The World Economy

1. Lecture 4 The World Economy

2. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
2

3. The World Economy

“Globalization”
–
Means different things to different people
My definitions (see my online Glossary):
1. The increasing world-wide integration of markets for
goods, services and capital.
2. Also the role of MNCs, IMF, WTO, World Bank.
3. Elsewhere: domination by United States.
Some see good, others bad
–
–
Bad: reading by powell
Good: reading by Bhagwati
Both make valid
points. Read to
see what they are.
3

4. The World Economy

“Globalization”
–
Some aspects of globalization declined with
the world recession of 2008
The Economist, on Nov 15, 2014, reported
“Signs of Life”:
–
Globalization is back
Various measures of globalization (though not
all) have risen past their previous peaks
The “depth” of trade (its volume) has increased
The “breadth” of trade (number of borders
crossed) has not fully recovered
Lecture 1: Overview
4

5. The World Economy

International Economics
– Is NOT about countries
– It IS about interactions among countries
5

6. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
6

7. The World Economy

World Economy consists of
– Countries: a few hundred
(CIA lists about 240)
(WTO has 160 members)
– People: over 7 billion
(7.216 b. 1/5/15, compare 320 m. US)
– Land: about 15 times the US
7

8. (Aside, on getting information)

An excellent source of information about
countries is the CIA World Fact Book
(Just Google “fact book”)
8

9. The World Economy

World Economy consists of
– GDP (2013 est., per CIA, in US$)
World:
US:
Total =
$87.25 trillion
per capita =
$13,100
Total =
$16.72 trillion
per capita =
$52,800
9

10. The World Economy

Implication
– US is very unusual
Very rich
– US has less than 5% of world population but almost
20% of world income
10

11. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
11

12. The World Economy

Ways that countries interact
economically
– Trade (per CIA, 2013 est.)
World exports: $18.71 trillion
(compare world GDP of $87 trillion)
World trade has grown faster than world GDP
most years
–
But not during 2008-9, due to world recession
12

13.

13

14. The World Economy

• See tables below for
–
–
–
–
Who trades most?
Who trades with whom?
Share of trade in GDP
US:
• What do we export/import?
• To/from whom?
14

15. Who Trades the Most? ($ b. & % share, 2013)

Who Trades the Most?
($ b. & % share, 2013)
Exporters
Importers
Value
EU-28*
China
US
Japan
Korea, S.
World
2307
2209
Share
15.3 US
14.7 EU-28*
10.5 China
4.8 Japan
3.7 Hng Kng
1580
715
560
15047 100.0 World
Value
Share
2329
2235
15.4
14.8
1950
833
622
15121
12.9
5.5
4.1
100.0
*EU external only
Source: WTO, International Trade Statistics, 2014, Table I.8
15

16. Who Trades the Most?

• Developed countries are the biggest
traders
• China is catching up, in trade volume
– It was the #3 exporter six years ago when I
taught the course; now it’s #2 and closing in
on EU.
– Others are gaining as well: Four years ago
Canada was #5 exporter. Three years ago
that was S Korea
16

17. Who Trades the Most?

• See Economist from about a year ago:
“Trading Up: Picking the world champion
of trade”
– China claimed to have surpassed US. True
only for goods, not goods + services
• But with time China will pass US in both
– China’s trade per GDP is much larger than
the US, but below world average
– Much of the value in China’s exports is
imported inputs, thus low “value added.”
17

18. Who Trades the Most?

• “Emerging Markets” in general are
catching up to, or surpassing, the
developed countries
– In GDP, trade, and more
– See Economics Focus from The Economist,
“Why the Tail Wags the Dog”
18

19.

Lecture 1: Overview
19

20.

20

21. Who Trades with Whom? ($ b., 2013, Intra- and inter-regional merchandise trade)

Destination:
Origin:
North
Amer.
Latin
Amer.
Eur.
Asia
Africa
Other
North Amer.
1189
216
368
501
40
97
Latin Amer.
178
195
121
178
20
27
Europe
506
129
4560
667
222
473
1012
191
855
3076
188
399
Africa
54
30
216
160
97
20
Other
143
20
549
841
51
310
World
3082
782
6669
5423
618
1326
Asia
Source: WTO, International Trade Statistics, 2014, Table I.4
21

22.

• North America, Europe, and Asia trade
mostly within their group
• Poorer regions – Latin America, Africa –
trade mostly with the richer regions
• This reflects what is not so clear in the
table:
– Rich countries trade most with each other
– Poor countries trade most with rich countries
• But their trade with each other is growing
22

23. What Does the World Trade? ($ b. 2013 & annual % growth rates, merchandise exports)

What Does the World Trade?
($ b. 2013 & annual % growth rates, merchandise exports)
Value
00-05
05-13
2009
2010
2011
2012
2013
All Products
17,590
Agriculture
1,745
9
9
–
12
15
22
0
6
Fuel&Mining
3,997
16
10
–
36
33
35
2
–3
11,848
9
6
–
20
19
15
0
3
Manuf.
Source: WTO, International Trade Statistics, 2014, Table II.1
23

24. What Does the World Trade?

• Biggest traded category: manufactures
• Fastest growing, then shrinking, then
growing: “fuels & mining”
Why?
• Because this is the value of trade, and prices
of oil and other raw materials were rising,
and then falling.
• But within Manufactures, Iron & Steel is even
more volatile:
Lecture 1: Overview
24

25. What Does the World Trade? ($ b. 2013 & annual % growth rates, merchandise exports)

What Does the World Trade?
($ b. 2013 & annual % growth rates, merchandise exports)
Value
00-05
05-13
2009
2010
2011
2012
2013
All Products
17,590
Agriculture
1,745
9
9
–
12
15
22
0
6
Fuel&Mining
3,997
16
10
–
36
33
35
2
–3
11,848
9
6
–
20
19
15
0
3
454
17
6
–
45
30
25
–8
–6
Manuf.
Iron & Steel
Reason: Very sensitive to investment, thus to
expansion and contraction.
Source: WTO, International Trade Statistics, 2014, Table II.1
Lecture 1: Overview
25

26. What Does the World Trade? ($ b. 2013 & annual % growth rates, merchandise exports)

What Does the World Trade?
($ b. 2013 & annual % growth rates, merchandise exports)
Value
00-05
05-13
2009
2010
2011
2012
2013
All Products
17,590
Agriculture
1,745
9
9
–12
15
22
0
6
Fuel&Mining
3,997
16
10
–36
33
35
2
–3
11,848
9
6
–20
19
15
0
3
Iron & Steel
454
17
6
–45
30
25
–8
–6
Automotive
1,348
10
5
–31
29
18
1
4
Manuf.
Source: WTO, International Trade Statistics, 2014, Table II.1
Note too: Trade in cars is more thanLecture
10% of 1:
trade
in manufactures, and also volatile.
Overview
26

27. What Does the US Trade? ($ b. 2011)

Total
Agriculture
Petroleum
Industrial supplies
Capital goods, exc. auto
Automotive
Other non-ag
Other non-petrol
Exports
1,497.4
140.0
Imports
2,235.8
496.4
493.2
133.1
234.6
462.3
319.8
513.4
255.2
685.1
Source: Economic Report of the President, Feb 2013, Table B-104.
27

28. What Does the US Trade?

• US imports are much larger than US
exports
– (We’ll see what that means later in the
course.)
• US is a big…
– Exporter of agricultural products
– Importer of oil
– Exporter and importer of capital goods (i.e.,
machines for making things)
Lecture 1: Overview
28

29. Importance of Trade for Countries? (GDP in US$ b., Exports % of GDP, Selected countries, 2012)

GDP
United States
Exports/GDP
16720
9%
Japan
5007
14%
Germany
3593
42%
Canada
1825
25%
India
1670
19%
Mexico
1327
28%
Netherlands
722
80%
Singapore
296
139%
Philippines
272
17%
19
5%
Nepal
Source: CIA World Fact Book
29

30. Importance of Trade for Countries?

• Even though we trade more than most, US
trade is a smaller part of US GDP than for
many other countries
• Others that are low: Japan, Nepal (even
lower than US)
• Note Singapore: Exports can be more
than GDP.
– Reason: Exports are made using imported
inputs, so value of exports includes imports.
30

31. Importance of Trade for Countries? A Few More of Interest

China
Hong Kong
Korea, South
Korea, North (2009)
Burma
Syria
Israel
GDP
Exports/GDP
9330
24%
272
168%
1198
47%
28
7%
59
15%
65
6%
273
22%
Source: CIA World Fact Book
31

32. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
32

33. The World Economy

Ways that countries interact
economically
– Capital Flows
Financial (holdings of financial assets abroad)
Real (international ownership of real assets)
33

34. The World Economy

Ways that countries interact
economically
– Capital Flows
Financial (holdings of financial assets abroad)
»
»
»
»
»
Currency
Bank deposits
Bonds – private and government
Stocks
Bank loans
Real (international ownership of real assets)
Lecture 1: Overview
34

35. The World Economy

Ways that countries interact
economically
– Capital Flows
Financial (holdings of financial assets abroad)
Real (international ownership of real assets)
»
»
»
»
Real estate
Capital assets (plant and equipment)
Stocks (equities) if ownership share is large
Other
Data, below, are stocks (i.e, amounts at a point in
time)
35

36. US Investment Position ($ trillion at market value, year-end 2011)

Total
US Gov’t
Private financial
Private real
We “Own”
We “Owe”
US Assets Abroad
Foreign Assets in US
16.43
0.71
11.03
4.68
20.58
4.28
13.40
2.91
Compare: US GDP in 2012 = $16.02 trillion
Source: Economic Report of the President, Feb 2013, Table B-107
36

37. US Investment Position

• (Qualification: “Owe” isn’t quite right. This
includes all assets in the US owned by
foreigners, including land, buildings, etc.
Not just what we’ve borrowed.)
• Lessons:
– US is a large net “debtor” (result of our
spending more than we earn)
– Most of this today is government, but some is
private
37

38. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
38

39. The World Economy

Other ways that countries interact
economically
– Migration
Temporary
– Guest workers
– Day workers
Permanent
In practice, most (all?) countries limit migration
severely
39

40. Lecture 4

Overview of the World Economy
• “Globalization”
• Elements of the World Economy
• Ways that Countries Interact
– Trade
– Capital Flows
– Migration
• Policies that Affect Others
40

41. The World Economy

Other ways that countries interact
economically
– Policies that affect other countries
Direct
Indirect
41

42. The World Economy

Other ways that countries interact
economically
– Policies that affect other countries
Direct
–
–
–
–
–
Trade policies (tariffs, quotas)
Foreign aid
Capital controls
Exchange rate management
Immigration restrictions
Indirect
42

43. The World Economy

Aside on Tariffs
– We will be dealing a lot with these
– See reading by Hufbauer and Grieco:
US tariffs are much lower than they used to be
(average 4% now, vs. 40% in 1946)
US has gained a great deal from lowering tariffs
US still has much to gain from further lowering
But there are also severe costs for some people
and firms who compete with imports
43

44. The World Economy

Aside on Tariffs
– Tariffs could go up:
WTO enforces only upper limits on tariffs
Actual tariffs in many countries are below these
limits, and could legally rise
There was danger that the recent world
recession would push countries to do that.
–
They didn’t – at least not much.
44

45. The World Economy

Aside on Tariffs
– 45% of US exports go to developing
countries
– US tariffs are much higher against
developing countries than against developed
countries
45

46. The World Economy

Other ways that countries interact
economically
–
Policies that affect other countries
Indirect
–
–
–
–
Subsidies (esp. agriculture)
» US farm subsidies > foreign aid (see CGD reading)
Macro policies (monetary, fiscal)
» Exchange-rate policies
Environmental policies
Standards
» Labor
» Health & safety
» Norms
46

47. Next Time

• Institutions of the International Economy
– What are they?
The WTO
The IMF
The World Bank
The OECD
– What’s happening (or not happening) now?
47