the global economic environment

The Global Economic Environment

The Coming Boom

Wealthy Industrial Countries 2.9 2.7

Developing Countries 3.0 4.8

East Asia 7.5 7.6

South Asia 4.8 5.3

Latin America 2.6 3.4

Eastern Europe* 1.0 2.7

Sub-Saharan Africa 2.0 3.9

Middle East & North Africa 1.2 3.8

*Includes former Soviet Union

1974-1993

1994-2003

Real GDP growth, annual average %Source: World Bank, The Economist

Economic Systems

• Capitalist

• Socialist

• Mixed

Economic Freedom

An economic index with consideration of:

Country Income Segmentation

High Income (Advanced Countries) - Triad - Others

Upper Middle Income (NIC's) Lower Middle Income (DC's)

Low Income (LDC's)

+ $9,385

+ $3,036

+ $765

< $765

National ProductionNational Production

GrossGrossNationalNational

Product (GNP)Product (GNP)

GrossGrossDomesticDomestic

Product (GDP)Product (GDP)

Drawbacks of GNP and Drawbacks of GNP and

GDPGDP

Problem Problem of Averagesof Averages

UncountedUncountedTransactionsTransactions

PitfallsPitfallsof Comparisonof Comparison

Question Question of Growthof Growth

Estimate of GNP Per Capita at PPP (Selected Countries)

SelectedCountry

GNP Per Capita

PPP Estimate ofGNP Per Capita

(U.S. = 100)

United StatesSwitzerlandJapanCanadaRussiaMexicoNigeriaIndia

26,98040,63039,64019,380

2,2403,320

260340

26,98025,86022,11021,130

4,4806,4001,2201,400

Purchasing Power Parity

The Expanding Triad

European Economic Area

N. American Free Trade Area

Japan and the Tigers

Population(million)

GNP(billion)

GNPPer Capita

393$ 8,354 $ 21,248

284 $ 19,831

374$ 8,293 $ 22,134

U.S., Canada, Mexico

Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand

1997 figures

% of World: 7%30%

% of World: 5%21%

% of World: 7%30%EU: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, U.K.

EFTA: Iceland, Switzerland

$ 5,638

Big Emerging Markets: 1997

BEM (Total) $4,248 $1,388 15 29 52

CEA (Total) 1,318 1,046 5 12 22 China 890 723 3 11 21 Taiwan 268 12,263 1 1 <1

Hong Kong 160 25,225 1 <1 <1

Brazil 590 3,591 2 3 3

Korea, Rep. 512 11,218 2 2 1

India 352 365 1 4 17

Mexico 318 3,323 1 2 2

Russian Federation 301 2,018 1 2 3

Argentina 297 8,336 1 1 1

Turkey 184 2,896 1 1 1

South Africa 134 3,096 1 1 1

Indonesia 133 667 1 2 3

Poland 108 2,770 <1 1 1

GNP(billion)

GNPPer Capita

% ofWorldGNP

% of WorldPPP

% ofWorld

PopulationMarket

Big Emerging Markets: 2010

BEM (Total) $7,673 $2,082 19 35 51

CEA (Total) 2,724 1,853 7 17 21 China 1,952 1,357 5 15 20 Taiwan 512 21,115 1 1 <1

Hong Kong 259 34,837 1 <1 <1

Korea 925 18,212 2 2 1

Brazil 877 4,384 2 3 3

India 665 544 1 5 17

Mexico 545 4,389 1 2 2

Argentina 501 12,023 1 2 1

Russian Federation 466 2,976 1 2 2

Turkey 330 4,117 1 1 1

Indonesia 230 948 1 3 3

South Africa 208 3,679 1 1 1

Poland 201 4,864 1 1 1

GNP(billion)

GNPPer Capita

% ofWorldGNP

% of WorldPPP

% ofWorld

PopulationMarket

BOP (Balance of Payments)

1. Definition

2. Double entry system

+ (inflow)– (outflow)

BOP (cont’)

3. Current Account vs. Capital Account

4. Trade Balance

Ex: U.S. BOP, 1994-1997 (US$B)

1994 1995 1996 1997

A. Current Account -123.21 -115.22 -135.44 -155.38

1. Goods: Export FOB 504.45 577.69 613.89 681.27

2. Goods: Imports FOB -668.59 -749.57 -803.32 -877.28

3. Balance on Goods -164.14 -171.88 -189.43 -196.01

4. Services: Credit 199.25 217.80 236.71 256.06

5. Services: Debit -132.45 -141.98 -152.00 -166.09

6. Balance on Goods and

Services

-97.34 -96.06 -104.72 -106.04

B. Capital Account -.60 .10 .52 .16

Total A + B -123.81 -115.12 -134.91 -155.22

Trade Deficit

Reserve