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Master in Human Development and Food Security 2014-2015 International Economics Lecture 2 Dr. Silvia Nenci University of Roma Tre [email protected] Silvia Nenci Outline I PART: The Ricardian Model: a summing up In class problems The Heckscher-Ohlin Model II PART: New players: the Emerging Economies Silvia Nenci The Ricardian model It focuses on technology differences across countries as an explanation for trade. It explains the concept of comparative advantage and why it works as an explanation for trade patterns. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Silvia Nenci KEY POINTS of the Ricardian Model 1. the pattern of trade is determined by comparative advantage. • A country has comparative advantage in producing a good • when the country’s opportunity cost of producing the good is lower than the opportunity cost of producing the good in another country. Even countries with poor technologies can export the goods in which they have comparative advantage 2. There are gains from trade for both countries. • By exporting the good in which a country has the lowest opportunity cost, the country could benefit from participating in international trade (i.e. more consumption) Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Silvia Nenci IN-CLASSPROBLEMS 1. What determines the pattern of international trade between two countries in the Ricardian model? Answer: The pattern of trade is determined by comparative advantage. The country with a comparative advantage in the production of a product will export the good. Silvia Nenci IN-CLASSPROBLEMS 2. Why is the production possibilities frontier a straight line in the Ricardian model? Answer: The production possibilities frontier is a straight line in the Ricardian model because of the assumption that the marginal products of labor are constant. In the Ricardian model there are no diminishing returns. Silvia Nenci IN-CLASSPROBLEMS 3. What are the absolute advantages? Taiwan has an absolute advantage in the production of both telephones and radios. What is the opportunity cost of 1 unit of telephones in terms of radios in Taiwan? In Vietnam? Silvia Nenci IN-CLASSPROBLEMS Answers: 4. Vietnam has a comparative advantage in the production of telephones. True or false? TRUE: Vietnam has a lower opportunity cost of producing telephones relative to Taiwan. Silvia Nenci IN-CLASSPROBLEMS 5. If the two countries engage in international trade, what will Taiwan produce? Because Vietnam has the lower opportunity cost in the production of telephones and hence comparative advantage in producing this good, Taiwan has a comparative advantage in the production of radios. Thus, Taiwan will specialize in the production of radios Silvia Nenci The Heckscher-Ohlin Model Silvia Nenci Why countries trade An overview of trade theories: Silvia Nenci The Heckscher-Ohlin Model The Heckscher-Ohlin model assumes that trade occurs because countries have different resources. The HO model is a long-run model because all factors of production can move between the industries. The model investigates also how the opening of trade between the two countries affects the payments to labor and to capital in each of them Silvia Nenci Heckscher-Ohlin Model • The model was developed in 1919 by two Swedish economists, Eli Heckscher and Bertil Ohlin • To explain the “golden age” of international trade between 1890 and 1914, during which there was an increase in the ratio of trade to gross domestic product (GDP) • This increase of the amount of international trade coincided with improvements in transportation (steamship and railroad). • They assumed the same technologies across countries and uneven distribution of resources to explain trade Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Silvia Nenci Examples of international trade driven by different resources • Canada has a large amount of land and therefore exports agricultural and forestry products as well as petroleum • US, Western Europe and Japan have many highly skilled workers and much capital and export sophisticated services and manufactured goods • China and other Asian countries have a large number of workers and moderate but growing amounts of capital and export less sophisticated manufactured goods Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Silvia Nenci Heckscher-Ohlin Model Basic assumptions: • 2 countries: Home and Foreign • 2 goods: computers and shoes • 2 factors of production: labor and capital The total amount of capital (K) in an economy is given by the sum of the capital used in shoes KS and computers KC. The total available labor (L) in the economy is equal to the labor used in shoes LS and computers LC. The 6 assumptions of the Heckscher-Ohlin model are as follows: Assumption 1: the two factors of production, labor and capital, can move freely between the industries. Assumption 2: Shoes production is labor-intensive; that is, it requires more labor per unit of capital to produce shoes than computers, so that LS /KS > LC /KC. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Silvia Nenci Heckscher-Ohlin Model Assumption 3: Foreign is labor-abundant, by which we mean that the labor– capital ratio in Foreign exceeds that in Home, L*/K*> L/K. Equivalently, Home is capital-abundant, so that K/L >K*/L* (i.e. resources differ across countries). • Why? • Geographic size, populations, immigration/emigration, different stage of development, etc.) Assumption 4: The final outputs, shoes and computers, can be traded freely (i.e., without any restrictions) between nations, but labor and capital do not move between countries. Assumption 5: The technologies used to produce the two goods are identical across the countries (the opposite of that in the Ricardian model). A very unrealistic assumption! Assumption 6: Consumer tastes are the same across countries, and preferences for computers and shoes do not vary with a country’s level of income. A very unrealistic assumption! Silvia Nenci Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Heckscher-Ohlin Model No-Trade Equilibrium Production Possibilities Frontiers, Indifference Curves, and No-Trade Equilibrium Price FIGURE 4-2 (1 of 3) No-Trade Equilibria in Home and Foreign The Home production possibilities frontier (PPF) is shown in panel (a), and the Foreign PPF is shown in panel (b). Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Because Home is capital abundant and computers are capital intensive, the Home PPF is skewed toward computers. Heckscher-Ohlin Model No-Trade Equilibrium Production Possibilities Frontiers, Indifference Curves, and No-Trade Equilibrium Price FIGURE 4-2 (2 of 3) No-Trade Equilibria in Home and Foreign (continued) Home preferences are summarized by the indifference curve, U. The Home no-trade (or autarky) equilibrium is at point A. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers The flat slope indicates a low relative price of computers, (PC /PS)A. Heckscher-Ohlin Model No-Trade Equilibrium Production Possibilities Frontiers, Indifference Curves, and No-Trade Equilibrium Price FIGURE 4-2 (3 of 3) A higher relative price of computers No-Trade Equilibria in Home and Foreign Foreign preferences are summarized by the indifference curve, U* (continued) Foreign is labor-abundant and shoes are The Foreign no-trade equilibrium is at labor- intensive, so the Foreign PPF is point A*, with a higher relative price of computers, as indicated by the skewed toward shoes. steeper slope of (P*C /P*S)A*. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Heckscher-Ohlin Model Free-Trade Equilibrium Home Equilibrium with Free Trade FIGURE 4-3 (1 of 2) International Free-Trade Equilibrium at Home At the free-trade world relative price of computers, (PC /PS)W, Home produces at point B in panel (a) and consumes at point C, exporting computers and importing shoes. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Point A is the no-trade equilibrium. The “trade triangle” has a base equal to the Home exports of computers (the difference between the amount produced and the amount consumed with trade, (QC2 − QC3). Heckscher-Ohlin Model Free-Trade Equilibrium Home Equilibrium with Free Trade FIGURE 4-3 (2 of 2) International Free-Trade Equilibrium at Home (continued) The height of this triangle is the Home imports of shoes (the difference between the amount consumed of shoes and the amount produced with trade, QS3 − QS2). Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers . Heckscher-Ohlin Model Free-Trade Equilibrium Foreign Equilibrium with Free Trade FIGURE 4-4 (1 of 2) International Free-Trade Equilibrium in Foreign At the free-trade world relative price of computers, (PC /PS)W, Foreign produces at point B* in panel (a) and consumes at point C*, importing computers and exporting shoes. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers Point A* is the no-trade equilibrium.) The “trade triangle” has a base equal to Foreign imports of computers (the difference between the consumption of computers and the amount produced with trade, (Q*C3 − Q*C2). Heckscher-Ohlin Model Free-Trade Equilibrium Foreign Equilibrium with Free Trade FIGURE 4-4 (2 of 2) International Free-Trade Equilibrium in Foreign (continued) The height of this triangle is Foreign exports of shoes (the difference between the production of shoes and the amount consumed with trade, Q*S2 – Q*S3). Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers . Heckscher-Ohlin Model Free-Trade Equilibrium Pattern of Trade • Home exports computers, the good that uses intensively the factor of production (capital) found in abundance at Home. • Foreign exports shoes, the good that uses intensively the factor of production (labor) found in abundance there. • This important result is called the Heckscher-Ohlin theorem. Book: Feenstra/Taylor, 2011 , International Trade,Worth Publishers K eKEY y TPOINTS e r m of the Heckscher-Ohlin model 1. In the Heckscher-Ohlin model countries trade because the available resources (labor, capital, and land) differ across countries. 2. In the Heckscher-Ohlin model, we assume that the technologies are the same across countries 3. The Heckscher-Ohlin model is a long-run framework, so labor, capital, and other resources can move freely between the industries 4. Patterns of trade: With two goods, two factors, and two countries, the Heckscher-Ohlin model predicts that a country will export the good that uses its abundant factor intensively and import the other good. Silvia Nenci The Emerging Economies Silvia Nenci International Trade and Economic Integration: the case of Emerging countries We look at: 1. Gains from trade & economic integration (with a focus on DCs): what the theory sais, what the evidence finds 2. Economic characteristics of DCs and EEs • Facts and figures 3. Main channels of EEs global impact: • • • • Growth and global production networks Trade flows and trade patterns Investment Governance 4. Key questions and implications Silvia Nenci Gains from trade: the theory -1 What is meant by the “gains from trade”? Two kinds of gains: 1. static gains 2. dynamic gains Silvia Nenci Gains from trade: the theory -2 Static gains: the gains from the reallocation of factors of production in sectors where the country has a comparative advantage. As producers and consumers allocate resources most efficiently + consumption, + production Dynamic gains: the gains that accrue over time from a higher productivity of production factors and a higher total factor productivity. Firms or industry take advantage of economies of scale. Pro-competitive effects (rationalization of production costs, reduction in technical inefficiency). More competition and opportunities for innovation (technological spillovers, learning-by-doing, learning-by importing and learning by exporting) Silvia Nenci Is trade good? Yes, but…. Not only gains… Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country: • It may have effects on the distribution of income within a country • It can adversely affect the owners of resources that are used intensively in industries that compete with imports Silvia Nenci Trade, trade liberalization & DCs: the empirical evidence Gains to DCs from trade liberalization are often exaggerated According to standard economic models, removal of all of the rich countries' barriers to the merchandise exports of DCs would result in very little additional income for the exporting countries Silvia Nenci KEY ISSUE: THE GLOBAL IMPACT OF MULTILATERAL TRADE POLICY ON DCs- MACRO EFFECTS: Income effects WHAT WE KNOW REFERENCES QUANTIFICATION ASSUMPTIONS A remarkable number of empirical works focused on the effects of various multilateral round negotiations on DCs' income, where DCs are taken as a group both at regional and global level. These works did not achieve a common stand on the issue. Most of the earlier studies (based on UR) present overall positive effects on income Recent studies (mainly focused on DDA projetions) are more cautious about the estimated DCs' gains from trade liberalization. This is partially due to: an improving of the econometric models that better specifies country characteristics; more detailed trade policies considered in the analysis; updated data sets; less protectionism left to lose OECD (1993), Goldin, Knudsen, and van der On average, the earlier studies Mensbrugghe (1993), Francois, McDonald and Nordstrom (1994), World Bank/OECD (1993), Stoekel estimate an increase from 1% up to (1990), Peterson (1992), DRI (1993), Nguyen, Peroni and 5% of world income (smaller for DCs) Wigle (1993) Yang (1994), Francois, McDonald, Nordström (1995), Harrison, Rutherford, Tarr (1996), Goldin and van der Mennsbrugghe (1996), Hertel, Martin, Yangashima, and Dimaran (1996), Brown, Deardorff, Fox, and Stern (1996), Laird and Safadi (1996); Whalley (2000); Hertel and Martin (2000); Hoekman et al. (2003); Dimaranan, Hertel and Keeney (2003); Francois, van Meijl and van Tongeren (2003); Stiglitz and Charlton (2004); Hertel and Winters (2005); Hertel and Keeney (2005); Ackerman, (2005); Polaski S. (2006); IFPRI (2006) Recent studies estimate an increase of less than 1% of world income together with extremely limited effects on poverty alleviation. Contradictory outcomes for DCs. 1. Focus on those elements more easily quantifiable (tariff cuts, agriculture, textiles) rather than on elements harder to quantify (dispute settlement, TRIMs, TRIPs). 2. They typically assume perfect competition and constant returns to scale. 3. They follow fairly conventional literature 4. Basically static analysis (growth impacts are evaluated by comparing regional income before and after liberalization); Silvia Nenci Trade, trade liberalization & DCs: the empirical evidence -3 Global impact: No common stand. Weak gains from trade liberalization, even lower in the most recent studies LATEST STUDIES Hertel and Keeney (2005) 84 billions of dollars (of which 22 of DCs); 0.3% of world GDP CGE-GTAP 6 database. Liberalization measures: removing of import market access; export subsidies; domestic support. Anderson et al. 2005a by $290 to $460 billion, with higher percentage gains for developing countries (0.8 to 2.0 percent) CGE-LINKAGE model (with dynamic features) Polaski S. (2006) a one-time increase in world income of $40 to $60 Applied general equilibrium (AGE) model of global trade (the billion (increase of less than 0.2 percent of current Carnegie model); comparative static gains; a multicountry, multiglobal GDP) with plausible Doha scenarios sector general equilibrium model; innovations: a) labor is disaggregated into three types (agricultural labor, urban unskilled labor, and urban skilled labor); b) existence of unemployment of urban IFPRI(2006) increase of 1,04% of GDP for HICountries; 0,6% for Meaddle income countries; 1,6% for Low income countries (strong trade liberalization scenario) unskilled labor in developing countries. MIRAGE -CGE model (the CEPII model); multi-sector, multi-region model with a sequential dynamic recursive set-up; perfect competition is assumed in all sectors. Silvia Nenci DCs’Liberalization Costs Loss of government revenue from reducing trade barriers Adjusting cost because the opening of protected markets (domestic reforms) Implementation costs linked to WTO commitments Shock risks because of international openness Silvia Nenci Global integration of DCs In the last few decades developing countries have experienced increasing involvement in the global markets….. Silvia Nenci The shift of growth to Developing countries (per capita GDP growth rate, per cent) 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 1960s Source: World Bank, WDI 2006 1970s 1980s Industrialized economies 1990s 2000-2004 Developing economies Silvia Nenci The DCs’ importance on World Trade Chart 2: Development of merchandise exports and imports volume, 1990-2008 (Indices, 1990=100) 500 Developing economies 400 300 200 Developed economies 100 1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 Developing economies-exports Developing economies-imports Developed economies-exports Developed economies-imports 05 06 07 Silvia Nenci 2008 Developing country exports have shifted toward manufactures Today, 80% of developing country merchandise exports are manufactures. Much of that manufacturing trade is linked to FDI and to participation in global production networks Percent 80 Manufactures 60 40 Minerals 20 Agriculture 0 1965 1970 Source: Dollar, 2006 1975 1980 1985 1990 1995 Silvia Nenci Foreign direct investments - FDI(mld $): the new role of DCs Silvia Nenci *FDI definition A cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy. • The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the enterprise • Ownership of at least 10% of the voting power, representing the influence by the investor, is the basic criterion used. Different from a Portfolio investment: investment made by an investor who is not particularly interested in involvement in the management of a company. The purpose of the investment is solely financial gain. Silvia Nenci DCs’ increasing participation in the global governance The World Trade Organization (WTO) example: WTO is the international organization whose primary purpose is to open trade for the benefit of all. It provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all 160 members - about 2/3 are DCs Source: WTO, March 2013 Silvia Nenci The EMERGING ECONOMIES (EEs) Within the developing world the rise of the Emerging Economies (EEs) – China, India, Brazil, and South Africa CIBS or BRICS with Russia– as both economic and political actors, is attracting interest and having significant and farreaching impact… Silvia Nenci Interest by Media Interest by Academia Growing amount of studies devoted to the analysis of the impact of the EEs on the global economy: • Rodrik, 2006; Whalley, 2006; Bussolo et al., 2007; Winters and Yusuf, 2007; Kaplinsky and Messner, 2008; Gu et al., 2008; McDonald et al., 2008; Qureshi and Wan, 2008; Nenci, 2008; Hsieh and Klenow, 2009; OECD, 2009; SantosPaulino and Wan, 2010, Amiti and Freund, 2010; Whalley and Medianu, 2010; Harrigan and Deng, 2010; Feenstra and Wei, 2010; Amann, 2011; Wang and Whalley, 2011; Wang et al., 2011; Harris et al., 2011; Hanson, 2012; Montalbano and Nenci, 2014. Silvia Nenci The BRICS economies The BRIC (Brazil, Russia, India and China) acronym: Goldman Sachs in 2001 - BRICS* economies: represent almost 3 billion people (about 40% of world population) account for more than a quarter of the world's land have a nominal GDP of US$14.9 trillion (approximately 10% of world GDP) have an estimated US$4 trillion in combined foreign reserves Now BRIC is a symbol of the shift in global economic power but also the title of the formal association Silvia Nenci New global players Thanks to their economic growth and size EEs have emerged as important powers. They have acquired leadership roles thanks to their ability to formulate policy, articulate the views held by broad groups of DCs (in WTO, WB, IMF, G20, etc.). Consequently, the world economy is undergoing a process of rapid change Silvia Nenci Which impacts and channels? Various channels are taken into consideration to assess the impact of Emerging economies dynamism. Although EEs have very different economic structures, their performance might affect the world economy mainly through 4 channels: - global production; trade flows; investment flows; global and regional governance. Silvia Nenci PRODUCTION: Weight of EEs and projections Silvia Nenci PRODUCTION: Share of single EEs on global production ICs 68% DCs 32% Source: IMF, World Economic Outlook, 2010 Growth under the crisis Source: IMF, WEO 2014 Silvia Nenci TRADE: CIBS’ weight in world trade, 2011 CIBS as a group shares an impressive trend. They are currently the leading exporters and importers – both in merchandise and services – in their respective regions Merchandise Countries Commercial services Rank in world trade* Share in world Share in world Rank in world trade* Share in world Share in world Exports Imports total exports total imports Exports Imports total exports total imports China Brazil 2 16 3 15 10.4 1.4 9.5 1.3 4 18 3 10 4.4 0.9 6.0 1.9 India 13 8 1.7 2.5 5 5 3.3 3.1 South Africa 28 22 0.5 0.6 27 27 0.3 0.5 European Union 1 1 14.9 16.2 1 1 24.7 21.1 USA 3 2 8.1 12.3 2 2 13.9 10.0 *Excluding intra-EU trade Source: World Trade Organization, 2013 Silvia Nenci INVESTMENT: Global FDI inflows, top 20 host economies (Billions of dollars) The changing pattern of FDI inflows is confirmed also in the global ranking of the largest FDI recipients: in 2010, half of the top 20 host economies were from developing and transition economies Silvia Nenci INVESTMENT: FDI outflows from DCs Fonte: UNCTAD, on-line database (2004) Silvia Nenci GOVERNANCE: Regional Trade Agreements (RTAs) involving CIBS Country Brazil China India South Africa Total Notified RTAs in force Announced RTAs 5 10 2 14 5 4 1 33 8 Total RTAs 5 12 19 5 41 Source: WTO RTA database, August 2010 *Regional Trading Agreement (RTA), Regional Integration Agreement (RIA), or Preferential Trading Agreements (PTA) ⇒ generic terms (often used interchangeably) to describe the process of economic integration Regional Economic Integration: agreements between groups of countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. Silvia Nenci CO2 Emissions by Region Notes: *World includes international aviation and international marine bunkers, which are shown together as Bunkers. **Calculated using the IEA’s energy balances and the Revised 1996 IPCC Guidelines. CO2 emissions are from fuel combustion only. ***Asia excludes China. Silvia Nenci Other impacts: SOCIAL CHANGES Silvia Nenci Other impacts: CONSUMPTION Source. The Coca Cola Company Silvia Nenci Key questions and implications Silvia Nenci Some key questions and implications 1. TRADE: • Who are likely to be the losers and winners (complementary or competitive effects for trade partners)? • Are EEs a threat for Advanced Countries? 2. GROWTH: • Are EEs engine for growth? 3. GOVERNANCE: • Is a new global order developing? Silvia Nenci Who are likely to be the losers and winners? EEs’ performance and trade expansion can affect differentially other developing countries and developed countries too. Their specialization can generate, in some cases, complementary effects, in other cases competitive effects. EEs can be seen as: - competitors for those economies that have similar comparative advantages in the same products and/or services. - driving forces for those economies that have complementary production and trade structures, because producers can benefit from the demand for their output from CIBS and they can be included in regional value chains. Silvia Nenci CIBS Trade Dinamism: Trade Specialization 1996-98 Leamer (1984; 1995) 10 ind.l clusters: • 2 raw materials (petroleum and raw materials) • 4 crops (forest, animal, trop.agr., cereals) • 4 manufactures (lab-int., cap.int., machinery, chemicals) Source: Montalbano, Nenci 2010 Silvia Nenci CIBS Trade Dynamism: Trade Specialization 2006-08 CIBS Trade Specialization (RSCA average values 2006-2008) PETRO 0,8 0,6 CHEM MAT 0,4 The specialization of trade has evolved 0,2 0 -0,2 -0,4 MACH FOR -0,6 CHINA 06-08 CHN -0,8 INDIA 06-08 IND -1 South Africa ZAF BRAZIL 06-08 BRA CAP TROP LAB ANL CER Source: Montalbano, Nenci 2010 62 Silvia Nenci CIBS’ main competitors (for the top five exports of each country, 2006-2008) Product Top 3 Advanced Countries Top 3 Developing Countries China 1 2 3 4 5 Electrical, electronic equipment Boilers, machinery; nuclear reactors, etc Articles of apparel, accessories, knit or crochet Articles of apparel, accessories, not knit or crochet Iron and steel USA Germany Italy Italy Germany Japan USA Germany Germany Japan Germany Japan France France Belgium Korea Korea Turkey Bangladesh Russian Fed. Mexico Mexico Bangladesh India Ukraine Malaysia Malaysia India Turkey Korea 1 2 3 4 5 Mineral fuels, oils, distillation products, etc Pearls, precious stones, metals, coins, etc Organic chemicals Iron and steel Boilers, machinery; nuclear reactors, etc Canada USA USA Germany Germany Norway UK Germany Japan USA USA Israel Belgium Belgium Japan Russian Fed. UAE China China China Saudi Arabia South Africa Korea Russian Fed. Korea UAE China Saudi Arabia Ukraine Mexico 1 Mineral fuels, oils, distillation products, etc 2 Ores, slag and ash 3 Vehicles other than railway, tramway 4 Boilers, machinery; nuclear reactors, etc 5 Iron and steel South Africa 1 Pearls, precious stones, metals, coins, etc 2 Iron and steel 3 Mineral fuels, oils, distillation products, etc 4 Vehicles other than railway, tramway 5 Boilers, machinery; nuclear reactors, etc Canada Australia Germany Germany Germany Norway USA Japan USA Japan USA Canada USA Japan Belgium Russian Fed. Chile Korea China China Saudi Arabia Peru Mexico Korea Russian Fed. UAE South Africa China Mexico Ukraine USA Germany Canada Germany Germany UK Japan Norway Japan USA Israel Belgium USA USA Japan UAE China Russian Fed. Korea China India Russian Fed. Saudi Arabia Mexico Korea China Ukraine UAE China Mexico Both developed and developing countries seem to be affected by CIBC competition India Brazil Source: Author's elaboration on UN-Comtrade data Legend : Hong Kong and Taipei are not taken into consideration as competitors for China. Silvia Nenci Are EEs engine for growth? 1 Innovation in emerging economies is likely to take off as income levels rise Sources: Global Development Horizons 2011, based on IMF IFS, World Bank WDI and World Intellectual Property Organization. Are EEs engine for growth? -2 The specialization of trade has evolved (mainly in China ). China, India and Brazil have become increasingly engaged in sophisticated and technology-intensive production and trade, shifting from labour to capital-intensive commodities, and enjoying rapid productivity gains across all manufacturing activities significantly Is a new global order developing? • EEs have acquired leadership roles at international level (WTO, G20, WB, etc.) • Multinationals from emerging markets will be increasingly important sources and drivers of global investment flows • The international monetary system will move toward a multi-currency regime • A new global economic order is unfolding as the balance of global growth shifts from developed to emerging economies Silvia Nenci Summary -1 EEs have registered an extraordinary economic performance that has affected global economy mainly through these channels: • Production • Trade • Investment • Governance They have acquired leading roles at the international level in key institutions and contexts. Silvia Nenci Summary -2 In terms of growth/production: they (or some) can be considered engines for growth thanks to the gradual shift from labour to capital intensive sectors in the production and trade In terms of trade: they can be seen as competitors or driving forces for other economies (it depends on the specialization pattern) Now many issues to be faced Silvia Nenci Conclusions • The postwar global economic structure –defined by the dominant position of advanced countries –is in the midst of a fundamental change • Rapid globalization and expected higher growth rates in emerging market economies will translate into greater economic influence for developing countries • The move to multipolarity will be by and large positive for developing countries, but the transition needs to be managed! Silvia Nenci References List • • • • • • • Hanson, G. H., 2012, “The Rise of Middle Kingdoms: Emerging Economies in Global Trade", Journal of Economic Perspectives, 26(2), 41-64. Montalbano P. e Nenci S., 2014, “The Trade Competitiveness of Southern Emerging Economies: A Multidimensional Approach Through Cluster Analysis”, in World Economy, 37: 783–810; Montalbano, P. and S. Nenci, 2012, "The Trade Specialization of CIBS: A Threat to Whom?", The International Trade Journal, 26, 5. Nayyar, D. , 2009, “China, India, Brazil and South Africa in the World Economy: Engines of Growth?”, in A. U. Santos-Paulino, and G., Wan (eds.) Southern Engines of Global Growth. Oxford: Oxford University Press. Nenci, S., 2008, “The Rise of the Southern Economies: Implications for the WTOMultilateral Trading System”, WIDER Research Paper No. 10. Qureshi, M.S. and G. Wan, 2008, “Trade Expansion of China and India: Threat or Opportunity?”, The World Economy, 31, 10, 1327-1350. Wang, J., D. Medianu and J. Whalley, 2011, “The Contribution of China, India and Brazil to Narrowing North-South Differences in Gdp/Capita, World Trade Shares, and Market Capitalization”, NBER Working Paper 17681 [email protected] Silvia Nenci