MIM 513Pacific Rim Economies

Class One – Introduction to Globalization

Introductions and Syllabus review

Country & Team Selections & Current Events sign-up

Metrics & Current Events- Economic indicators – ISM Data

Overview / Historical Thought

What is International Economics about?

Ricardo comparative models

Globalization Overview – Articles Review

Agenda

Economic Historical ThoughtAdam Smith – Invisible Hand (Against Mercantilism)John Maynard Keynes – pro-gov stimulus (IS-LM) (“It is better to be roughly right than precisely

wrong”)David Ricardo – labor theory of value & tradeKarl Marx – Surplus value / Exploitation laborThomas Malthus – (Principals of population /Moore’s law)Milton Friedman – (“No Free Lunch” / monetary

theory)

What is International Economics about?

• $3Trillion of foreign exchange transactions / day• $12T goods & $3T services are sold across

borders• 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 were

viewed as national– Capital is the largest factor of production that

moves• Differing fiscal policies and regulations

– Banking and financial systems• Differing currency

• EU versus UK

Globalization• Globalization – Interdependent and integrated

world economy• All firms export and import – 97% of firms in US

<500 employees• Globalization of Markets – global norms equate to

trade • 2006 over 2,500 trade treaties have been signed

vs. 181 in 1980. • Globalization of Production – low-cost factors of

production

Example – Boeing 787

Dialectic Marketplace

Globalization• Globalization can be cultural, political, &

economic.– Cultural: A new Universalism (laws versus

Jihad)– Political: policies regarding factors of

production (oil)– Economic: Markets and Production

• Globalization of Markets – global norms equate to trade

• Globalization of Production – low-cost factors of production – Ricardo

Globalization

- W-Bank – states that by 2020 60% of econ activity by developing 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. Hong Kong 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 termsMPC / MPSGDP (location) / GNP (ownership)Income & IS-LM M1 (consumption) / M2 (M1 + savings, CDs)M3 (M2+ CD>$100K, 401K) = ~90% of $$$Surplus Labor / ValueSupply / DemandConsumer & Producer surplus

Overview Cont.

Supply / DemandConsumer & Producer surplusPrice Discrimination -> £8 charge

leading to internet Sales

Elasticity of Supply & DemandFormulas

Elasticity of Demand – what is it?

Demand creation and consumption modeling

Ricardo’s comparative advantage – Beginning of Trade- Defined : A country will export goods with a low opportunity

cost and import goods with a high opportunity cost- Key is relative or comparative, one country cannot produce

everything - 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 more

resources- China- labor vs. US Agriculture- Flaw – assumes tech is equal

Inequality – GINI

HBC Inequality & Globalization

What do we know? - Human development index (Gini) – life

expectancy, education, & Std of living based on PPP - China – 43.4 but U.S. – 40.8?

- Apartheid economy developing?- An issue in both developing and developed

nations- GDP growth; PPP effect normalizes a little

Questions:- MDG / WB poverty levels muddying the

water? $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 and as a business leader?

Two Articles - Discussion

Krugman, P (2009). How did economists get it so wrong?

Cleveland, P. (2011). A vital link: Foreign markets 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 abnormal

behavior without consequence (pollution, real estate bubble based on sub-prime behavior)

- Low inflation & high growth was over too long a period

Krugman – Multiplier deficits

Cleveland Article – MFG Jobs