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ECONOMICS
Johnson Hsu
July 2014
The global economy
1. Macroeconomic performance
2. Trade and integration
3. Development and
sustainability
4. The economics of
globalisation
Globalisation
 The processes that have resulted in ever-closer
links between the world’s economics
 is the process of international integration
arising from the interchange of world views,
products, ideas, and other aspects of culture.
Advances in transportation and
telecommunications infrastructure, including
the rise of the telegraph and its posterity the
Internet, are major factors in globalization,
generating further interdependence of
economic and cultural activities.
Two different ways on
globalisation manifest
 Global brands  are a visible characteristic of
globalisation. Not only is the same brand available in
mot national markets, the product is also
standardised.
 Global sourcing  is less obvious. The term refers to
the ways in which global companies now source their
operations through worldwide production. In many
cases, ‘local’ domestic production has been replaced
by manufacturing capacity on a global scale. Often,
the capacity has replaced the domestic productive
capacity of a company, a clear consequence of deindustrialisation.
Factors promoting
globalisation
A reduction in protection
A reduction in international capital
movement restrictions
Developments in IT and falling
communication costs
A fall in real transport costs
liberalisation
Foreign direct
investment
The establishment of branches
and productive processes abroad,
or the purchase of foreign firms;
investment made by
multinational corporation in a
country other than where its
operations originate
Multinational
companies
Firms that produce goods and
services in more than one country
The three branches of
conflict of laws are
 Jurisdiction – whether the forum court has
the power to resolve the dispute at hand
 Choice of law – the law being applied to
resolve the dispute
 Foreign judgments – the ability to
recognize and enforce a judgment from an
external forum within the jurisdiction of
the adjudicating forum.
Why India’s become
global leader in 2006?
 A highly educated, young workforce, all of
whom speak English
 Wages for professional workers that are 10
to 25 per cent of those in Europe and the
USA
 Good Internet access in all major cities
 A deregulated market that has allowed
firms like Del, Hewlett-Packard and IBM
to set up operations
Benefits of globalisation
 Higher living standards for more
people
 Enjoyment of global brands
 Spreading best practice and
technology transfer
 Improved medical supplies that
could increase life expectancy
Benefits and costs of
foreign direct investment
 An injection into the circular flow of income
 Effects on the balance of payments
 An increase in tax revenue for the
government
 Improved productivity
 Technology transfer and acquisition of
specialist equipment
 The employment created may be only short
term and could be less than expected
Benefits and costs of
foreign direct investment
 7) MNCs may invest in labour-saving technology
 8) Net effects on the balance of payments being
less than anticipated
 9) Taxes received by the government may be
expected
 10) Productivity gains and transfer effects could
be very limited depending on the type of FDI
 11) Environmental costs associated with certain
types of FDI, especially mineral extraction and
natural gas production
World Trade Organization
A global organisation that regulates
world trade
Characteristics of WTO
Non-discrimination
Free trade
Predictability
Promoting fair competition
Special provision for developing
countries
Three main areas for
Uruguay Round Agreement
 Tariff cut
 More binding tariff
 Agriculture
The International
Monetary Fund
A global organisation that aims to
promote international monetary
co-operation and international
trade
Purposes and
responsibilities of IMF
 To promote international monetary cooperation
 To facilitate the expansion and balance growth
of international trade
 To provide exchange stability
 To assist in setting up a multilateral system of
payments
 To make resources available to members
experiencing balance of payments difficulties,
provided adequate safeguards are provided
Doha Development
Round
 is the current trade-negotiation round of the World Trade
Organization (WTO) which commenced in November
2001 under then director-general Mike Moore. Its
objective is to lower trade barriers around the world, and
thus facilitate increased global trade. Since 2008, talks
have stalled over a divide on major issues, such as
agriculture, industrial tariffs and non-tariff barriers,
services, and trade remedies.[1] The most significant
differences are between developed nations led by the
European Union (EU), the United States (USA), and
Japan and the major developing countries led and
represented mainly by India, Brazil, China, South Korea,
and South Africa. There is also considerable contention
against and between the EU and the USA over their
maintenance of agricultural subsidies
Transition economy
One that is changing from a
centrally planned to a free market
economy
is an economy which is changing
from a Soviet-type centrally
planned economy to a market
economy.
The main ingredients of
the transition process are:
 Liberalization – the process of allowing most prices
to be determined in free markets and lowering trade
barriers that had shut off contact with the price
structure of the world's market economies.
 Macroeconomic stabilization – bringing inflation
under control and lowering it over time, after the
initial burst of high inflation that follows from
liberalization and the release of pent-up demand.
This process requires discipline over the government
budget and the growth of money and credit (that is,
discipline in fiscal and monetary policy) and progress
toward sustainable balance of payments.
The main ingredients of
the transition process are:
 Restructuring and privatization – creating a
viable financial sector and reforming the
enterprises in these economies to render
them capable of producing goods that could
be sold in free markets and transferring their
ownership into private hands.
 Legal and institutional reforms – redefining
the role of the state in these economies,
establishing the rule of law, and introducing
appropriate competition policies.
Transition economy
Functions of IMF
 The IMF works to foster global growth and economic
stability. It provides policy advice and financing to
members in economic difficulties and also works with
developing nations to help them achieve
macroeconomic stability and reduce poverty.
 to oversee the fixed exchange rate arrangements
between countries, thus helping national
governments manage their exchange rates and
allowing these governments to prioritise economic
growth, and to provide short-term capital to aid
balance-of-payments.
World bank
A global organisation that provides
development funding
Goal of World Bank
the reduction of poverty
the Millennium Development
Goals targets for 2015
 Eradicate Extreme Poverty and Hunger
 Achieve Universal Primary Education
 Promote Gender Equality
 Reduce Child Mortality
 Improve Maternal Health
 Combat HIV/AIDS, Malaria, and Other
Diseases
 Ensure Environmental Sustainability
 Develop a Global Partnership for Development
Loans areas of world
bank cover
 Health and education  to enhance human
development in a country – for improving
sanitation and combating AIDS
 Agriculture and rural development  for irrigation
programmes and water water-supply projects
 Environmental protection  for reducing pollution
and for ensuring that there is compliance with
pollution regulations
 Infrastructure  roads, railways, electricity
 Governance  for anti-corruption reason
Anti-capitalist
movements