Transcript Economic Growth in a More Integrated World

Economic Growth in a More Integrated World
• What is economic growth?
• Sources of economic growth
• Factor movement
• Labor Movements
• Capital Movements
• Multinational Corporations
Economic Growth
• Economic growth refers to an increase in the real
output of the economy: An outward shift of the
production possibilities frontier
• Sources of economic growth:
» Increases in the quantities of resources
» Technological progress
• Exogenous and endogenous sources of growth
• The income effect of economic growth
Trade and Economic Growth
• Does (international) trade contribute to
economic growth?
• Economic growth and terms of trade
• The challenges developing countries face in
increasingly globalized economy
–
–
–
–
–
Inadequate savings/investments
Rapid population growth and relatively small labor force
Deteriorating terms of trade
Weak “institutions” (economic, political, social)
And AIDS
The World Bank’s Classification of the Nation States
$GDP PER CAPITA BY COUNTRY GROUP
2000
•
•
•
•
•
Low Income
Lower Middle
Upper Middle
High Income
Middle East and N.Afc
426
1,146
4,900
27,609
2,235
World's Household Consumption Pie-1999
4%
18%
78%
Low Inc
Mid Inc
High Inc
Source: The World Bank
$GDP and Consumption Per Capita-1999
30000
25000
20000
GDP-PC
15000
Cons-PC
10000
5000
0
Low Inc
Mid Inc
High Inc
Source: The World Bank
Capital Stock & Labor Distribution
100
90
80
70
60
CapStock
50
Labor
40
30
20
10
0
LowInc
Source: World Bank
LowerMid
UpperMid
High
The structural differences:
• Labor:
Labor force participation
Female labor force participation
Skilled and semiskilled labor
• Capital:
Physical capital
Human capital
Infrastructure
Physical infrastructure
Institutional infrastructure
Social/Cultural infrastructure
• Capital Stock and Labor Productivity
Balanced Growth: More Inputs
• Balanced growth: Proportional increases in
labor and capital
Food
o
C1 U1
Co
P1
Uo
Po
Cloth
Will balanced growth necessarily
increase welfare?
• Population increase vs. labor force increase
• The effect of growth on terms of trade
– The small country case
– The large country case
– When a number of small countries exporting
the same product grow simultaneously
Growth Effects
•
•
•
•
•
Income Effect
Price or Terms-of-trade effect
Effects on trading partner
Trade effect
Production effects
• In the case resource growth
• In the case technological progress
Growth and Terms of Trade
F
U2
(Immiserizing Growth)
Uo
TT: (Pc/Pf)
U1
TT’: (Pc/Pf)’
P2
(Pc/Pf) > (Pc/Pf)’
P1
Po
TT’
TT
o
TT
C
Growth and Terms of Trade
F
U2
TT: Pc/Pf
TT’: (Pc/Pf)’
(Pc/Pf) > (Pc/Pf)’
U1
Uo
P2
P1
Po
TT’
TT
o
TT
C
Factor Mobility
• Recall factor price equalization theorem
• Labor mobility: migration/immigration
• Capital mobility:
» Portfolio investments
» Direct investments
» Multinational corporations
Horizontal MNEs
Vertical MNEs
Conglomerates
A Simple Model
Wa
Wb
S
S’
Tax
wao
Wb1
Wb1
wbo
D’:VMPLa(1-t)
D:VMPLb
D:VMPLa
Ob
Oa
Total Labor
A Simple Model
ra
S
rb
S’
rao
rb1
ra1
rbo
D:VMPKb
D:VMPKa
Ob
Oa
Total Capital
Multinational Enterprises
An MNE is a firm that owns, controls and
manages production or service facilities in two
or more countries
» Horizontally integrated MNEs
» Vertically integrated MNEs
» Conglomerates
• Capital arbitrage
• The location theory
• Bypassing trade barriers: R&Ds and FDIs
» Are MNEs substitutes or complements to trade?
» Do MNEs facilitate transfer of technology?
» Do MNEs exploit and abuse their host countries?
MNEs and Economic Development
• Saving, investment and economic growth