HNDEconomics2TheWorldEconomy世界經(jīng)濟(jì)學(xué)報告

Economics2:TheWorldEconomy

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Content

Introduction----------------------------------------------------------------3

Section1:InternationalTrade

Threegainsfromtradinginternationally---------------------------------------3

FreeTrade--------------------------------------------------------------------------3

AbsoluteandComparativeAdvantage-----------------------------------------3

Protectionism----------------------------------------------------------------------4

Barrierstotrade-------------------------------------------------------------------4

WTOandEU----------------------------------------------------------------------5

Section2:InternationalFinance

BalanceofPaymentsandGeneraltrendsinUKTrade----------------------6

Relationshipbetweentheexchangerateandthebalanceofpayments—14

SingleCurrency------------------------------------------------------------------15

EffectsonindividualsandbusinessoftheEuro-----------------------------15

Section3:LessDevelopedCountries(LDCs)

CharacteristicsofaLDC--------------------------------------------------------16

CurrentissuesthatfaceLDCs--------------------------------------------------16

TheimpactsofmultinationalsonLDCsandNICs--------------------------16

Conclusion-----------------------------------------------------------------16

References------------------------------------------------------------------17

Introduction:

AsamemberofthegovernmentofnationontheperipheryofEurope,itismyobligationtoillustratethebenefitsofjoiningtheEUtothePremier.Inthisreport,Iwillanalyze15elementsinnextthreepartstomakeaclearexplanationofbenefitsofjoiningtheEU.

Section1:InternationalTrade

Threegainsfromtradinginternationally:

Tobeginwith,theinternationaltradecouldincreaseworldout-put.Thetendencyofglobalizationbringsthefirmsmoreopportunitiestogainthelabor,resources,contractsandnewtechnology.Thesupplyanddemandwillbeimprovedwiththeimprovementofcompany’sproductivity.

Oncethesupplyhasbeenimproved,thegoodsandserviceswereproducedatlowercostandtherearemoreandmorecompetitions,thepriceoftheproductmightfallwhichmeansconsumerscouldgetmorechoicesandcheapergoods.

Inaddition,themostimportantgainingofinternationaltradeisitcangenerateeconomicgrowth.Freetradecouldincreasesales,profitmargins,andmarketsharesandthebothdemandandsupplylevelhasupdated.Meanwhile,theproducerneedsmoreresources,laborandcapitaltoproducemoretosatisfytheglobalmarket.Itdirectresultinimprovingthematerialmarket,financemarket,andmaydeclinetheunemploymentrate.

Freetrade

Freetradeisaconceptthatthereisnobarriertogoodsandservicesexchangedbetweencountries.Sincedifferentcountrieshavedifferentterrain,weather,resourcesandtechnology,theinternationaltradewouldbringthegoodswhicharemorevaluablethanthelocalpeopleproduceitbythemselves.

AgoodexampleforfreetradeisinNov.18,2004,ChinesePresidentandChileanPresidentdeclaredthestartoftheFTAnegotiations.Accordingtotheagreement,thetwocountrieswouldstarttariffreductionofgoodstradefromJuly1,2006.Tariffofproductsaccountingfor97%ofthetotalofthetwocountrieswouldbezerointenyears.ChinaandChilewouldcarryoutfreetradeineducation,science&technology,environmentprotection,labor,socialsecurity,IPR,investmentandpromotion,mineralandindustry.ThisagreementhaspromotedthefreetradebetweenChinaandChilesuccessfully.

Absoluteandcomparativeadvantage

Absoluteadvantagereferstotheabilityofaparticularpersonoracountrytoproduceaparticulargoodwithfewerresourcesthananotherpersonorcountry.Absoluteadvantageissaidtooccurwhenonecountrycanproduceagoodorservicetopre-determinedqualitymorecheaplythananthercountry.Itstandscontrastedwiththeconceptofcomparativeadvantagewhichreferstotheabilitytoproduceaparticulargoodataloweropportunitycost.Opportunitycostisdefinedasthecostofchoosingagoodorservicemeasuredintermsofthenextbestalternativegivenup.Acountryhasacomparativeadvantageinproducingagoodiftheopportunitycostofproducingthatgoodintermofothergoodsislowerinthatcountrythanitisinothercountries.

Example:KoreaandJapanhavefollowingproductionpossibilitiesfortwocommodities,mobilephonesandcomputers;assumethatalltheresourcesownedbyeachcountryaresame.

Mobilephone

Computer

Japan

2000

20000

Korea

1000

15000

ItisclearthatJapanhasanAbsoluteadvantageoverKoreainbothcommodities.Buttheadvantageithasismuchgreaterformobiles.UsingthesameresourcesasKoreaitcanmaketwiceasmanymobilephones.

ForJapanthe‘cost’of1Mobilephoneis10balesofComputers,i.e.20000/2000

ForKoreaitis15,i.e.15000/1000

ButifwelookatthecaseofcomputerswewillfindthathereforJapanthecostofabaleofcomputersisone-tenthofaMobilephonewhileforKoreaitisonefifteenth.IntermsoftheoutputofMobilephoneforegone(opportunitycost),computerischeaperinKoreathanJapan.KoreahasaComparativeadvantageincomputerwhileJapanhascomparativeadvantageinmobilephone.

Protectionism

Protectionismistheeconomicpolicyofrestrainingtradebetweennations,throughmethodssuchashightariffsonimportedgoods,restrictivequotas,avarietyofrestrictivegovernmentregulationsdesignedtodiscourageimportsandanti-dumpinglawsinanattempttoprotectdomesticindustriesinaparticularnationfromforeigntake-overorcompetition.

Herearetwoexamplesofprotectionism:

1:Britainimportsbananasfromitsex-coloniesinSouthAmericawhileUSAownshugebananaplantationsinSouthAmerica.In1999BritainrefusedtoimportbananasfromSouthAmerica,sotheUSgovernmentslappedtariffsonsomeBritish-madegoods.Themostseriousonewasapunitivetariffof100%onScottishwoolproductsinordertolimittheimportfromBritain.

2:AnotherexampleofprotectionismisinJanuary,2009,AmericangovernmentsettledapolicythatonlytheAmericansteelcanbeusedinAmerica.TheAmericangovernmenttendedtousethispolicytoreducethelossinfinancialcrisisandithelpsthesteelworkerstokeeptheirjobs.Inthisexample,protectionismprotectsthedomesticlower-skilledlaboranddomesticindustries.

Barrierstotrade

Toprotectacountry’sownindustries,thecountrywhichinadversesideneedtofindsomewaystobebarrierstolimittheimportproducts,usually,thetwomethodsare—tariffandnontariffs.

Tariffistaxesorcustomsdutiesplacedonforeignproductstoartificiallyraisetheirpricesandthishopefully,suppressesdomesticdemandforthem.Thistaxmaybeadvalue,thatis,apercentageofthepriceofthegoodsorspecific,thatis,ataxperunitofweightorphysicalquantity.

Forexample,inJanuary12,2009theRussiangovernmentraisedtheexpropriationtariff(upto30percent)forthecarsimportinthenextninemonths.Theimportcar’spricewillbeincreasedtobeWP(priceforthewholeworld)addsthetariff,sincethepriceisincreasing,thesalesoftheimportcarsmustfalldown.ThecustomersmightchoosetheRussiancarinsteadofimportcarssinceitischeaper.

Non-tariffbarrierstraditionallyhavebeenactionssuchQuotas,embargoes,exchangecontrolandimportdeposits.Probablythebestknownoftheseisthequota.Thisisaphysicallimitationonthequantityofimport.Quotaisaphysicallimitationonthequantityofimportswhichhadbeenacknowledgedbylocallaws.Usuallytheimportersneedtoapplytopayforalicensetosellgoods.

Forinstance,Russiausesanothermethodtolimitforeigncarimportsince2008—tolimitthequantityofimport;onlyafewcompanieswhichhavetheimportlicensecouldimportcarsandhaveasellingupperlimit.Russiausesthesemethodstorestricttheimportquantity,andduringthegovernmentlimitedforeigngoodsimport,itcanpromotethedomesticindustries.

WTOandEU

In1948,theGeneralAgreementonTariffsandTrade(GATT)wasestablishedbythedevelopedcountries.In1Jan1995,theGATTwassupplantedbyanewinstitution,theWorldTradeOrganization(WTO)andaimstoimprovetradeandinvestmentflowsaroundtheworld.Itisaninternationalbodyseekingtopromotefreetradebyopeningmarketsthroughtheeliminationofimporttariffs.Theorganizationadministerstradeagreements,monitorsinternationaltradepolicyandactsasaforumfortradenegotiations.ThefourmaingoalsofWTOare:freeingglobaltradethroughuniversallyloweredtariffs,imposingthesamerulesonallmembersinordertohomogenizethetradeprocess,spurringcompetitionthroughloweredsubsidies,andensuringthesametradeconcessionsforallmembernations.TheWTOalsoprovidestechnicalassistanceandtrainingfordevelopingcountries.WTOaimsforequalrepresentationamongmembersbygrantingeachmembercountry"most-favorednation"status;whenamembercountrybestowsatradeprivilegeonanothernation,theprivilegemustbeextendedtoallothermembercountries.Anothertenetis"nationaltreatment,"whichbehoovescountriestotreatforeignimportsequallywiththoseproduceddomestically.

ThebestexampleforjoiningtheWTOisthejoinofChinain2007,afterthat,Chinaachieveslotsofbenefitsfromthedecreaseoftariff,limitationsandthesimplificationoftradingprocedures.

EUstandsforEuropeanUnionandisaneconomicunion,whichaimstoabolishtariffsandquotasamongmembers,commontariffandquotasystem,restrictionsonfactormovementsandharmonizationandunificationofeconomicpoliciesandinstitutions.Itdrawsoutregulations,monitorsmemberstates,solvesdisputesandproblemsamongmemberstatesandnegotiateswithothercountriesorinternationalorganizationsonthebehalfofEUmembers.TheEuropeanUnionaimstopromoteandsmoothfreetradeamonginternalEuropeanUnionandinitiativesforsimplifyingnationalandcommunityrulesincludesimplerlegislationfortheinternalmarket(SLIM)andEuropeanBusinessTestPanel.Forexample,inOct16,2009,EUandKoreangovernmentsignedafreetradeagreementof100billionUSdollarsaftertwoyears’negotiationandEUwillcancelthetariffsonimportsoftextileandcarsfromKoreainthenextthreeyears.ThiswillpromotethefreetradeofEUandhavepositiveimpactontheeconomy.

Section2:InternationalFinance

BalanceofPaymentsandGeneraltrendsinUKTrade

Balanceofpaymentisthenamegiventotherecordoftransactionsbetweentheresidentsofthecountryandtherestoftheworldoveraperiodoftime.ItisakeyeconomicstatisticsandUK’sBalanceofPaymentsiscomprisesbythecurrentaccount,thecapitalaccount,thefinancialaccountwhichdealswithflowofdirectportfolioandinvestmentsandreserveassetsandtheInternationalInvestmentPositionwhichshowstheStockofExternalFinancialAssetsandLiabilities.ThechartbelowshowsthecompositionifBalanceofPaymentsin2008:

a)Thecurrentaccountcanbedividedintofourcategories:tradeingoods,tradeinservice,incomeandcurrenttransfers.Positivenetincomefromabroadcorrespondstoacurrentaccountsurplus;negativenetincomefromabroadcorrespondstoacurrentaccountdeficit.

Herearethetradefiguresofrecentyears:

HerearetheCurrentAccountBalanceChartandtheChartoftradeinGoodsandservicesofUKinlast20years.

Thecurrentbalancehasusuallybeenindeficitoverthelast30years.TheUKhasrecordedacurrentaccountdeficitineveryyearsince1984.Priorto1984,thecurrentaccountrecordedasurplusin1980to1983.From1984to1989,thecurrentaccountdeficitincreasedsteadilytoreachahighof25.5billionpoundsin1989,equivalentto-4.9percentofGrossDomesticProduct(GDP).From1990until1997,thecurrentaccountdeficitdeclinedtoalowof1.0billionpoundsin1997.Between1998and2006,thecurrentaccountdeficitwidenedsharply,peakingat43.8billionpoundsin2006.Thiswasthehighestrecordedincashtermsbutonlyequatedto-3.3percentofGDP.Inthepasttwoyears,therehasbeenareductioninthecurrentaccountdeficit–in2008itcurrentlystandsat25.1billion,equivalentto-1.7percentofGDP.

ItisobviousthatUKhadalargedeficitintradeofgoodsinthelast30yearsandthedeficitbecomeslagerandincreasesgreatlyfrom1998to2008whilethesurplusoftradeinservicegrowssmoothlybutnotasmarkedlyasthegoodsdeficit.Thetradeingoodsaccountrecordednetsurplusesintheyears1980to1982,largelyasaresultofgrowthinexportsofNorthSeaoil.Sincethenhowever,thetradeingoodsaccounthasremainedindeficit.Thedeficitgrewsignificantlyinthelate1980storeachapeakof24.7billionin1989,beforenarrowinginthe1990stolevelsofaround10billionto14billion.In1998thedeficitjumpedbyover9billion,andithascontinuedtorisesince,reachingacashrecordof92.9billionin2008.

TherearetwodifferentofIncome—DirectInvestmentIncomeandPortfolioInvestmentIncome.TheDirectInvestmentIncomemeanstheprofitsearnedbyUKcompaniesfromoverseasbranchesandassociatedcompany.AndthePortfolioInvestmentIncomeistheinterestonbondsanddividends,heldabroadbyUKcompaniesandresidents.

Herearechartsofincomeoverthe10years:

Theincomesectionhasshownpositivegrowthfrom2006to2008andisverymuchinsurplusrecently.

Asforthecurrenttransfer,italsohastwodifferentparts:

Thetaxes,paymentsandreceiptstotheEU,SocialSecurityPaymentsabroad,andmilitaryexpenditureabroadistheCentralGovernmentTransfer.AndforOtherSectorTransfers,itincludesreceiptsfromtheEUSocialFund,taxesonincomeandwealthpaidbyUKworkersandbusinessestoforeigngovernments,insurancepremiumsandclaims.

ThereistheChartofCurrenttransferinlast10years

Thetransfersaccounthasshownadeficitineveryyearsince1960.Thedeficitincreasedsteadilytoreach4.8billionin1990.In1991,thedeficitreducedto1.0billion,reflecting2.1billionreceiptsfromothercountriestowardstheUK’scostofthefirstGulfconflict.Thedeficithassinceincreased,toreacharecord13.6billionin2008.

b)ComparedwithCurrentAccounts,thecompositionoftheCapitalandFinancialAccountismorecomplicate.

CapitalAccounthastwocategories:

Capitaltransfer:Itisinvestmentgrantsbythegovernmentanddebtswhichthegovernmenthasagreedwiththecreditordonotneedtobemet.

Acquisitionanddisposalofnonproduced/nonfinancialassets:Purchaseorsalesofpropertybyforeignembassyorpatents,copyrights,trademarks,franchisesandleases.

Thecapitalaccounthasshownstrongsteadysurplusgrowthespeciallyfromtheyearof2006to2008.

Thefinancialaccounthasfourcategoriesandherearethechartsofthefourcategoriesoverthelasttenyears:

Accordingtothesegraphs,investmentincreaseddramaticallyfromthemid-1990s,reflectingtheincreasedglobalizationoftheworldeconomy.Between2000and2007,otherinvestmentdominatedcross-borderinvestment,primarilybankingactivity.In2008however,otherinvestment,hasrecordednetdisinvestmentastheglobalfinancialcrisisdeepenedleadingtoareductioninloansinternationallyandarepatriationofdeposits.Inrecentyears,includingthelatest,theUKhasneededtoborrowfromabroadtofinanceacontinuingcurrentaccountdeficit,whichhasresultedininwardinvestment(UKliabilities)exceedingoutwardinvestment(UKassets).

c)Theinternationalinvestmentpositionisthebalancesheetofthestockofexternalassetsandliabilities.Between1966and1994theUK’sassetstendedtoexceeditsliabilities,byuptoarecord86.4billionpoundsin1986.Butfrom1995to2007,theUKrecordedanetliabilitypositionineveryyear,reachingarecord352.6billionpoundsin2006.In2008,theUKreturnedtoanetassetpositionof92.9billionpoundsmainlyduetoexchangerateeffects.

ThechartbelowindicatesUK’sinternationalinvestmentposition:

Relationshipbetweentheexchangerateandthebalanceofpayments

Theexchangerateisthepriceofacurrencyintermsofothercurrencies.Itseffectonbalanceofpaymentswilldependuponitsrelationshipwithothercurrenciesandhowitsvaluewillchange.Asthecurrencyweakens(devalues)theexportswillbecomecheaperabroadbutthecountryhastopaymoreforimportsbutthegoodsandserviceswouldbecomeinternationallycheaperandleadtomoregoodsaservicesbeingpurchased.Ifdemandremainsthesamethenthevalueofgoodsandservicestothecountrywillreduceandthecurrentaccountbalancemaydeteriorate.Iftheexchangeraterisesthenthecountry’sgoodsandservicesmightsufferanddemandfromabroadcouldfall.Ifthedemandremainsthesamehoweverthenthevalueofexportswillriseandthecurrentaccountbalanceshouldimprove.

Forinstance,whentheUKmarketneedstoimportAmericangoods(suchascorns)theexchangemarketinUKwouldbethedemandofU.SdollarsislargerthanthesupplyofUKpounds.IftheAmericanmarketsneedsimportmoreBritishgoods,theyneedtoexchangemorepoundsinthecurrencymarket,sothebothofdemandofUSDollarandsupplyofUKPoundsisincreasing,meanwhile,theexchangerateof￡/＄isincreasing.UKpoundismorevaluablemeansthegoodsofUKareusuallymoreexpensiveandAmericanpeopleneedtospendmoreUSdollarscomparedtothesameamountofpounds.Thatiswhythecurrencyexchangerateissoimportantforthebalanceofpayments.Forexample,iftheexchangerateof￡/＄isincreasing,theAmericanbusinessmanmightnotchooseUKgoods,becauseofthehighprice.

SingleCurrency

EuropeansinglecurrencyEurocametoexistsince1999.Thereare12memberstatesofEUwhouseEurowhileUKisstillnotoneofthememberssincetherearebothadvantagesanddisadvantagestojoinit.

Advantages:

Atfirstly,thesinglecurrencyreducestheexchangerateuncertaintybecausepeopledon'thavetoconvertmoneyfromonecurrencytoanotherwhenpurchasegoods.Meanwhile,usingthesinglecurrencywillincreaseforeigninvestmentsuchasdirectinwardinvestmentsincethereductionofuncertainty.Thenitmayproduceagreattransparency.Whetherpeoplebuyorsellgoods,consumerscancomparepriceinasinglecurrency.Itwillhelptodecreasethescopeforpricediscriminationsandcreatepressuretolowertheprice.Moreover,itcouldmaintaininterestratelowerandthecommitmenttolowinflationshouldalloweconomiestooperatewithlowercost.

Disadvantages:

Acountrymaylosetheindependentmonetarypolicyifitjoinsthesinglecurrency.Thesinglecurrencyforcesacountrytoforgoanindependentmonetarypolicy.Afterthesinglecurrencyhasbeenused,thecountry'smonetarypolicywilldeterminedbythesupranationalcentralbankandnotbythedomesticcentralbank.Thisiswhythetheoryofoptimalcurrencyareasemphasizestheimportanceofflexibleprices,labormobilityandfiscaltransfers.Flexiblepricesandlabormobilitybecomemoreimportantwhenacurrencyunionexists;governmentshaveanincentivetomakemarketsworkmoreefficiently.

Besides,therearealsopoliticalcoststothecountry.Ifthegovernmentlosescontrolovermonetarypolicytothesupranationalcentralbank,politiciansarelimitedtousingfiscalpolicytoinfluenceeconomy.

EffectsonindividualsandbusinessoftheEuro

Asfortheindividuals,theycangetlowerpricesandhigherqualitygoodsandserviceswhentheyhavemorechoicesduetoincreasedcompetitionamongcompaniesthroughtheEurozones;theycanmeasurethegoodpricethroughEuropeandchoosethebestone.Inaddition,singlecurrencyreducesthetransactioncostsoftravelinginEurope.Individualscouldtravelmorefrequentlythanpastsinceitismoreconvenientandcheaper.PeopledonotneedtoconcerntheexchangerateandcommissionfeewhenvisitingtheothercountriesinEurope.

Asforthebusiness,peoplecouldavoidtheexchangerateriskandtradersdonotneedtowastetimeandcostonpurchasingforeigncurrencies.Moreover,thebusinessmarketcouldbeexpandedtherearemoreopportunities.

Section3:LessDevelopedCountries(LDCs)

CharacteristicsofaLDC

LessDevelopedCountries(LDCs)mainlyexistinAsiaandAfrica.MostLDCs’subsistenceisagriculture.ThelandofLDCsisveryineffectivelyusedandisverylowinproductivity,therearenormallynomoderntechniquesorequipmentavailable,andthelandisalwaysthreatenedbyfloodsordroughts.ThebirthratesinLDCsareveryhighbutthereisveryheavyinfantmortalitysincethehealthcaresystemispoor.

AgoodexampleforLDCisAngola.A2007surveyconclude