an industry).
  • Long term; increased competition and associated benefits).
  • Vital to defense.
  • Diversification of economy.
  • Cons:
  • Ineffective allocation of resources.
  • Reduces incentive to reinvest.
  • Increases costs to consumers in short run and long run, to all.
  • Leads to over capacity.
  • Possible reciprocity.

Global Trade Organizations

  • United Nations Conference on Trade and Development (UNCTAD).

  • World Trade Organization (WTO).

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

United Nations Conference on Trade and Development

  • Although WTO has been an important force in world trade expansion, benefits are not distributed equally.
  • Under WTO, trade expanded especially in manufactured goods

 Creating a growing trade gap b/w industrial and developing nations.

  • Less developed countries are dissatisfied with trade arrangements b/c their share of world trade has been declining.
  •  they formed UNCTAD in 1964

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

United Nations Conference on Trade and Development

Objectives:

  • To further the development of emerging nations.
  • To improve the prices of primary goods exports through commodity agreements.
  • To establish a tariff preference system favoring the export of manufactured goods from less developed countries.

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

International Financial System

  • Exchange rate instability
  • International Monetary Fund (IMF)
  • Goal: to promote worldwide financial stability and economic growth
  • The World Bank
  • Mission: to promote economic growth
  • Provide loans for infrastructure development (especially for developing nations)
  • To further the development of emerging nations.

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

Principal Regional Economic Groups

ALADIA: La Asociación Latinoamericana de Integración {Latin American Integration Association (LAIA)}

Argentina, Bolivia, Brazil, Chile, Columbia, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela

ASEAN: Association of Southeast Asian Nations

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam

CAN: Comunidad Andina {Andean Community}

Bolivia, Columbia, Ecuador, Peru and Venezuela

CARICOM: Caribbean Community

Antigua and Barbuda, Bahamas, the Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago

ECOWAS: Economic Community of West African States

Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo

EU: European Union

Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom

MERCOSUR

Argentina, Brazil, Paraguay, and Uruguay

NAFTA: North American Free Trade Area

Canada, Mexico, the United States

Table 2-5

The EFTA agreement was signed on January 4, 1960 and included Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Today, EFTA is an international organization that includes Iceland, Liechtenstein, Norway and Switzerland. The original EFTA members, except for Switzerland, decided to take more comprehensive steps to unify trading (and many other) policies and went on to form, or later became members of what is the European Union (EU). Because there are great benefits to the members for cooperation, in 1992 EFTA and the EU agreed to form an even larger country grouping called the European Economic Area (EEA) that contains all the EU and EFTA members, except for Switzerland.

In the 1960s, the Latin Americans responded to European integration moves by forming regional groupings of their own. In Central America, they formed the Central American Common Market; in South America, they formed the Latin American Free Trade Area; the Andean countries broke away from LAFTA to form the Andean Common Market. In the early 1990s, the Southern Cone countries (Argentina, Brazil, Paraguay, and Uruguay) formed Mercosur.

During the Vietnam War, a number of Southeast Asian nations formed ASEAN (Association of Southeast Asian Nations). ASEAN includes over 500 million people, with a collective GNI of more than US$750 billion. In 1992, ASEAN launched AFTA, the ASEAN Free Trade Area, the strategic objective of which is to increase the ASEAN region’s competitive advantage as a single production unit.

The United States is a member of two free-trade areas, one with Israel and one with Canada and Mexico in NAFTA. NAFTA is very important because it creates a free-trade area of 410 million consumers—as large as the EU-EFTA grouping. As with any regional grouping, NAFTA has encountered some rough spots, but its importance can be seen in the fact that the three member countries are each other’s largest customers and suppliers. (The U.S. also has agreements on free trade with many nations, including Chile, Jordan, Australia, and others, but these are not the same as free trade areas.) In December 1994, Canada, the United States and Mexico as well as other nations in the Americas established the FTAA, the Free Trade Agreement of the Americas (34 members; 800 million people) that stretches from Alaska to Tierra del Fuego. The goal was to complete negotiations for the agreement by December, 2005.

ALADI web site: http://www.aladi.org/; ASEAN web site: http://www.aseansec.org/home.htm (but tends to go offline for extended periods. Also try: http://www.asean.or.jp/eng/index.html); CAN web site: http://www.comunidadandina.org/endex.htm; CARICOM web site: http://www.caricom.org/; ECOWAS web site: http://www.ecowas.int/; EU web site: http://europa.eu.int/index.htm; MERCOSUR web site: http://www.sice.oas.org/trade/mrcsr/mrcsrtoc.asp; NAFTA web site: http://www.ustr.gov/Trade_Agreements/Regional/NAFTA/Section_Index.html. For additional information, please see Everything International: http://faculty.philau.edu/russowl/region.html.

Regional Economic Integration

FORMS OF ECONOMIC INTEGRATION

Stage of

Integration

Elimination of Trade

Barriers among Members

Common Trade Barriers among Members

Free Factor Mobility

Harmonization of Economic Policies

Harmonization of Political Policies

Free Trade Area

Yes

No

No

No

No

Customs Union

Yes

Yes

No

No

No

Common Market

Yes

Yes

Yes

No

No

Economic Union

Yes

Yes

Yes

Yes

No

Political Union

Yes

Yes

Yes

Yes

Yes

Table 2-6

What

Economic alliances, a.k.a. economic integration, supranational organizations, multinational markets.

The basis is that nations felt that regional political and economic goals could be harmonized more realistically than those pursued on a global basis through other supranational organizations like the UN, IMF, IBRD, WTO, etc.

All are aimed at improving the economic situation of member countries. The tradeoff is that all members must give up some amount of national sovereignty.

Where

All over - (ASEAN, ECOWAS, EU, LAIA, MERCOSUR, NAFTA, .......)

Types – see above

Also: Regional cooperation groups

Some are project oriented and are formed because the requirements exceed a single nation's resources (e.g., Arianne).

Some are formed to control resources/products (e.g., OPEC, Debeers, coffee, bauxite, and rubber).

Pricing and the Euro

  • Benefits:
  • Costs go down.
  • Comparison is easier.

  • Drawbacks:
  • Confusion increases.
  • Suspicion is high.

Consider that there are a number of markets after each enlargement that wish to join the ‘Euro-zone’.

  • Costs go down. People would be able to travel from one end of Europe to the other without having to exchange Spanish Pesetas for Belgian Francs. Depending on the service charges, formerly a tourist would lose between 25 and 50 percent if they were to stop in each EU country and exchange some of their money.
  • Comparison is easier. Pricing would become more transparent (easier to see price differences). Formerly, if one could buy a Sony 27" television in the U.K. for 547£ and the same television cost 1,443 DM in Germany, the consumer might not notice a price difference (with an exchange rate of 2.3 DM for 1£, the TV costs about 80£ more in Germany). But, if both countries used the Euro, a 40 or 50 Euro price difference might cause some to purchase the product in one country over another.
  • Confusion increases. Imagine dealing with a foreign currency in your own country. People will need calculators with a Euro button, much as there is a square root button on most calculators (enter the amount of your currency, press the button and the amount is displayed in euros!).
  • Suspicion about corporate greed is high. Everything must be ‘repriced’ from gasoline to pension contributions to fines. Many believe that the companies round up, rather than round down and have built in price increases into all their products. While specifically illegal, there is evidence that some of this occurred in the changeover (as it will in nations admitted to the EMU).

Even though transaction costs go down in the long run, initially costs are high since new price signs, packaging, menus, etc. must be printed to reflect new currency; all government documents that include currencies must be restated (at least for comparison from one year to anotehr). Firms must resort earning in multiple years and have them audited again for translation accuracy…..

Archived discussions in pre-2001 are also interesting: http://europa.eu.int/euro/home5.jsp?lang=5

Recommended Web Sites

Chapter 2

Chapter 2

Macro economic trade theories were developed to explain why NATIONS trade.

See also: Leontief Paradox [1968] Readings in International Economics. Statistics do not support earlier theories, but what Leontief did not consider is QUALITY of inputs (e.g., he compared/equated highly educated work force with poorly educated work force).

Chapter 2

Notes:

US stated to have Ascribed (natural) Advantage (land), while Korea stated to have an Acquired (developed) Advantage (high technology manufacturing capability).

Chapter 2

Note that the points on the production possibilities curve (A, B, and C) are reversed in the two charts. This was done to allow the addition of production possibilities that would yield the ‘Worst’ at point A, ‘Moderately good/bad’ at point B and the ‘Best’ at point C.

In the case of absolute advantage, the two nations each have an advantage over the other in making something. A micro economic example would be a master electrician and a master plumber exchanging services; one being able to do something better and quicker (i.e., for less time and money) than the other. Or, to put it in to terms the students might appreciate – Absolute Advantage theory explains why a financial advisor might use the services of a CPA to prepare tax statements. Both are well-educated and trained to provide specialized services, but they require special knowledge best left to those trained in each area.

Chapter 2

Note that the points on the production possibilities curve (A, B, and C) are reversed in the two charts. This was done to allow the addition of production possibilities at each point.

In the case of comparative advantage, the one nation can make everything ‘better’ than the other (i.e., cheaper). A micro economic example would be a apprentice electrician and a master builder. The master builder can do a better job of building a home. It might be cheaper, though if the master builder concentrates on the complicated tasks and leave the easier electrical tasks (e.g., wiring a new lamp) to lower the overall cost of building the home. Or, in the case of our CFA (Certified Financial Advisor) and our CPA (Certified Public Accountant) – the Comparative Advantage theory explains why a financial advisor, even though trained in accounting practices might still use the services of a CPA to prepare tax statements. While the CFA COULD prepare their own tax statements, they could earn more money/have more left over by providing services in which they are trained and pay an accountant to provide the services in which they are trained. Again, both are well-educated and trained to provide specialized services, but they require special knowledge best left to those trained in each area.

Chapter 2

One source of Balance of Payment information for the United States is the Bureau of Economic Analysis (BEA). The home page of this site is: http://www.bea.gov/; the page that contains actual current balance of payment information is: http://www.bea.gov/bea/uguide.htm#_1_22.

Chapter 2

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

Chapter 2

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

Chapter 2

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

Chapter 2

There are many other international organizations, but the WTO and UNTAD are the two main TRADE-related global entities. There are others, such as the United Nations Commission on International Trade Law (UNCITRAL): http://www.uncitral.org.

Chapter 2

Table 2-5

The EFTA agreement was signed on January 4, 1960 and included Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Today, EFTA is an international organization that includes Iceland, Liechtenstein, Norway and Switzerland. The original EFTA members, except for Switzerland, decided to take more comprehensive steps to unify trading (and many other) policies and went on to form, or later became members of what is the European Union (EU). Because there are great benefits to the members for cooperation, in 1992 EFTA and the EU agreed to form an even larger country grouping called the European Economic Area (EEA) that contains all the EU and EFTA members, except for Switzerland.

In the 1960s, the Latin Americans responded to European integration moves by forming regional groupings of their own. In Central America, they formed the Central American Common Market; in South America, they formed the Latin American Free Trade Area; the Andean countries broke away from LAFTA to form the Andean Common Market. In the early 1990s, the Southern Cone countries (Argentina, Brazil, Paraguay, and Uruguay) formed Mercosur.

During the Vietnam War, a number of Southeast Asian nations formed ASEAN (Association of Southeast Asian Nations). ASEAN includes over 500 million people, with a collective GNI of more than US$750 billion. In 1992, ASEAN launched AFTA, the ASEAN Free Trade Area, the strategic objective of which is to increase the ASEAN region’s competitive advantage as a single production unit.

The United States is a member of two free-trade areas, one with Israel and one with Canada and Mexico in NAFTA. NAFTA is very important because it creates a free-trade area of 410 million consumers—as large as the EU-EFTA grouping. As with any regional grouping, NAFTA has encountered some rough spots, but its importance can be seen in the fact that the three member countries are each other’s largest customers and suppliers. (The U.S. also has agreements on free trade with many nations, including Chile, Jordan, Australia, and others, but these are not the same as free trade areas.) In December 1994, Canada, the United States and Mexico as well as other nations in the Americas established the FTAA, the Free Trade Agreement of the Americas (34 members; 800 million people) that stretches from Alaska to Tierra del Fuego. The goal was to complete negotiations for the agreement by December, 2005.

ALADI web site: http://www.aladi.org/; ASEAN web site: http://www.aseansec.org/home.htm (but tends to go offline for extended periods. Also try: http://www.asean.or.jp/eng/index.html); CAN web site: http://www.comunidadandina.org/endex.htm; CARICOM web site: http://www.caricom.org/; ECOWAS web site: http://www.ecowas.int/; EU web site: http://europa.eu.int/index.htm; MERCOSUR web site: http://www.sice.oas.org/trade/mrcsr/mrcsrtoc.asp; NAFTA web site: http://www.ustr.gov/Trade_Agreements/Regional/NAFTA/Section_Index.html. For additional information, please see Everything International: http://faculty.philau.edu/russowl/region.html.

Chapter 2

Table 2-6

What

Economic alliances, a.k.a. economic integration, supranational organizations, multinational markets.

The basis is that nations felt that regional political and economic goals could be harmonized more realistically than those pursued on a global basis through other supranational organizations like the UN, IMF, IBRD, WTO, etc.

All are aimed at improving the economic situation of member countries. The tradeoff is that all members must give up some amount of national sovereignty.

Where

All over - (ASEAN, ECOWAS, EU, LAIA, MERCOSUR, NAFTA, .......)

Types – see above

Also: Regional cooperation groups

Some are project oriented and are formed because the requirements exceed a single nation's resources (e.g., Arianne).

Some are formed to control resources/products (e.g., OPEC, Debeers, coffee, bauxite, and rubber).

Chapter 2

Consider that there are a number of markets after each enlargement that wish to join the ‘Euro-zone’.

  • Costs go down. People would be able to travel from one end of Europe to the other without having to exchange Spanish Pesetas for Belgian Francs. Depending on the service charges, formerly a tourist would lose between 25 and 50 percent if they were to stop in each EU country and exchange some of their money.
  • Comparison is easier. Pricing would become more transparent (easier to see price differences). Formerly, if one could buy a Sony 27" television in the U.K. for 547£ and the same television cost 1,443 DM in Germany, the consumer might not notice a price difference (with an exchange rate of 2.3 DM for 1£, the TV costs about 80£ more in Germany). But, if both countries used the Euro, a 40 or 50 Euro price difference might cause some to purchase the product in one country over another.
  • Confusion increases. Imagine dealing with a foreign currency in your own country. People will need calculators with a Euro button, much as there is a square root button on most calculators (enter the amount of your currency, press the button and the amount is displayed in euros!).
  • Suspicion about corporate greed is high. Everything must be ‘repriced’ from gasoline to pension contributions to fines. Many believe that the companies round up, rather than round down and have built in price increases into all their products. While specifically illegal, there is evidence that some of this occurred in the changeover (as it will in nations admitted to the EMU).

Even though transaction costs go down in the long run, initially costs are high since new price signs, packaging, menus, etc. must be printed to reflect new currency; all government documents that include currencies must be restated (at least for comparison from one year to anotehr). Firms must resort earning in multiple years and have them audited again for translation accuracy…..

Archived discussions in pre-2001 are also interesting: http://europa.eu.int/euro/home5.jsp?lang=5

Chapter 2

Top 10 Purchasers

U.S. Exports

($US billions)

Top 10 Suppliers

U.S. Imports

($US billions)

Canada 169.5 Canada 224.2

Mexico 97.5 China 152.4

Japan 52.1 Mexico 138.1

United Kingdom 33.9 Japan 118.0

Germany 28.8 Germany 68.0

China 28.4 United Kingdom 42.7

Korea, Republic 24.1 Korea, Republic 37.0

Netherlands 20.7 Taiwan 31.6

Taiwan 17.5 France 29.2

France 17.1 Ireland 25.8

2002

billions $US and (percent)

Area or Nation

Gross National/ World

Income (current)

a

Exports, (percent

of World Total)

Imports, (percent

of World Total)

World $32,312.2 (100.0)

Manufactured Goods

b

6,455.0 (100.0) 6,693.0 (100.0)

Commercial Services 1,570.0 (100.0) 1,545.0 (100.0)

Brazil $452.4 (1.4)

Manufactured Goods 60.4 (0.9) 49.7 (0.7)

Commercial Services 8.8 (0.6) 13.6 (0.9)

China $1,266.1 (3.9)

Manufactured Goods 295.2 (4.4) 325.6 (5.0)

Commercial Services 39.4 (2.5) 46.1 (3.0)

Germany $1,984.1 (6.1)

Manufactured Goods 613.1 (9.5) 493.7 (7.4)

Commercial Services 99.6 (6.3) 149.1 (9.6)

Mexico $637.2 (2.0)

Manufactured Goods 160.7 (2.5) 173.1 (2.6)

Commercial Services 12.5 (0.8) 17.0 (1.1)

Russian Federation $346.5 (1.1)

Manufactured Goods 106.9 (1.7) 60.5 (0.9)

Commercial Services 12.9 (0.8) 21.5 (1.4)

United States $10,383.1 (32.1)

Manufactured Goods 639.9 (10.7) 1,202.4 (18.0)

Commercial Services 272.6 (17.4) 205.6 (13.3)

Absolute Advantage

Production Possibilities (000s)

Steel Steel

US 10 C KOREA

5 B

2 A

1 B

C Lumber A Lumber

0 100 200 0 50 100 200

"Total World" Production

Point Quantity

A - 100,000 board feet of lumber and 2,000 tons of steel.

B - 150,000 board feet o f lumber and 6,000 tons of steel.

C - 200,000 board feet of lumber and 10,000 tons of steel.

ALADIA: La Asociación Latinoamericana de Integración {Latin

American Integration Association (LAIA)}

Argentina, Bolivia, Brazil, Chile, Columbia, Cuba, Ecuador,

Mexico, Paraguay, Peru, Uruguay, and Venezuela

ASEAN: Association of Southeast Asian Nations Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,

Philippines, Singapore, Thailand, and Vietnam

CAN: Comunidad Andina {Andean Community} Bolivia, Columbia, Ec uador, Peru and Venezuela

CARICOM: Caribbean Community Antigua and Barbuda, Bahamas, the Barbados, Belize, Dominica,

Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and

Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname,

Trinidad and Toba go

ECOWAS: Economic Community of West African States Benin, Burkina Faso, Cape Verde, Ivory Coast, Gambia, Ghana,

Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal,

Sierra Leone, and Togo

EU: European Union Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia,

Finland, France, Germany, Greece, Hungary, Ireland, Italy,

Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland,

Portugal, Slovakia, Slovenia, Spain, Sweden, and the United

Kingdom

MERCOSUR Argentina, Brazil, Paraguay , and Uruguay

NAFTA: North American Free Trade Area Canada, Mexico, the United States

Comparative Advantage

Production Possibilities (000s)

Steel Steel

10 A US KOREA

8 C

5 B

4 B

C Lumber A Lumber

0 50 100 0 16 32 100

"Total World" Production

Point Quantity

A - 32,000 board feet of lumber and 10,000 tons of steel.

B - 66,000 board feet o f lumber and 9,000 tons of steel.

C - 100,000 board feet of lumber and 8,000 tons of steel.

Merchandise

Exports

($US Billion)

Merchandise

(percent)

Service

Exports

($US Billion)

Service

(percent)

World 6,454.9 100.0 1,511.2 100.0

Economic Development

Low 211.2 3.3 41.0 2.7

Middle 1,447.0 22.4 225.6 14.9

High 4,796.7 74.3 1,244.6 82.3

Geographic Area

Africa 140.0 2.2 31.0 2.0

Asia 1,620.0 25.8 322.0 20.5

Central & Eastern Europe 314.0 5.0 60.0 3.8

Western Europe 2,657.0 42.4 763.0 48.6

Middle East 244.0 4.0 29.0 1.8

Latin America 350.0 5.6 56.0 3.6

North America 946.0 15.1 309.0 19.7

FORMS OF ECONOMIC INTEGRATION

Stage of

Integration

Elimination of Trade

Barriers among

Members

Common Trade

Barriers among

Members

Free Factor

Mobility

Harmonization of

Economic

Policies

Harmonization of

Political Policies

Free Trade Area Yes

No No No No

Customs Union Yes Yes

No No No

Common Market Yes Yes Yes

No No

Economic Union Yes Yes Yes Yes

No

Political Union Yes Yes Yes Yes Yes

Current Account

Credits

Debits

Export of goods, services

and income

$1,069,531

Merchandise

773,304

Services

296,227

Income receipts on

investments

345,394

Imports of goods, services

and income

$-1,797,061

Merchandise

-1,222,772

Services

-215,239

Income payments on

investments

-359,050

Unilateral transfers

-53,241

Balance of current account

-435,377

Capital Account

US assets abroad (net)

-553,349

Foreign assets in the US

952,430

Balance on capital account

399,081

Statistical discrepancy

35,616

Attachment 2

2-*

Differences in Economic Development

  • Gross National Product (GNP)
  • Common yardstick for measuring economic activity.
  • Measures total value of goods and services produced annually.
  • Doesn’t consider the differences in costs of living.
  • Purchasing Power Parity.
  • Uses U.S. cost of living for basis of adjustment among countries.

Both give

a static

picture of

development

2-*

PPP Index and GNP Data for Selected Countries 2003

Table 2.1

Country

GNP/Capita

PPP/Capita

GNP Growth Rate (%) 90-99

Brazil

$3,570

$7,320

3.0

China

840

3,940

10.7

Germany

25,050

25,101

1.3

India

460

2,390

6.0

Japan

34,210

26,460

1.3

Nigeria

260

790

2.4

Poland

4,200

9,030

4.5

Russia

1,660

8,030

-6.1

Switzerland

38,120

24,970

0.6

United Kingdom

24,500

23,550

2.5

United States

34,260

34,260

3.3

2-*

2-*

2-*

2-*

Country

GNP/Capita

PPP/Capita

GNP Growth

Rate (%) 90

-

99

Brazil

$3,570

$7,320

3.0

China

840

3,940

10.7

Germany

25,050

25,101

1.3

India

460

2,390

6.0

Japan

34,210

26,460

1.3

Nigeria

260

790

2.4

Poland

4,200

9,030

4.5

Russia

1,660

8,030

-

6.1

Switzerl

and

38,120

24,970

0.6

United Kingdom

24,500

23,550

2.5

United States

34,260

34,260

3.3

Attachment 3

4-*

4-*

The Impact of Trade Policies

  • Ghana
  • 1970
  • GNP/capita
  • $250
  • 1998
  • GNP/per capita
  • $390
  • GNP Growth/year: 1.5%
  • Shift from productive uses (cocoa) to unproductive uses (subsistence agriculture).

  • GDP /(PPP) $2,500 in 2010
  • Korea
  • 1970
  • GNP/per capita
  • $260
  • 1998
  • GNP/per capita
  • $8,600
  • GNP Growth/year: 9%
  • Shift from non-comparative advantage uses (agriculture) to productive uses (labor-intensive manufacturing).

  • GDP /(PPP) $30,000 in 2010

4-6

4-*

  • 1st British African colony to win independence (1957).
  • Nkrumah espoused pan African socialism.
  • High tariffs.
  • Anti-exporting policy.

4-*

Economic Development in S Korea

  • 5th largest export economy (2016)
  • Exports as a percentage of GDP increased from 25.9% to 56.3% in 2012. (42% in 2016)
  • Exported $515B and imports $398B (2016)
  • Top exports:
  • Integrated Circuits ($68.3B)
  • Cars ($38.4B)
  • Refined Petroleum ($24.8B)
  • Passenger and Cargo Ships ($23B)
  • Vehicle Parts ($20B)
  • Top export destinations are: China, US, Vietnam…

4-7

4-*

How did S Korea’s Economy Develop So Quickly?

4-7

2018 World Bank Doing Business Rankings
  South Korea United States Japan China
Ease of Doing Business Rank 4 6 34 78
Starting a Business 9 49 106 93
Getting Electricity 2 49 17 98
Getting Credit 55 2 77 68
Trading across Borders 33 36 51 97
Enforcing Contracts 1 16 51 5
Resolving Insolvency 5 3 1 56

S K dominates in the ease to start a business and enforcing contracts.  play a sig role in encouraging investment, production, communication and eventually, economic growth.

*

4-*

How did S Korea’s Economy Develop So Quickly?

  • An improvement in the bus environment
  • Ease of starting a business (rank 9; US rank 49)
  • Enforcing contracts (rank 1; US rank 16)
  • Both play a significant role in encouraging investment, production, communication, and eventually economic growth.
  • Policies incentivizing investment in innovation
  • Spending the largest share of its GDP on R&D
  • R&D intensity grew 88.5% (1996-2015)
  • US only grew 14.4%

4-7

4-*

  • Kept lowering tariffs on manufactured goods.
  • Created incentives to export.
  • Reduced quotas.
  • Reduced subsidies.
  • 1950s: 77% of employment in agriculture. Now 20%.
  • Manufacturing GNP went from 10% to over 30%.

4-*

Updated Economic Figures

4-6

Ghana S. Korea
GDP (2010) $2,500 $30,000
GDP growth rate (2010) 5.7% 6.1%
GDP Composition
Agriculture 34% 3%
Industry 25% 39%
Service 41% 58%

4-*

An Overview of Trade Theory

  • Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country.
  • The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country.
  • The Pattern of International Trade displays patterns that are easy to understand (Saudi Arabia/oil or China/crawfish). Others are not so easy to understand (Japan and cars).
  • The history of Trade Theory and Government Involvement presents a mixed case for the role of government in promoting exports and limiting imports. Later theories appear to make a case for limited involvement.

4-7

S K dominates in the ease to start a business and enforcing contracts.  play a sig role in encouraging investment, production, communication and eventually, economic growth.

*