Importance of Trade for Countries?A Few More of Interest

	GDP	Exports/GDP
China		24%
Hong Kong		168%
Korea, South		47%
Korea, North (2009)		7%
Burma		15%
Syria		6%
Israel		22%

Source: CIA World Fact Book

• Ways that countries interact economically

– Capital Flows

• Financial (holdings of financial assets abroad)

• Currency

• Bank deposits

• Bonds – private and government

• Stocks

• Bank loans

• Real (international ownership of real assets)

» Real estate

» Capital assets (plant and equipment)

» Stocks (equities) if ownership share is large

» Other

Data, below, are stocks (i.e, amounts at a point in time)

US Investment Position ($ trillion at market value, year-end 2011)

	We “Own” US Assets Abroad	We “Owe” Foreign Assets in US
Total	16.43	20.58
US Gov’t	0.71	4.28
Private financial	11.03	13.40
Private real	4.68	2.91

Source: Economic Report of the President, Feb 2013, Table B-107

Compare: US GDP in 2012 = $16.02 trillion

US Investment Position

• (Qualification: “Owe” isn’t quite right. This includes all assets in the US owned by foreigners, including land, buildings, etc. Not just what we’ve borrowed.)

• Lessons:

– US is a large net “debtor” (result of our spending more than we earn)

Most of this today is government, but some is private

• Other ways that countries interact economically

– Migration

• Temporary

– Guest workers

– Day workers

• Permanent

• In practice, most (all?) countries limit migration severely

Policies that Affect Others

• Other ways that countries interact economically

– Policies that affect other countries

• Direct

– Trade policies (tariffs, quotas)

– Foreign aid

– Capital controls

– Exchange rate management

– Immigration restrictions

• Indirect

• Aside on Tariffs

– We will be dealing a lot with these

– See reading by Hufbauer and Grieco:

• US tariffs are much lower than they used to be (average 4% now, vs. 40% in 1946)

• US has gained a great deal from lowering tariffs

• US still has much to gain from further lowering

• But there are also severe costs for some people and firms who compete with imports

• Aside on Tariffs

– Tariffs could go up:

• WTO enforces only upper limits on tariffs

• Actual tariffs in many countries are below these limits, and could legally rise

• There was danger that the recent world recession would push countries to do that.

– They didn’t – at least not much.

– 45% of US exports go to developing countries

– US tariffs are much higher against developing countries than against developed countries

• Other ways that countries interact economically

– Policies that affect other countries

• Indirect

– Subsidies (esp. agriculture)

• US farm subsidies > foreign aid (see CGD reading)

– Macro policies (monetary, fiscal)

• Exchange-rate policies

– Environmental policies

– Standards

• Labor

• Health & safety

• Norms

• Institutions of the International Economy

– What are they?

• The WTO

• The IMF

• The World Bank

• The OECD

– What’s happening (or not happening) now?

Conclusion

The world economy or global economy is the economy of the world, considered as an international exchange of goods and services. In some contexts, the two terms are distinguished: the "international" or "global economy" being measured separately and distinguished from national economies while the "world economy" is simply an aggregate of the separate countries' measurements. Beyond the minimum standard concerning value in production, use, and exchange the definitions, representations, models, and valuations of the world economy vary widely.

Control questions:

1. What does mean globalization?

2. Can you give the main elements of the World Economy?

3. What do you know about WTO?

4. Give more information about countries interact?

5. What do you think about importance of trade for countries?

Literature

1. English for economists and managers: textbook/ O. V. Ulyanov, S. V. Grishin; yurginskiy technological Institute. – Tomsk: Publishing house of Tomsk Polytechnic University-theta, 2011. – 111 p.

2. Besanko D.A, Brauetugam R.R, Gibbs M.J Microeconomics,2011, Chicago

3. Griffiths A, Wall S.Economics for business and management,2011, England

4. Varian H.R. Intermediate microeconomics,2010, University of California at Berkeley

5. Boyd, W. Harper. Marketing Management.- Boston, 2010