MIM 513
Pacific Rim Economies
Class One – Introduction to Globalization
Introductions and Syllabus reviewCountry & Team Selections & Current Events sign-upMetrics & Current Events- Economic indicators – ISM DataOverview / Historical ThoughtWhat is International Economics about?Ricardo comparative modelsGlobalization Overview – Articles Review
Agenda
Economic Historical Thought
Adam Smith – Invisible Hand (Against Mercantilism)
John Maynard Keynes – pro-gov stimulus (IS-LM)
(“It is better to be roughly right than preciselywrong”)
David Ricardo – labor theory of value & trade
Karl Marx – Surplus value / Exploitation labor
Thomas Malthus – (Principals of population /
Moore’s law)
Milton Friedman – (“No Free Lunch” / monetarytheory)
What is International Economics about?
•$3Trillion of foreign exchange transactions / day
•$12T goods & $3T services are sold acrossborders
•Four elements of International Economics:
–Outsourcing
–Immigration
–Currency exchange
–Sovereign wealth funds
What is International Economics about?
•Sovereign Nation States allow for:
–Factor Mobility – Land, Labor, & Capital wereviewed as national
–Capital is the largest factor of production thatmoves
•Differing fiscal policies and regulations
–Banking and financial systems
•Differing currency
•EU versus UK
Globalization
•Globalization – Interdependent and integratedworld economy
•All firms export and import – 97% of firms in US<500 employees
•Globalization of Markets – global norms equate totrade
•2006 over 2,500 trade treaties have been signedvs. 181 in 1980.
•Globalization of Production – low-cost factors ofproduction
Example – Boeing 787
Dialectic Marketplace
Globalization
•Globalization can be cultural, political, &economic.
–Cultural: A new Universalism (lawsversus Jihad)
–Political: policies regarding factors ofproduction (oil)
–Economic: Markets and Production
•Globalization of Markets – global normsequate to trade
•Globalization of Production – low-costfactors of production – Ricardo
Globalization
-W-Bank – states that by 2020 60% of econ activity bydeveloping nations, today 35%
-Foreign Direct investment is easier with technology
-Multinationals are not the only participants; Haier for ex.
-Backlash against market economy in some nations (Russia)
-China is even different by province (Shenzhen vs. HongKong vs. Shanghai)
-Outsourcing & Jobs
-Consumer savings vs. job displacement
-Division of income widens
-Environment degradation in developing nations
Globalization
- Political systems
-Socialism vs. Capitalistic
-“Follow the party” vs. free market
-Intellectual Property issues
-Foreign Corrupt Practices Act
-Purchase Power Parity –
Overview of terms
MPC / MPS
GDP (location) / GNP (ownership)
Income & IS-LM
M1 (consumption) / M2 (M1 + savings, CDs)
M3 (M2+ CD>$100K, 401K) = ~90% of $$$
Surplus Labor / Value
Supply / Demand
Consumer & Producer surplus
Overview Cont.
Supply / Demand
Consumer & Producer surplus
Price Discrimination -> £8 chargeleading to internet Sales
Elasticity of Supply & Demand
Formulas
Elasticity of Demand – whatis it?
Demand creation and consumption modeling
Ricardo’s comparative advantage – Beginning of Trade
- Defined : A country will export goods with a low opportunitycost and import goods with a high opportunity cost
- Key is relative or comparative, one country cannot produceeverything
-Comparative vs. Absolute advantage
-Gains from Trade – models
-Production Possibility Frontier (PPF)
-Economies of scale – Efficiency (slope of PPF)
-Aggregate shifts in PPF
-Efficiencies in resources
-Hechscher-Ohlin model – some countries have moreresources
-China- labor vs. US Agriculture
-Flaw – assumes tech is equal
Inequality – GINI
HBC Inequality & Globalization
What do we know?
- Human development index (Gini) – lifeexpectancy, education, & Std of livingbased on PPP
-China – 43.4 but U.S. – 40.8?
-Apartheid economy developing?
-An issue in both developing and developednations
-GDP growth; PPP effect normalizes a little
Questions:
-MDG / WB poverty levels muddying thewater? $1 or $2 / day?
-What is the cause of inequality?
-Is trade to blame? Type of exports /imports?
-Is it technology?
-Is it governance?
-What should be done as a global citizen andas a business leader?
Two Articles - Discussion
Krugman, P (2009). How did economistsget it so wrong?
Cleveland, P. (2011). A vital link: Foreignmarkets and Oregon jobs.
Krugman’s point - Discussion
-Monetarists versus Keynesian policy –Saltwater vs. freshwater economists
-Financial markets do go offtrack,depressions are bad and can be avoided
-Externalities do create abnormalbehavior without consequence (pollution,real estate bubble based on sub-primebehavior)
-Low inflation & high growth was over toolong a period
Krugman – Multiplier deficits
Cleveland Article – MFG Jobs
