Transcript Development Economics

Principles of International
Economics
Prof. Dr. Hans H. Bass, Bremen University of Applied Sciences,
International Degree Programme in Economics
Summer Term 2010
Principles of International
Economics
Topic 1:
Basic Concepts
International Economics
Agenda
1. International Division of Labor
2. Classification of Economies
3. Modes of Integration
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International Economics
Agenda
1. International Division of Labor
2. Classification of Economies
3. Modes of Integration
March 08, 2010
4
1. International Division of Labor
The division of labor
principle
1. Enterprise level
Smith: pin-making
productivity gains, co-operation,
alienation (Marx, Taylorism!)
2. Economy-wide level
social productivity gains, national trade, national
interdependence
3. Global level
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1. International Division of Labor
3.
The division of labor
principle
Global level: integration into the world economy
autonomous economic areas - autonomous currency areas


degree of integration depends on factor endowment,
geography, history ...
degree of integration influenced by international economic
policies / monetary policies
International welfare gains, international trade and factor
movements, international interdependence (policy
interdependence / IFOs / world economic order)
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1. International Division of Labor
Globalization
Globalization
cultural
social
linguistic
ethic
economic
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1. International Division of Labor
Definitions of
globalisation
 “the increasing inter-dependence of markets and production
in different countries through trade in goods and services,
cross border flows of capital and exchange of technology”
(Nunnenkamp/Gundlach/Agarwal, 1994)
 “process through which an increasingly free flow of ideas,
people, goods, services, and capital leads to the integration of
economies and societies”
(Anninat 2002)
 „die fortschreitende Internationalisierung der Wirtschaft, die
einen weltweiten Abbau der Grenzen zwischen den
nationalen und regionalen Märkten für Güter und
Dienstleistungen, Kapital und technischen Know-how
voraussetzt und vorantreibt“
(ZEW 2006)
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1. International Division of Labor
Causes of
globalisation
 transport and communication revolution
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1. International Division of Labor
Causes of globalisation:
reduction of transport costs
120
100
80
60
Seefracht
40
Lufttransport
20
Telekommunikation
0
1930
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1940
1950
1960
1970
1980
1990
2000
2005
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1. International Division of Labor
Causes of
globalisation
 transport and communication revolution, new key
technologies
 increasing R&D costs and shortening of product life
cycles
 worldwide liberalisation of commodity and capital
markets  chances to exploit price differences
(global sourcing, global marketing)
 reshaping of the economic geography of the world
(NIEs, China ending its autarky, new trading blocs)
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The extent of
globalisation
1. International Division of Labor
60
EXPORTE
ADI
BONDS
25
26
17
12
7
1
1
1980
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1
1
1 2
1985
4
2
1990
6
3
5
3
1995
2000
2005
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1. International Division of Labor
The extent of
globalisation
Present Level
Low
Medium
High
Low
Speed
Medium
High
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Source: adopted from Wohlmuth in Bass/Melchers 2004
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The extent of
globalisation
1. International Division of Labor
Present Level
Low
Medium
• Shift of
Low
Speed
Mediu
m
• Trade in commodities
production sites
(cost driven or
market-driven)
• Migraton of lowqualified workforce
• Production of
public goods
• Long-term capital
flows
• Commercial technology transfer
• Migraton of high-qualified
workforce ("brain drain")
• Trade in Services
High
• Short-term capital flows
• Direct investment & intl
enterprise co-op
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High
• Transfer of knowledge
& technology (public
goods characteristics)
Source: adopted from Wohlmuth in Bass/Melchers 2004
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1. International Division of Labor
Consequences of
globalisation
1. Increasing relevance of TNCs !
FDI, trade-induced and trade-inducing / intra-firmtrade, global value chains (“from sheep to shelf”)
2. Reduced scope of action for states?
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International Economics
Agenda
1. International Division of Labor
2. Classification of Economies
3. Modes of Integration
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2. Classification of economies
Modes of
classification
1. according to per-capita income: LIC, MIC, HICs
2. ...
3. ...
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2. Classification of economies
1.
2.
3.
4.
Income criterion
HICs: $ 11,906+
UMICs: $3,856 – $11,905
LMICs: $976 – $3,855
LICs: < $975
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2. Classification of economies
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One-dimensional, incomeoriented classification
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2. Classification of economies
(3*)
(22)
(56)
(75)
(82)
(130)
(163)
(179)
(210)
Norway
Germany
Saudi Arabia
Russian Fed.
Brazil
China
India
Ghana
Burundi
GNI p.c.
$ 87,070
$ 42,440
$ 15,500
$ 9,620
$ 7,350
$ 2,770
$ 1,070
$ 670
$ 140
HIC
HIC
HIC
UMIC
UMIC
LMIC
LMIC
LIC
LIC
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
* # 1 and 2 only approximations: Liechtenstein, Bermuda
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2. Classification of economies
Modes of
classification
1. according to per-capita income: LICs, MICs, HICs
2. according to uni-dimensional structural
characteristics: oil-exporting countries, heavily
indebted poor countries ...
3. according to multi-dimensional structural
characteristics
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2. Classification of economies
Structural criteria
1. Industrial economies (≈ HICs), post-industrial
economies, “triade”, “OECD”-countries
2. Developing countries
3. NIEs
4. LDCs
5. Transformation Economies
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2. Classification of economies
Characteristics of
OECD countries
 large service sector (60 %+  Fourastié model), medium-sized
industrial sector
 moderate inequalities in income and property distribution
 balanced current account, low level of foreign debts
 high investment rates (20%+)
 low population growth
 high standards in education and health
 political stability
 different economic orders possible: “varieties of capitalism”
(Anglo-American, German Social Market Economy, Japanese
model, Scandinavian-type welfare state)
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2. Classification of economies
Characteristics of
developing countries
 Low levels of living, characterized by low incomes, high
(income) inequality, poor health, and inadequate education
(incl. Illiteracy)
 High rates of population growth and dependency burdens
 Substantial dependence on agricultural production and
primary-product exports, high export concentration ratios
 Low levels of productivity (lack of complementary capital);
scarcity of jobs in the urban “formal” sector, “informal”
employment (sponge function)
 Lack of “good governance”
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2. Classification of economies
1.
2.
3.
A comprehensive
indicator: the HDI
Longevity as measured by life expectancy at birth
Knowledge: by a weighted average of adult literacy (2/3)
and mean years of schooling (1/3)
Standard of living: GNI p.c. at Purchasing Power Parity* and
adjusted for diminishing marginal utility of income
*number of units of the countries’ currency required to buy the same
amount of goods + services in the domestic market as a dollar in the US
•
•
Standardized from 0 to 1
Index = (actual value – minimum value) / (maximum value –
minimum value)
GNI rank may differ from HDI rank
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2. Classification of economies
HDI-Rank
(3)
Iceland
(13) United States
(22) Germany
(59) Saudi Arabia
(71) Russian Fed.
(75) Brazil
(92) China
(152) Ghana
(174) Burundi
The Human
Development Index
0.969
0.956
0.947
0.843
0.817
0.813
0.772
0.526
0.394
GNI-Rank
28
14
22
56
75
82
130
179
210
# UNDP 2009 hdr.undp.org/en/media/HDR_2009_EN_Complete.pdf, World Bank 2008
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2. Classification of economies
Diversification:
catching up ...
Newly Industrializing Economies




rapid economic growth
high investment into education
rapid changes in sector composition
subtle combination of opening up to world markets
and protection of „infant industries“
 strong influence of government on the economy
 relatively equal distribution of wealth
(IBRD, inofficial)
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2. Classification of economies
Diversification: ...
and falling behind ...
Least Developed Countries
 Extremely low per capita income (< $ 750)
 Low level of human development as measured by the Human
Assets Index (HAI), based on nutrition, health, education, and
literacy
 High vulnerability by economic shocks as measured by
Economic Vulnerability Index (EVI), based on agricultural
output, export earnings, disadvantages from population size,
natural disasters
ECOSOC 2003
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2. Classification of economies
Diversification: and
dramatic changes
Transformation economies
 Transformation from centrally planned economy with
predominance of collective property to decentrally planned
economy (coordinated by markets) with a predominance of
private property of producer goods
 Low or lower-middle income p.c., (relatively) high HDI
 Comparatively high importance of industry, albeit obsolete
technologies posing high stress on the environment
 Dualistic structure of foreign trade (West/East)
 Budget deficits and current account deficits
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International Economics
Agenda
1. International Division of Labor
2. Classification of Economies
3. Modes of Integration
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3. Modes of integration
Modes of
intergration
 Trade in commodities and services
 Factor movement:
capital (FDI, portfolio investment)
 Factor movement:
labor migration
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