The study of the behavior and

decisions of entire economies.

A modern term used to describe the changes in societies and the world

economy that result from dramatically increased

international trade and cultural exchange.

“Countries engage in international trade for two basic reasons, each of which contributes to their gain from trade. First, countries trade because they are different from each other. Nations, like individuals, can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production. That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. In the real world, patterns of international trade reflect the interaction of both these motives.”

~Paul Krugman, International Economics

Definition~ Preventing a foreign product from freely entering into a nation’s territory.

1. Import Quota 2. Voluntary Export Restraint3. Tariff4. Informal Barriers

• Government Licensing Restrictions• Government Health and Safety

Requirements

The overall impact of trade barriers is that they limit supply. This results in two common consequences:

1.Increased price of foreign goods2.Trade wars

Definition~ The use of trade barriers to protect industries from foreign competition.

Positives Protect jobs Protect infant industries Enhance national securityNegatives Limits LDC’s ability to compete on a global

scale Reduces global living standard Limits attempts for international peace

World Trade Organization (1995)~ The only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

European Union (1951/1999)~ A regional economic agreement among 27 countries across the European continent.

NAFTA (1994)~ This agreement removed most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. The agreement was phased in from 1994-2008 and has increased trade by over 200% since it was enacted.

Development- Process by which a nation improves the economic, political and social well being of its people.

Developed-High level of material well being (US)

Less Developed- Low level of material well being (Ethiopia)

Newly Industrializing- Better performing LDC’s (Mexico)

Indicators of Development

1. Per capita GDP2. Energy

Consumption3. Labor Force4. Literacy5. Infant Mortality6. Life Expectancy7. Consumer Goods

Levels of Development

South America

Central America Caribbean

United States

Canada

Southern Africa

Middle Africa

Eastern Africa

Western Africa

Northern Africa

Southern Europe

Western Europe

Eastern Europe

Northern Europe

Western Asia

South Central Asia

East Asia

Southeast Asia

Oceania

Tropic of Cancer

Tropic of Capricorn

Equator

Three Levels of Development Developed Countries Less Developed Countries Newly Industrialized

Countries

1. Rapid population growth2. Resource distribution3. Lack of physical capital4. Lack of human capital

• Health/Nutrition• Education/Training• “Brain Drain”

5. Political Factors• Colonial Dependency to Independent Planning• Government Corruption• Political Instability (civil wars, social unrest, lack of

government infrastructure)6. Debt

Why are there more babies being born?1. Children may be needed to help earn money2. Lack of contraceptive devices may lead to

unwanted pregnancies and babies.3. The local or national culture or government

may encourage large families4. Parents may be fearful of infant mortality

(children dying very young) 5. Better medical facilities could be increasing

the lives of mothers and therefore increasing their chances of having larger families

Why are there fewer deaths now?1. Better birthing facilities2. More widely available medicines and medical

expertise3. A general improvement in diet and nutrition in

many countries

In parts of Africa, Asia, and Latin America, physical geography makes development more difficult.

Only about 10 percent of the world’s land is arable, or suitable for producing crops.

The lack of economic activity typical of LDCs is due in part to a lack of physical capital.

Subsistence agriculture provides little opportunity for individuals or families to save.

Health and Nutrition Proper food and nutrition are necessary for

physical and mental growth and development. Inadequate nutrition is called malnutrition.

Education and TrainingTo be able to use technology and move beyond mere subsistence, a nation must have an educated work force.

Brain DrainThe scientists, engineers, teachers, and entrepreneurs of LDCs are often enticed to the benefits of living in a developed nation. The loss of educated citizens to the developed world is called “brain drain.”

1. shifting from colonial dependency Find out more...

2. political instability Find out more...

3. Corruption Find out more...

4. Debt Find out more...

Many nations, specifically on the African continent, were under colonial domination until recent times.

This domination created an economic structure that was “export” heavy and “import” light. This unequal balance of trade made nations dependent on the colonial power for manufactured products.

In addition to hyper-dependency for manufactured goods, colonies often lacked infrastructure and internal leadership.

But independence is a good thing…RIGHT?!!?!?

Political instability plagues less developed nations with civil wars and social unrest acting to prevent the necessary social stability required for sustained development.

“Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.”

~ Peter Eigen

“Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.”

~ Peter Eigen

“Corruption isn’t a natural disaster: it is the cold, calculated theft of opportunity from the men, women and children who are least able to protect themselves. Leaders must go beyond lip service and make good on their promises to provide the commitment and resources to improve governance, transparency and accountability.”

~ David Nussbaum

“Debt is an efficient tool. It ensures access to other peoples' raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters' income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in ... [a] healthy, well-fed, literate population ... is the most intelligent economic choice a country can make.”

--  Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235

World Bank

International Monetary Fund

World Trade Organization

The World Bank is a vital source of financial and technical assistance to developing countries around the world. Their mission is to fight poverty with passion and professionalism for lasting results and to help people help themselves.

It is not a bank in the common sense; it is made up of 186 member countries.

They provide low-interest loans, interest-free credits and grants to developing countries.

The World Bank, established in 1944, is headquartered in Washington, D.C.

The three pillars of the World Bank:• Results• Reform• Resources

Started in 1944 at the Bretton Woods Conference.

The IMF is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Creates structural adjustment programs (SAP) in less developed nations across the globe.

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

Established on January 1, 1995 and is headquartered Geneva, Switzerland

It is made up of 153 countries Functions:

• Administering WTO trade agreements• Forum for trade negotiations• Handling trade disputes• Monitoring national trade policies• Technical assistance and training for developing countries• Cooperation with other international organizations