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September 12th Factors of Production And Measures of Wealth Land, Labor and Capital all vary within societies Land: -Quantity and characteristics of “land” e.g. soils, minerals, forests, fisheries, animals, water resources, geographic location climate - “natural resources”, physical attributes used for economic purposes. Labor: -relative abundance or scarcityabundant labor lower wages (and vice versa) -productivity (relative value of output per unit of labor); tends to increase with machinery and specialization of labor -cost of labor (abundant vs. scarce) -health of workers (often called “public good”) -skill levels (unskilled, semi0skilled, scientific and technical knowledge, indigenous knowledge) -Entrepreneurship: -propensity to innovate and create - Special management and decision making skills; “developed skill” Capital: Finance capital: access to the money through national asavings, external loans (UN) or aid, and or throught foreign direct investment. Physical capital: (private) -e.g infrastructures, equipment, building, fertilizer Physical capital (public): e.g facilities or health education transport and communication Government policies: e.g interest rates and money supply and social investment -cash dollars, boats etc. (donkeys) Opportunity costs: the true cost of doing anything is the cost of foregone activities -i.e. giving up the opportunity to do something else you would like to do -choices must be taken whenever resources are finite e.g time, money, energy, or raw materials (fields can be turned into many different things) Gross Domestic Product (GDP/GNP): -total market value of the output of goods and services for final use produced by an economy by both residents and non-residents. GDP is GNP that is adjusted; GNP includes foreign investments and leakage of profits -GDP does not include within-country distribution of income (y) and delivery of public goods (how many schools, health facilities there are etc) -depreciation of physical capital and depletion or degradation of natural resources are not included Purchasing Power Parity (PPP): -a currency will have the same purchasing power in home country as in another country -linked to exchange rate but not the same -a rate of exchange that accounts for proce differences across countries -measures how much of a common market basket of goods and services each currency can purchase locally (food, computersequivalent things across borders; not things like haircuts) -allows international comparisons of output and incomes -e.g. PPP $US1 rate: has the same purchasing power in international economy that USD has in USA Human Development Index (HDI): -a composite index that measures a country’s average achievements in basic human development -longevity (life expectancy at birth) -knowledge (adult literacy rate, combines enrollment in schools ration) -standard of living (adjusted per capita in PPP$) -value ranges from 0 to 1 (for rankings) -high (more than .8); medium (.5-.799); low (less than .5) -disparities between/within region and social groups can be substantial -no automatic correlation between income per capita and HDI -no environmental measure September 16th -- #6 Europe’s Economy: -Dusseldorf and Frankfurt (Germna manufacturing) -UK: machester, M4 Corridor in London (UK’s Silicon Valley) -France: Nice (high tech center) -Italy: North-Milan; “third Italy”—Venice (textiles etc.) -Spain: Barcelona and Balboa Russia: -Moscow “central industrial region” -Volga-steel mills, chemicals during WW2 -Urals-mining, natural resources, minerals -Kabal: natural resources -Vladivostok: access to East Asia and the Pacific economy Japan: Kanto plain: Tokyo, Yokohama Kansan: Kitakyushu: ship building Tokoyama: paper etc. China: Northern District: heavy manufactyuring Northern: Beijing and surrounding cities Chang District: Shanghai—chemcials, cars etc. Guang Dong: tremendous growth of the south in the past year between fifteen and 20 percent “Four Tigers” South Korea: heavy industries; high tech Taiwan: manufacturing; developing services in the second activities category Hong Kong: “break of bulk point” (transportation hub); financial industries Singapore: transshipment; quaternary information industries Recent Patterns and Trends: A Global Perspective Global patterns of: manufacturing production an international trade -developing countries count for 23% of world economy now Global patterns of Manufacturing Output: -Europe, NA, East Asia=roughly 25% of manufacturing production -US, Japan, Germany dominate (more recently China is becoming domination as well) -substantial geographic shifts through time: _Growing importance of NIE’s -Growth in East and southeast Asia outpaces all other regions Need to know: patterns and shifts (when and where) and the general trends Merchendise trade 2004 Imports vs. Exports: US: exports are less than imports (deficit) Russia: imports are less than exports -trade flows are a bit more even than when simply “manufacturing” -US, Japan, Germanymake up onlt 25% of Imports and exports Net Merchandise Trade balances; US huge deficit, whereas Russian, Germany, and Japan have a surplus merchandise trade 4x more than general output 1980’s-internet bubble busting (?) Exports as a % of GDP -1870: 4.6% (average) -1998: 17.2% Geographical patterns: -three primary trading regions: Europe (EU), North America (NAFTA), East and Southeast Asia (ASEAN) -most world trade is either within or between these three trade blocs Trends overtime: Trade growth faster than output growth -growing interconnectedness -NIEs experiences the strongest trade growth September 18th -- # 7 Canada in the World Economy Outline: time-space compression -a brief history of Canada’s links to the world economy -Canada US (a special relationship in merchandise trade and foreign trade investment) -Canada China: “feeding the dragon?” Time-space Compression (TSC): -involves a set of “processes that revolutionize the qualities of space and time such that the ways in which we represent the world are altered” -i.e. TSC reflects accelerated moevemnts of goods, information, and financial resources time-space shrinking technologies (i.e. transportations and communications) that overcome the frictions of space and time !!! CAUTION!!! Technologies are not the main cause of globalization (i.e. not only or not the primary source of change). International agreements, migration and things like that have an effect on the world economy as well. Timeline to illustrate: 1500-1800: 16km/hr: bulk very big, transport very slow 1850-1930: steam 9a bit faster 1950s: propeller aircraft 1960s: jet passenger aircraft 2000s: container ships (quadruple the size of what it was in the eighties) Uneven time-space compression? investments in transportation and communication infrastructures largest where demand and financial returns the greatest! A Brief history Of Canada and Links to The World Economy: -Pre-19th century: Canada (part of periphery) exports staples (or natural resources) to European core countries -Mid 19th century: as US begins to industrialize, exports of resources flow south of the border -1867: Confederation: national building policies (transnational railroad); tariff -protectionencourage east-west trade flows -WW1: pacific coast limber industry develops -WW2: consolidation of parts of Ontario and Quebec as key manufacturing district -1965: Canada-US Auto pact: elimination of stride tariffs on cars, trucks, and automotive parts -canada-US linkages “unique” in terms of volume of bilateral trade and patterns of corporate ownershipmanaged trade, yet still mostly regulated by the government 1970s: development of oil industry in Alberta (new staple?) and rise of Japan’s industrial society -1988: Canada-US FTA becomes NAFTA (inclusion of Mexico) in 1994 lead to greater regional economic integration; some exclusions exist, soft lumber; meat packing, cultural magazines (like Times) differ. -exports+imports/GDP=merchandise trade -86% of CAD exports go to US -FDI-foreign direct investment -Canada has a trade deficit in services -US: “importer of last resort”: largest market where you can sell anything Canada-China Trading: -2007 China sells more goods to US than Canada (1st time in history) -China primarily imports machinery and transport from NA September 21, 2009—#8 Why Countries trade? RE READ CHAPTER 6! -difference in factor endowments: -natural resources/raw materials distributed unevenly across the globe; people needing certain things will trade them -climate and terrain -labor force (quantity, skill) -technology More reasons to trade? -intra-industry trade -trade and geography (agglomeration economies)—where economies located Advantages and the gain from trade: -differences in factor endowments: countries are advantageous in particular types of production and disadvantaged in others -advantage: absolute vs. comparative Can countries gain from trade? -Mutual gains from trade occur when precuts are redistributed in such a way that countries end up with a combination of goods that is better adapted to their preferences (better after borders opened) Bread and Wine Example!!! Model Assumptions: -global economy: only 2 countries (North and South) -each country produces only bread and wine -only one factor of production (labor) -labor homogenous (same skill, quantity etc.) -amount of labor is fixed (100 workers) -technology is constant i.e. unaffected by trade -a country has an absolute advantage over another in the production of a good if they produce their good using smaller quantities and resources (?) than can the other country. North had a lot absolute advantage in bread, whereas south had absolute advantage in wine. Comparative Advantage: “(1-1)”opportunity cost North, compared to South is most advantageous in production of bread South, compared to North, is least disadvantage in the production of goods. Even if a country has an absolute advantage relative to another country in the production of every good, it is said to have comparative advantage in making the goof in the production of which it is most efficient compared with the other country (Ricardo) countries specialize in production of goods in which they are relatively more efficient: trade can lead to mutual gains -engaging in trade must be beneficial (exchange rates) (HUH?!)