International Economics Global Notes PDF

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Lecture notes on the highlights of major global economies and their influences...

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Wednesday, December 8, 2021

International Econ

- modern technology is seen as the most critical ingredient in policies that successfully close the gap between developing and developed countries

- Export production can encourage the acquisition go are technologies Is Export Promotion a Good Model for Other Regions?

- Yes: Even if all developing countries stressed export promotion, they would be unlikely to saturate the industrialized country markets

- No: Under the Uruguay Round rules of 1994, developing countries must eliminate any subsidies contingent on export performance Is there an Asian Model of Economic Growth?

- Free-market economists: • Growth was due to openness, private markets, and strong macroeconomic fundamentals - Activist economists: • All of the above were critical, but other factors helped push growth above what it would have been: - Export promotion, industrial policies,, deliberation councils Introduction: The BRICs

- BRICs are large ranking among the world’s top 10 in population and top 11 in GDP Demographic and Economic Characteristics

- In 2010, these countries had approximately 41 percent of the world’s population and 25 percent of world GDP when measured in PPP terms

- China’s economy is 2nd only to Unites States in size; the largest in next decade at current rates of growth

- Brazil is the world’s seventh largest economy - India the ninth - Russia the eleventh, measured in U.S. dollars (2010) 12/7 Economic Reforms in the BRIC Economies

- Reform of the Communist system in China began in 1978 • Prior to reform, private enterprise did not exist • All decisions were made from top-down - India;s reforms began in the 1980’s and gained momentum in the 1990s I response to a balance of payments crisis • Prior to reform, India was best characterized as socialist • Heavy industry was state owned • Private industry was heavily regulated - Russia’s transition vegan with the collapse of communism and the dismantling of the Union of Soviet Socialist Republic's (USSR) in 1991

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Wednesday, December 8, 2021 - USSR was replaced with fifteen newly independent states including three that would soon join the -

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European Union (Estonia, Latvia, and Lithuania) and the Russian Federation (Russia) Countries transitioning from socialist to capitalist systems implemented a wide range of reform tasks Most immediate problem in most countries was a sudden collapse of GDP Property rights had to be defined New institutions had to be created to establish rules for businesses and workers Define the scope of government Brazil • Brazil’s large domestic market enabled many firms to capture economies of scale • Brazil’s economy in 1950s into early 1970s boomed • Described as the Brazilian Miracle • The Latin American Debt Crisis brought these developments to complete halt in the 1980s • Brazilian leaders restored to money creation as a means of financing government operations, the consequences was rapid inflation • After several currency reforms in the 1990s, Brazil finally gained control over inflation and restored a system of sustainable government finances • Two key factors to Brazil’s restoration of high growth rates: - One, a series of two-term presidents bringing stability in policy and competent leadership - Two, Brazil benefitted from China’s appetite for resources and foodstuffs, both directly by selling to China and indirectly through the rise in commodity prices that China’s demand helped created China • Leaders of reforms was Deng Xaiopind, gradually dismantling of controls exercised by Communist Party • Foreign trade under the old system controlled by 12 foreign trading corporations (FTC), with no consideration given to comparative advantage • Created Special Economic Zones (SEZ) that gave local provinces authority to establish economic and trade policy • China applies to join the GATT in 1986 and gained WTO membership in 2001 China and India • After reforms began, both countries experienced dramatic increases in trade and the trade-to-gdp ratios • China’s ratio peaked in 2006 at 65; after the financial crisis of 2007-2009, it declined India • Three forces played roles in the move toward reform: - The USSR, India’s primary trading partner, dissolved in 1991 - Other South East Asian countries were having success with reforms - A financial crisis had developed as a result of heavy borrowing by the government • Details of the reforms: - De-nationalization, led by finance minister Mammohan Singh - Elimination of a regulatory permitting process that interfered with competition - Transition from import substitution industrialization policies toward export lead growth policies - Dismantling of restrictions on international trade and foreign investment Russia • Transition economies: The economies that abandoned socialism or communism in favor of market based systems • One of the first controversies; speed of transition • Economy had to be stabilized to avoid unsustainable budget deficits and hyperinflation • The barriers of entry were dismantled • Important new markets were created • New labor markets required unemployment insurance, pension systems, and safety nets • New financial markets needed regulatory apparatus for banking oversight, security laws, and tax rules • The transfer of property rights was begun

Wednesday, December 8, 2021 • Government created the legal infrastructure for settling disputes and enforcing contracts • One of the most complicated and difficult tasks: privatizing state-owned firms and factories • Outcome was tragic for a large segment of the population - By 1996 Russia;s economy was about 64 percent of its size in 1990

• Infant mortality increased dramatically, birth rates fell below replacement levels, and wealth became highly concentrated

• Russia was not unique; all but of the new fifteen countries from the USSR saw income declines of 25 percent or more

- Brazilian Economic Reforms • Brazil has always been a capitalist economy - Military dictatorship from 1964-1985 • High inflation, stagnant per capita GDP growth, several government failures caused rethinking of development strategies

• New leadership and more open strategy towards trade and investment restored confidence and necessary changes in government policies brought inflation under control

- Next Step for the BRICs • All four of the BRICs implemented reforms • One challenge; they are not easy places to do business • Problems include - Starting new businesses - Obtaining necessary business permits • Operation, tax compliance, range of other issues make these economies a difficult challenge for businesses

• State capitalism: Capitalist economies with private ownership playing a dominant role, each uses the power and authority of their national governments to control a significant share of industry

• The national government uses the economy for national purposes • Less true in Brazil and Indian than in Russia and China

- Why did the USSR Collapse and China succeed? • Dual track strategy: Localized reforms to certain areas or sectors (eg agriculture) while maintaining traditional central planning structures in the remainder of the economy

• Proponents of rapid reform-China was special case - Central planning was less extensive in China resulting in economy less distorted and less concentrated on heavy industry

- Most importantly, China’s economy was more agricultural

- The Brics in the World Economy • The BRICs have profoundly influenced the direction of world trade and investment • As they have become more integrated with the rest of the world, multinational businesses have

quickly moved to establish production and distribution networks inside the BRICs, and BRIC firms have begun to invest outside their home markets. - China and India in the World Economy • Between 1990 and 2015, Chinese and Indian exports became a larger share of total world exports in both services and goods. • China is the world’s largest exporter of goods and fifth largest exporter of services. India is 19th in goods exports and 8th in services. - Trade Patterns • Rising shared of world trade and foreign direct investment are characteritics of the BRIC economies • BRIC economies are not capable of entering the most technical and sophisticated markets on a routine basis… yet - This is rapidly changing however

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