International Economics

1
International Economics

• Developing Countries
• Organizations of International Economy

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What is necessary for a poorer country to get
ahead?

• Economic development
• The size and sophistication of a nations
  industrial, service, technical and ag sectors

3
Developed Nations

• High levels of industrial and technical
  expertise.
• Variety of economic institutions
• Banks, stock markets, and trade networks

4
World Bank

• Classifies 25 nations as being high income or
  highly developed.
• US
• Canada
• Japan
• Most of Europe
• 14 of the worlds population.

5
Developing Nations

• Low per capita GDP
• Limited resources or inefficient use of resources
• Rapid population growth rate
• Dependency on agriculture as main form of
  production

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World Bank Data

• 90 nations are considered developing
• Average income 3,000 per year
• Examples
• China, Mexico, most Eastern European countries

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Least Developed Countries

• 49 countries listed as LDC
• Average income less than 900 a year.
• Weak human assets
• High economic vulnerability
• Economic smallness

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What do nations need to get ahead?

• MOST IMPORTANT!
• Capital formation!
• Countries dont get ahead because of a lack of
• Savings
• Private investment
• Lack of existing capital

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Also needed to get ahead

• Get away from one crop economies
• Can be mining of one item or ag speciaization.
• Population control
• Need long term investment in health, education,
  job training.

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Also needed to get ahead

• Encourage entrepreneurship
• Adequate infrastructure
• Political stability
• Social and cultural obstacles need to be overcome

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How Nations are Developing

• International Private Capital
• Multinational corporations (MNCs)
• Provide jobs, money, products, services

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How Nations are Developing

• Foreign Aid
• Provide economic assistance, military assistance
  and emergency assistance.

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Economic Assistance

• Financial and technical aid, loans and cash
  grants
• Supply services of specialists such as engineers,
  scientists, teachers, physicians.

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Military Assistance

• Loans, cash payments, technical expertise and
  equipment for military purposes.
• Make allies for countries

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Emergency Assistance

• Food, medical supplies, clothing and other goods
  that sustain life in times of crisis.

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Why give foreign aid?

• Foreign aid encourages international trade.
• Economic and social improvements help distribute
  money through world economy.
• Reduce political strife

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International Public Sources for Capital

• World Bank
• International Monetary Fund (IMF)
• United Nations

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World Bank

• 180 countries contribute money to it.
• Focuses on helping LDCs and Developing Countries
• Financing projects
• Giving advice
• Eliminate poverty

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The World Bank Focus

• Human Development
• Education
• Ag and Rural Development
• Irrigation / rural services
• Environmental Protection
• Infrastructure Improvement
• Roads, electricity
• Governance
• CONTROVERSIAL!

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Complaints about the World Bank?

• Some see it as a US controlled agency that if
  countries dont accept capitalism and free market
  reforms after the US models
• They dont seem to get the money!

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Complaints about the World Bank

• Interest rates can be CRIPPLING for poor
  countries to pay back.
• Are numerous countries in Africa essentially
  owned by the World Bank?
• ODIOUS debt

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Odious Debt

• The World Bank has been accused of making large
  loans to corrupt dictators / governments
  knowing the money would be wasted.

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Odious Debt

• South Africa used to have a government called
  APARTHEID.
• When it was overthrown the new government found
  they were responsible for the debts of their
  oppressors.
• No new loans or building projects in South Africa
  in the 1990s.

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Should these debts be forgiven?

• U-2s Bono regularly campaigns to lower the
  interest rate on loans or to forgive debts for
  the LDCs.

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In defense of the World Bank

• It is one of the most highly regarded financial
  institutions in the world.
• Constant research and the best statistics on LDCs
• Many educational scholarships to students in LDCs.

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IMF

• 184 Countries seek to create
• monetary cooperation
• Secure financial stability
• International trade
• High employment / lower poverty

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International Monetary Fund

• Establish and stabilize exchange rates.
• If a country needs help the IMF can offer loans
  to help stabilize the money.

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Complaints about the IMF

• Often tie loans to political changes
• Like free elections!
• Like energy conservation.
• Higher taxes
• But is it right for the IMF to force political
  decisions for another country?

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United Nations

• Finances thousands of development projects in
  education, health, agriculture and industry.
• UNICEF for childrens health
• Red Cross for humanitarian aid

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The UN has been accused of problems

• Political corruption
• Too much red-tape of bureaucracy prevents the
  people or money from reaching those in need.
• Maybe new General Secretary Ban (South Korea)
  will change things?

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A New Formula to combat international poverty

• Muhammad Yunus of Bangladesh and the bank he
  created Grameen Bank.
• Micro-loans to individuals.
• Collateral free
• Low interest rates
• NEVER more than 200 per customer.

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Grameen Banks Philosophy

• "these millions of small people with their
  millions of small pursuits can add up to create
  the biggest development wonder."

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Grameen Banks Philosophy

• Has helped 6.83 Million people to find some
  relief from poverty by starting their own
  businesses.
• 97 of the customers have been women.

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Yunus and Grameen were noted in 2006

• The Nobel PEACE Prize
• "for their efforts to create economic and social
  development from below"

35
The Gates Foundation

• More focus on combating global poverty.
• Economic micro-aid
• Population control
• Infrastructure development
• Roads, water treatment, education.
• Finding cure for malaria
• Polio inoculations

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TRADE

• Trade Barriers
• Tariffs import taxes to make imports cost more
  or as much as our goods.
• Import quotas fixed amount of an item that can
  be imported
• Embargoes political rather than economic
  reasons for keeping goods out of the country.

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Why have trade barriers?

• Protectionism
• Infant industries
• Job protection
• Standard of living
• Specialization
• National security
• fairness

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International Trade Agreements

• NAFTA (North American Free Trade Association)
• Mexico, US, Canada
• Goal is to eliminate all tariffs on goods and
  services between countries.

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International Trade Agreements

• European Union (EU)
• Most European countries.
• One currency for all countries
• Elimination of tariffs and consistent regulation
  of goods.
• Cheese made in Holland follows same safety
  protocols as cheese from Switzerland.

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Strong Dollar v. Weak Dollar in Trade

• Currency exchange rates How much does our
  dollar buy.
• 2000 Strong dollar
• 1 Pound 1.20
• 87 pounds was 104.40

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Strong Dollar v. Weak Dollar

• 2007 Weak Dollar
• 1 pound 1.96
• 87 pounds 170.52
• The same place costs 66.42 MORE a day!
• OUCH!!!

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Weak Dollars in 2007

• Encourages other countries to buy American goods
  upping EXPORTS.
• Encourages tourism to our country.
• Discourages dollars from leaving the country.

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Strong Dollars

• Encourage IMPORTS because our dollars buy more.
• Discourages exports and can hurt jobs.
• Encourages Americans to travel.