mim 513 pacific rim economies class one – introduction to globalization
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MIM 513Pacific Rim Economies
Class One – Introduction to Globalization
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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
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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)
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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
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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
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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
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Example – Boeing 787
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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
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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
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Globalization
- Political systems- Socialism vs. Capitalistic- “Follow the party” vs. free market
- Intellectual Property issues- Foreign Corrupt Practices Act - Purchase Power Parity –
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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
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Overview Cont.
Supply / DemandConsumer & Producer surplusPrice Discrimination -> £8 charge
leading to internet Sales
Elasticity of Supply & DemandFormulas
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Elasticity of Demand – what is it?
Demand creation and consumption modeling
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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
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Inequality – GINI
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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
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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?
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Two Articles - Discussion
Krugman, P (2009). How did economists get it so wrong?
Cleveland, P. (2011). A vital link: Foreign markets and Oregon jobs.
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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
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Krugman – Multiplier deficits
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Cleveland Article – MFG Jobs