THE GLOBAL ECONOMY

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THE GLOBAL ECONOMY

• Chapter 8 Lecture 1

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GOOD NEWS, BAD NEWS

• It takes seconds to move trillions in dollars
  from one continent to the next
• A currency is weak
• The recent economic downturn appears to be
  nearing its end
• The number of stock markets is decreasing
  worldwide
• Inflation is low
• Trade balances are high

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DIMENSIONS OF A GLOBAL ECONOMY

• GLOBAL TRADE
• IN GOODS (tangibles)
• IN SERVICES (invisibles)
• GLOBAL FOREIGN DIRECT INVESTMENTS
• PLANT, EQUIPMENT, OPERATIONS
• FINANCING or PURCHASE in the form of LOANS,
  EQUITY SHARES, BONDS
• GLOBAL FLOWS OF CAPITAL
• GLOBAL LABOR

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EFFECTS ON BUSINESS PRACTICES OF

• 24/7 stock and currency trading
• Currency volatility
• New instruments such as derivatives

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FISCAL WEALTH AS ONE MEASURE OF WORLD PROSPERITY

• WORLD GDP IN 2003 WAS about 3650 TRILLION
• VERSUS
• EARLIER ESTIMATE OF 48 TRILLION BY 2010
• OECD forecasts world GDP will grow by 2.2 in
  2002 3 in 2003 (down from 4.2 in 2000) 4 in
  2004
• Most growth due to
• Rapid economic growth in developing economies
  such as China and India
• A growing middle class worldwide
• Increased business opportunities (and challenges)
  worldwide

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OTHER INDICATORS OF PROSPERITY (OR LACK THEREOF)

• Human Development Index
• The World Banks National Balance Sheet
• The Human Misery Index
• The Human Poverty Index

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TRADE

• TRADE IN GOODS
• Products we can see, feel, touch, and (most
  easily) measure
• TRADE IN SERVICES (invisibles)
• Those where personal contact with the ultimate
  consumer usually is considered essential such as
  banking, health care, higher education
• Information services such as software,
  entertainment, computers where personal contact
  is less important

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TRADE STATISTICS FOR 1999-2003

• Trade in goods
• 5.6 trillion in 99
• 6.2 trillion in 00
• 6 trillion in 01
• 7.3 trillion in 03
• Volume of growth
• 4 in 1999
• 12.5 in 2000
• 16 in 2003
• Source of goods
• 50 of GDP in Developing Economies
• 30 of GDP in Developed Economies
• Trade in services
• 1.3 trillion in commercial services for 2000
  1.8 trillion in 2003
• 6 growth with transportation services showing
  the strongest growth

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FOREIGN DIRECT INVESTMENTS

• PLANT, EQUIPMENT, OPERATIONS
• FINANCING or PURCHASE in the form of LOANS,
  EQUITY SHARES, BONDS

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FOREIGN DIRECT INVESTMENTS

• (does not include investments in equity or bond
  markets)
• 315 billion in 1995
• 660 billion in 1998
• 1.4 trillion in 2000 (largely stimulated by MA
  activities among global enterprises)
• 560 billion in 2003

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GLOBAL FLOWS OF CAPITAL

• CURRENCY EXCHANGEForeign exchange alone is 23
  trillion per day
• SETTLEMENTS OF PURCHASESfigure what it takes to
  settle purchases per day when annual final
  purchases are 31 trillion in GDP
• Clearly all these activities require FINANCIAL
  INSTITUTIONS to manage them World Bank, IMF,
  private banking (global firms, microlending,
  hawalah)

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THE ECONOMIC PICTURE REVEALS CHALLENGES

• GAPS BETWEEN RICH AND POOR ARE MORE EVIDENT
  WORLDWIDE, ESPECIALLY AFRICA
• INCREASING STRIFE DELAYS AND DIVERTS ECONOMIC
  GROWTH
• EXISTING INSTITUTIONS FIND IT IMPOSSIBLE TO KEEP
  UP
• INFORMATION OVERLOAD DISTORTS ECONOMIC DATA
• GLOBAL CAPITAL CREATES HOT SPOTS IN VULNERABLE
  ECONOMIES
• ECONOMIC GROWTH DISPLACES TRADITIONAL NORMS

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IN VIEW OF A GROWING GLOBAL ECONOMY, IT IS
IMPERATIVE THAT BUSINESSES

• RECOGNIZE THE INTERACTION BETWEEN GLOBAL
  ECONOMICS AND OTHER ASPECTS OF LIFE
• EXAMINE RATIONAL ECONOMIC ASSUMPTIONS
• RECOGNIZE WHERE WEALTH CREATION IS POSSIBLE
• EXPLORE THE RELATIONSHIPS BETWEEN WEALTH CREATION
  AND PROSPERITY
• DEVELOP CLEAR STRATEGIC GOALS