International finance

1
International finance

• Session 1
• 24 february 2004

2
Presentations and marks

• For groups of 2 or 3 people
• Propose, for next time, a topic (any subject
  related to the international economic situation)
• Marks
• Work
• Clarity of presentation
• English
• Synthesis
• We will select dates for the presentations (15 mn
  discussion)
• At the end of the semester there will be a little
  complementary presentation by the same groups

3
Todays topics

• Gross Domestic Products
• Ricardo theory of competitive advantage
• Introduction to Balance of Payments (BOP)

4
GDP

• Countries (all the citizens of a country) create
  wealth
• And distribute their wealth, via the mechanisms
  of markets, and money
• The idea of measuring this wealth creation dates
  from the early XXth century (Keynes suggested
  that)
• The idea of measuring the quantity of goods and
  services produced by a country year after year is
  a recent one.
• It is useful to pilot government policies, but it
  has severe drawbacks.

5
Purposes of economics

• Understand the conditions of creation of wealth
  and well-being in countries
• Modern societies are based on exchange, so we
  study exchange (real goods and services and money
  and promises)
• There is so much concern with making this
  production and exchange efficient that it may
  said that we live in merchant societies.
• We are overwhelmed by billboards, prices, shops,
  ads, money discussions
• That is because in the Western world we live in
  societies that value very much production and
  consumption, and therefore exchange of a merchant
  nature.

6
Stability and unstability

• The world has never been as unstable as today
  (cf. the interest rate curve over the last two
  centuries)
• China is the only country where todays kids can
  read texts written 1500 years ago.

7
GDP

• It is a measure for every country every year of
  the wealth created
• Since Economics purports to understand and create
  the condition of wealth creation, we must measure
  it
• The Gross Domestic Product does it
• It has severe drawbacks the cleaning of
  pollution, created by economic activity, is
  measured positively in the GDP
• Just like accounting for firms has drawbacks (eg.
  historic costs), accouting for countries has
  drawbacks too.
• We know that when we say that in this country we
  earn 10 000/persxyear and in that only 2 000,
  the comparison doesnt make entirely sense

8
GDP

• GDP are usually measured and presented via
  consumption we measure what was bought during
  the year by various groups in the country (most
  of what is produced is bought in fact this is
  rather a definition of what is produced
  because the rest, which is quite important, is
  not counted in the GDP -, and it is easier to
  measure)
• Usually we use
• Households
• Businesses
• Governments (central and local)
• The rest of the world

9
US GDP
10
US Population and GDP/capita

• The US population in early 2004 is 292 million
  people
• The US GDP 2003 is 10 984 billion dollars
• GDP per capita about 37 600 dollars/p
• The early 2004 world population is 6 350 million
  people (during this 3 hour class the world
  population will increase by 30 000, and about 8
  million more tons of carbon dioxide will be
  released into the atmosphere by cars and
  industries)
• The world GDP is about US 35 to 40 000 billion
• World gdp/cap 5500 to 6000 dollars per pers

11
Numbers to remember

• World GDP 35 to 40 000 billion dollars
• US GDP 10 000 billion dollars
• West europe GDP a bit more than the US
• China about 4 to 5 of the world GDP
• World population 6,4 billion people
• US pop 292 million
• China pop 1300 million
• US GDP pers 37 000 dollars/p
• China GDP pers about 1000 dollars/p
• China GDP yearly growth about 8 to 10 percent.