CDAE 272CDAE 272

International Economic International Economic DevelopmentDevelopment

Spring 2008

Class 04 Jan. 24

Last class:1. Introduction

Today: 1. IntroductionQuiz 1

Next class: 2. Measuring economic growth & development Reading:

Reading package: IntroductionImportant date:

Problem set 1 due Tuesday, Feb. 5(To be posted on the class website on Jan. 25)

Questions from the classQuestions from the class

1. How to calculate growth rate when it is negative?

Example 1. If the per capita GNP dropped from

$1500 in 2006 to $1455 in 2007, what was the

growth rate?

Example 2. If the per capita GNP dropped from

$2000 in 2005 to $1805 in 2007, what was the

average annual growth rate?

Questions from the classQuestions from the class

2. Could you give one example that has different

contributions to GNP and GDP?

A small broom company, located in Swanton, VT, produced 1,000 brooms and sold them at $10 each in 2007. The 1,000 wood handles were purchased from Canada at $2 each and the 5,000 lbs of straws were purchased from Swanton at $0.5 per lb. It is a family business without any hired worker and the owners are Canadian citizens. What are the contributions to Canadian GNP and GDP and U.S. GNP and GDP?

1. Introduction1. Introduction

1.1. Economic growth and globalization

1.2. Rapid growth in world trade

1.3. Development patterns of selected nations

1.4. The U.S. economy and international trade

1.5. Potentials and challenges

1.2. Rapid growth in world trade1.2. Rapid growth in world trade

1.2.1. International trade and indicators -- Exports and imports -- Trade deficit or surplus

Balance of trade = Exports - Imports -- Trade barriers (restrictions) -- Index of openness -- How to calculate the index?

= Export / GDP -- How can it be greater than 100%? -- Economic freedom index

U.S. balance of tradeU.S. balance of trade

China’s exports and imports China’s exports and imports ($ billion)($ billion)

0

100

200

300

400

500

600

700

1950 1960 1970 1980 1990 2000 2010

Year

Exp

ort

s &

imp

ort

s

Index of openness (exports/GDP)Index of openness (exports/GDP)

1980 1998China (mainland) 6% 22%India 6% 12%Indonesia 34% 28%Egypt 31% 17%Hong Kong 90% 125%Canada 28% 41%UK 27% 29%USA 10% 12%Japan 14% 19%Singapore 215% 187%

Economic freedom indexEconomic freedom indexHong Kong 9.3Singapore 8.9New Zealand 8.8United Kingdom 8.7 Assignment:United States 8.5Australia 8.5 Google search “economicIreland 8.5 freedom index” and find theSwitzerland 8.4 five nations with the lowest Luxembourg 8.4 economic freedom indexesNetherlands 8.3Argentina 8.3Bolivia 8.3Canada 8.2

1.2. Rapid growth in world trade1.2. Rapid growth in world trade

1.2.2. Growth in world trade since 1950 -- World GNP and exports

-- Major factors for the increase in trade

World GNP and ExportWorld GNP and Export

1950 1960 1970 1980 1990 2000

Trade (index): 100 200 480 790 1160 2010

GNP (index): 100 150 260 390 505 620

1.2. Rapid growth in world trade1.2. Rapid growth in world trade

1.2.3. Trends of world trade -- Likely to increase at significant rates

-- Increasing negotiations and disputes

-- Distribution and redistribution of the benefits and costs of international trade

-- World trade under WTO

1.3. Development patterns of selected nations1.3. Development patterns of selected nations

Read the reading package and pay attention to the economic indicators we have discussed in classes.

1.4. The U.S. economy and international trade1.4. The U.S. economy and international trade

-- Read pages 1-13 to 1-15 -- Trade deficit (billion dollars)

Total With China 1970: -1.2 1980: 14.9 1990: 80.7 10 (12%) 2003: 496.0 124 (25%

2004: 618.0 161 (26%)2005: 725.8 201 (28%)2006: 830.0 232 (28%)

http://www.americaneconomicalert.org/ticker_home.asp

1.5. Potentials and challenges1.5. Potentials and challenges

1.5.1. Rapid increase in trade

1.5.2. More and more disputes

1.5.3. Free trade vs. government interventions

1.5.4. Development issues related to trade-- Environment

-- Poverty and inequity

…...

1.5.5. World trade under WTO -- Functions

-- Efficiency

…...

A comparison of pork product pricesA comparison of pork product prices(US dollars per pound)(US dollars per pound)

China United StatesLoin 1.20 1.32Lung 0.24 0.03Pork stomach 2.16 0.54Pork kidney 1.54 0.17Lard 0.72 0.25Pork feet 0.87 0.20Boneless butt 1.20 0.81Nape of neck with bone 1.32 0.10

U.S. ag. export to ChinaU.S. ag. export to China(thousand dollars)(thousand dollars)

0

50,000

100,000

150,000

200,000

250,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

Val

ues

in 1

000

dolla

rs

Fats, oils, greases Vegetables & prep Red meat & prods

Dairy prods Poultry & prods

McDonald’s in China(number of restaurants)

0

100

200

300

400

500

600

1987 1990 1993 1996 1999 2002

Mainland HK Taiwan