Transcript International Economics

International Economics
Developing Countries
Organizations of International
Economy
What is necessary for a poorer
country to get ahead?
• Economic
development
– The size and
sophistication of a
nation’s industrial,
service, technical and
ag sectors
Developed Nations
• High levels of
industrial and
technical expertise.
• Variety of economic
institutions
– Banks, stock markets,
and trade networks
World Bank
• Classifies 25 nations
as being “high
income” or highly
developed.
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–
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US
Canada
Japan
Most of Europe
14% of the world’s
population.
Developing Nations
• Low per capita GDP
• Limited resources or
inefficient use of
resources
• Rapid population
growth rate
• Dependency on
agriculture as main
form of production
World Bank Data
• 90 nations are
considered
“developing”
• Average income
$3,000 per year
• Examples
– China, Mexico, most
Eastern European
countries
Least Developed Countries
• 49 countries listed as
LDC
• Average income less
than $900 a year.
• Weak human assets
• High economic
vulnerability
• Economic smallness
What do nations need to “get
ahead”?
• MOST
IMPORTANT!
• Capital formation!
– Countries don’t get
ahead because of a
lack of
• Savings
• Private investment
• Lack of existing capital
Also needed to get ahead
• Get away from “one
crop” economies
– Can be mining of one
item or ag
speciaization.
• Population control
– Need long term
investment in health,
education, job
training.
Also needed to get ahead
• Encourage
entrepreneurship
• Adequate
infrastructure
• Political stability
• Social and cultural
obstacles need to be
overcome
How Nations are Developing
• International Private
Capital
– Multinational
corporations (MNCs)
• Provide jobs, money,
products, services
How Nations are Developing
• Foreign Aid
– Provide economic
assistance, military
assistance and
emergency assistance.
Economic Assistance
• Financial and
technical aid, loans
and cash grants
– Supply services of
specialists such as
engineers, scientists,
teachers, physicians.
Military Assistance
• Loans, cash
payments, technical
expertise and
equipment for
military purposes.
– Make allies for
countries
Emergency Assistance
• Food, medical
supplies, clothing and
other goods that
sustain life in times of
crisis.
Why give foreign aid?
• Foreign aid
encourages
international trade.
• Economic and social
improvements help
distribute money
through world
economy.
• Reduce political strife
International Public Sources for
Capital
• World Bank
• International
Monetary Fund (IMF)
• United Nations
World Bank
• 180 countries
contribute money to
it.
• Focuses on helping
LDCs and Developing
Countries
– Financing projects
– Giving advice
– Eliminate poverty
The World Bank Focus
• Human Development:
– Education
• Ag and Rural
Development:
– Irrigation / rural services
• Environmental Protection
• Infrastructure
Improvement
– Roads, electricity
• Governance
– CONTROVERSIAL!
Complaints about the World
Bank?
• Some see it as a US
controlled agency that
if countries don’t
accept capitalism and
free market reforms
after the US models…
– They don’t seem to
get the money!
Complaints about the World
Bank
• Interest rates can be
CRIPPLING for poor
countries to pay back.
– Are numerous
countries in Africa
essentially “owned”
by the World Bank?
• ODIOUS debt
Odious Debt
• The World Bank has
been accused of
making large loans to
corrupt dictators /
governments –
knowing the money
would be wasted.
Odious Debt
• South Africa used to have
a government called
APARTHEID.
• When it was overthrown
the new government
found they were
responsible for the debts
of their oppressors.
– No new loans or building
projects in South Africa in
the 1990s.
Should these debts be
“forgiven”?
• U-2’s Bono regularly
campaigns to lower
the interest rate on
loans or to forgive
debts for the LDCs.
In defense of the World Bank
• It is one of the most
highly regarded
financial institutions
in the world.
• Constant research and
the best statistics on
LDCs
• Many educational
scholarships to
students in LDCs.
IMF
• 184 Countries seek to
create:
– monetary cooperation
– Secure financial
stability
– International trade
– High employment /
lower poverty
International Monetary Fund
• Establish and stabilize
exchange rates.
• If a country needs
help – the IMF can
offer loans to help
stabilize the money.
Complaints about the IMF
• Often tie loans to
political changes
– Like free elections!
– Like energy
conservation.
– Higher taxes
• But is it right for the
IMF to force political
decisions for another
country?
United Nations
• Finances thousands of
development projects
in education, health,
agriculture and
industry.
– UNICEF for
children’s health
– Red Cross for
humanitarian aid
The UN has been accused of
problems
• Political corruption
• Too much red-tape of
bureaucracy prevents
the people or money
from reaching those in
need.
– Maybe new General
Secretary Ban (South
Korea) will change
things?
A New Formula to combat
international poverty
• Muhammad Yunus of
Bangladesh and the
bank he created –
Grameen Bank.
– Micro-loans to
individuals.
– Collateral free
– Low interest rates
– NEVER more than
$200 per customer.
Grameen Bank’s Philosophy
• "these millions of
small people with
their millions of
small pursuits can
add up to create the
biggest
development
wonder."
Grameen Bank’s Philosophy
• Has helped 6.83
Million people to find
some relief from
poverty by starting
their own businesses.
– 97% of the customers
have been women.
Yunus and Grameen were noted
in 2006
• The Nobel PEACE
Prize
• "for their efforts to
create economic
and social
development from
below"
The Gates Foundation
• More focus on combating
global poverty.
– Economic micro-aid
– Population control
– Infrastructure development
• Roads, water treatment,
education.
– Finding cure for malaria
– Polio inoculations
TRADE
• Trade Barriers
– Tariffs: import taxes to make imports cost
more or as much as our goods.
– Import quotas: fixed amount of an item that
can be imported
– Embargoes – political rather than economic
reasons for keeping goods out of the country.
Why have trade barriers?
• Protectionism
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Infant industries
Job protection
Standard of living
Specialization
National security
fairness
International Trade Agreements
• NAFTA (North
American Free Trade
Association)
– Mexico, US, Canada
– Goal is to eliminate all
tariffs on goods and
services between
countries.
International Trade Agreements
• European Union (EU)
– Most European countries.
– One currency for all
countries
– Elimination of tariffs and
consistent regulation of
goods.
• Cheese made in Holland
follows same safety
protocols as cheese from
Switzerland.
Strong Dollar v. Weak Dollar in
Trade
• Currency exchange
rates: How much
does our dollar “buy”.
– 2000 Strong dollar
– 1 Pound = $1.20
– 87 pounds was
$104.40
Strong Dollar v. Weak Dollar
• 2007 Weak Dollar
– 1 pound = $1.96
– 87 pounds = $170.52
– The same place costs
$66.42 MORE a day!
– OUCH!!!
Weak Dollars in 2007
• Encourages other
countries to buy
American goods
upping EXPORTS.
• Encourages tourism to
our country.
• Discourages dollars
from leaving the
country.
Strong Dollars
• Encourage IMPORTS
because our dollars
buy more.
• Discourages exports
and can hurt jobs.
• Encourages
Americans to travel.