Download ECONOMICS

ECONOMICS
Johnson Hsu
July 2014
The global economy
1. Macroeconomic performance
2. Trade and integration
3. Development and
sustainability
4. The economics of globalisation
Poverty
When income is below the level
that would allow someone to
enjoy some agreed minimum
standard of living. The World
Bank defines ‘extreme poverty’ as
living on less that US$1 per day
and ‘moderate poverty’ as living
on less than US$2 per day
Poverty
Poverty
Economic
development
 The process of improving people’s economic well-being and
quality of life
 is the sustained, concerted actions of policy makers and
communities that promote the standard of living and economic
health of a specific area. Economic development can also be
referred to as the quantitative and qualitative changes in the
economy. Such actions can involve multiple areas including
development of human capital, infrastructure, regional
competitiveness, environmental sustainability, social inclusion,
health, safety, literacy, and other initiatives. Economic
development differs from economic growth. Whereas economic
development is a policy intervention endeavor with aims of
economic and social well-being of people, economic growth is a
phenomenon of market productivity and rise in GDP.
Economic development typically
involves improvements in a
variety of indicators
 literacy rates
 life expectancy
 poverty rates.
Poorer countries
suffering disadvantages
 While it is true that free trade encourages
globalization among countries, some
countries try to protect their domestic
suppliers. The main export of poorer
countries is usually agricultural productions.
Larger countries often subsidise their farmers
(e.g., the EU's Common Agricultural Policy),
which lowers the market price for foreign
crops.
The process of development
must seek to achieve
 An increase in the availability and distribution of
basic life-sustaining goods, such as food, shelter
and health
 An increase in standards of living, which should
include higher incomes, more jobs, better
education and enabling people and societies to feel
a greater sense of worth and self-respect
 An expansion of the economic and social choices
available to people, which frees people from
poverty and misery, ignorance and dependence on
others
The relationship between economic
growth and development
 Economic growth will raise a nation’s total income,
but the additional income might be unequally
distributed, so that a large number of people see little
or no increase in their individual income. In this
situation, affluence and poverty could exist alongside
each other.
 Economic growth might deplete natural resources, so
that future generations are unable to achieve the
same level of income. In this case, economic growth
has made future generations worse off. In this way,
development cannot be said to have happened and is
described as unsustainable.
The relationship between economic
growth and development ....cont
 Economics growth might be achieved by the use of
capital-intensive methods of production that
generate few additional jobs. This growth might be
concentrated in a single sector of the economy,
such as the oil industry, which has little positive
impact for the vast majority of the population. In
these scenarios, the nation’s overall income may
have increased but unemployment and poverty will
have remained high.
 Economic growth might be achieve by methods
that result in high levels of pollution. The
environmental damage caused would damage
health and reduce levels of living, therefore
conflicting with the objectives set out above
Low-income countries
Countries with a GDP per capita of
$905 or less
Countries with the largest
percentage of people living on $1.25
or less per day
Lower middle-income
countries
Countries with a GDP per capita of
$906-$3,595
Upper middle-income
countries
Countries with a GDP per capita of
$3,596-$11,115
High-income countries
Countries with a GDP per capita of
$11,116 or more
2014 Top 10 Overall Rank
1
2
Ireland
Finland
3
4
5
6
Switzerland
Netherlands
New Zealand
Sweden
7
8
9
United Kingdom
Norway
Denmark
10
Belgium
The human development index
is made up of three components
 Life expectancy at birth as an indicator of
the health of the population and longevity
 The adult literacy rate and the percentage
of the relevant population enrolled in
primary, secondary and tertiary education
as an indicator of knowledge and
education
 GDP per capita in US$ at PPP as an
indicator of the standard of living
Medium human
development
A measure that, recognising limitations
of GDP per capita as a measure,
combines outcomes that might be
valued in the development process: life
expectancy at birth; adult literacy rate
and percentage of the relevant
population enrolled in primary,
secondary and tertiary education; and
GDP per capita in US$ at PPP
Human development
index categories
High human development Where
the HDI is 0.8 and above
Medium human development
Where the HDI is between 0.5
and 0.8
Lower human development
Where the HDI is less than 0.5
Development
diamonds
 Examine the relationship between
socioeconomic indicator of development,
such as GDP per capita, life expectance at
birth, primary school enrolment rates, and
access to safe water for an individual
country compared with the average for
low-income countries.
There are six key similarities
between developing
countries
 Low living standards
 Low levels of labour productivity
 A high rate of population growth
 An economic structure dominated by
primary sector production
 A high degree of market failure
 A lack of economic power in
international markets and dependence
Economist has identified some
constraints on development
 Inequalities in the distribution of income and
wealth
 Inequalities in the distribution of the
ownership of land
 Insufficient and inadequate infrastructure,
including electricity, water, communications,
ports, roads and rail
 The lack of financial markets, including banks
and stock market
Economist has identified some
constraints on
development ...cont
 An education system that is insufficient,
inadequate and inappropriate, including a
neglect of primary education and overallocation of resources to higher education
 Poor governance corruption and patronage
generating elites resistant to change
 Market failure that distort the allocation of
resources and reduce competition
Economist has identified
some constraints on
development ...cont
An inability to access international
markets because of regional trading
blocs such as the EU and NAFTA and
the protection of domestic markets by
developed countries
The policies of international
organisation such as the World Bank
and the IMF
High levels of external debt
Four approaches to
promoting economic
development
State ownership, government
intervention and import substitution
Export promotion
Filling the savings gap through
international aid
The Washington Consensus and the
role of markets
Foreign aid is any flow of capital
to developing countries that
meets two criteria
Its objective is non-commercial
from the point of view of the donor
It is characterised by
concessionary terms; for example,
interest rates lower than the
market rate, or longer repayment
periods
International aid forms
 Grants
 Loans
 Tied aid
 Bilateral aid
 Multilateral aid
 Food aid
Three main heading of The
Washington Consensus
 Fiscal discipline  the eliminating of budget deficit,
limits of government spending and the
development of a reliable tax base
 Market liberalisationand privatisation  the
ending of government intervention in markets,
including the sale of state-owned industries and the
end of price controls
 Trade liberalisationand encouragement of foreign
investment  the scrapping of tariffs and other
protectionist measures, including those that
created barriers to foreign investment
The objectives to achieve
sustainable development
 Economic objectives of growth tend to focus on
making better use of scarce resources so that there is
an increase in the goods and services available for
households to consume. This requires an increase in
the output of the primary, secondary and tertiary
sectors of the economy. To be sustainable, however,
this growth should also ensure that sufficient
resources are allocated to investment in human and
physical capital to raise the productive capacity of the
economy. In other words, economic growth should
concentrate on improving the supply-side
performance of the economy
The objectives to achieve
sustainable development
The social objective of growth
concern the distribution of the
benefits of growth. Certain basic
goods and services are needed by
all people, in order that their lives
are healthy and productive. These
might include food, shelter, health
and education
The objectives to achieve
sustainable development
The environmental objectives of growth
focus on ensuring that future
generations do not inherit a stock of
natural capital that will reduce their
quality of life or reduce their ability to
produce goods and services. There are
environment concerns associated with
current economic growth, both in
developed and in developing nations.
The millennium
ecosystem assessment
Water
 Water withdrawals from rivers and lakes
for irrigation, household and industrial use
doubled in the last 40 years
 Human now use between 40 and 50 per
cent of the freshwater running off land to
which the majority of the population has
access
The millennium
ecosystem assessment
Conversion and degradation
Since about 1980, approximately 35
per cent of mangroves have been
lost, while 20 per cent of the
world’s coral reefs have been
destroyed and a further 20 per cent
badly degraded or destroyed
The millennium
ecosystem assessment
Nutrient use and levels
Human activities now produce more
nitrogen than is produced by all natural
processes combined, and more than half
of all the manufactured nitrogen
fertilizer ever used on the
planet has been applied
since 1985
The millennium
ecosystem assessment
Fisheries
At least one quarter of marine fish
stocks are overharvested
The quantity of fish caught by
humans increased until the 1980s
but is now declining because of the
shortage of stocks
Index of sustainable
economic welfare
An index, first construction in 1989 by
two economists, Herman E. Daly and
John B. Cobb, that adds to national
expenditure things that raise the quality
of life and deducts things that reduce
well-being. Daly and Cobb added to and
refined the measure to produce a
‘Genuine Progress Indicator’
The component parts of the index of
sustainable economic welfare
ISEW
=
Total personal consumption
Minus Defensive expenditures by the private
sector
Minus Losses arising from income inequality
Minus The costs of environmental degradation
Minus Depreciation of natural capital
Plus
Increase in the stock of man-made capital
Plus
The value of domestic labour
plus
Non-defensive expenditure by the public
sector