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I was delighted to give a talk to A2 economists at Wilson's School in Surrey today covering some aspects of trade and development economics. In particular we looked at the work of Hidalgo and Hausmann and their newly published Index of Economic Complexity. The slides from my talk are streamed below.read more...»
Gains from international trade, the history of European economic integration, fiscal and monetary policy, the launch of the €uro and the 2008 financial crisis are all clearly animated and explained in this superb video. In just over 12 minutes it explains the problems of the €urozone and the threats and challenges it still faces. Definitely one to watch for the closing stages of an A2 macro course.read more...»
Sometimes it’s worth challenging a concept that is fundamental to Economics, such as specialisation or the theory of comparative advantage (video here). This crucial theory views international trade as profitable even for a country that can produce every commodity more cheaply than any other country (an absolute advantage). According to Robert Skidelsky, the textbook example is that of a town’s best lawyer who is also its best typist. Provided that she is better at law than at typing, she should specialize in law and leave her secretary to do the typing. That way, both of their earnings will be higher. The same logic applies to countries. Each country should specialize in producing those things that it produces most efficiently, rather than producing a bit of everything, because that way its income will be higher.
Why does Skidelsky go on to challenge that view?read more...»
We are often (quite rightly), talking about Britain’s disappointing export performance. There are lots of good reasons to promote exports – an injection into the circular flow of income and the X in C+I+G+(X-M).
But don’t fall for the trap of thinking that exports=good and imports=bad. In the final analysis, one of the main reasons for exports is to pay for imports. Imports play a crucial role in making our economy more efficient.read more...»
This is a great learning aid, especially if you've not come across it before. If you're trying to understand exchange rates, you often end up wondering which countries have overvalued exchange rates (that should, ideally, depreciate in value) or those that are undervalued (where appreciation would probably help).
The idea is so simple - find a product that's available in most countries, produced to a standardised design, and that serves as a reasonable 'basket of goods' capturing a range of price data for the economy you're looking at. By this measure, the countries with expensive Big Macs have overvalued exchange rates and cheap Big Macs means an undervalued exchange rate.read more...»
This report which the Public Accounts Committee published on Friday, entitled Supporting UK exporters overseas, gives a useful piece of background reading, as it marries up AS and A2 level theory, and micro and macro topics. It looks at the combined efforts of the Foreign and Commonwealth Office and UK Trade and Industry to help UK firms, particularly small and medium sized businesses, boost their exports and so contribute to UK GDP recovery. The summary of the report on the PAC website could be used by students to consider a couple of questions:
How many examples of government failure can you identify?
Given that the UK does not currently use monetary policy to influence the exchange rate, what mix of government policies might be used in order to meet the target of doubling exports by 2020?
On Project Syndicate, economist Ricardo Hausmann argues that urging cities, regions, and countries to specialise can be wrong and even dangerous.
An interesting point, as almost everyone studying economics assumes that the basic idea is so intuitive and obvious that it is hard to deny it. See what you think.read more...»
The phrase ‘industrial policy’ seems to take us decades back in time. In 1964, a powerful catchphrase of the new Labour Prime Minister, Harold Wilson, was the need for Britain to embrace the ‘white heat of the technological revolution’. Sadly, by the 1970s this vision had deteriorated into a list of institutions, stuffed with dull businessmen and trade unionists, meeting to decide how to prop up yet another failed sector of the UK economy.
But the concept is now back in vogue. Perhaps surprisingly, given the historical experience, the coalition chose to preserve Labour’s Technology Strategy Board (TSB) quango. The TSB has a budget of £400 million to “accelerate UK economic growth by stimulating and supporting business-led innovation”. A key way in which it plans to do this is through the purchasing decisions of the public sector.read more...»
The Confederation of British Industry has today launched a report called Our Global Future: The Business Vision for a Reformed EU - The report calls for further EU reform not least the completion of the single market in particular in services and the new internet economy. They argue for more free trade deals with other countries and regions.
The report produces estimates – based on past academic studies – that EU membership adds £62bn-£78bn a year to UK gross domestic product, equal to the combined economies of northeast England and Northern Ireland. That works out at £3,000 per household and £1,225 per individual. The fact sheets from the report can be found hereread more...»
The concept of gains from trade is of fundamental importance to economists. But don't be fooled into thinking that gains from trade are limited to international trade. The same theory that explains trade is just as relevant when talking about trade between individuals, cities and regions.read more...»
A huge reminder about the shifts in economic power arrived with the news about the development of Hinkley C nuclear power station.read more...»
On the World Bank twitter account, President Jim Kim is quoted as saying that "Properly managed, new minerals wealth could transform Africa’s development." Back in June 2013, a new report from the African Progress Panel looked at this important issue and set out an agenda for maximising Africa’s natural resource wealth and using it to improve well-being.
My own students have been researching the economics of natural resources and whether they can be a blessing and/or a curse to countries seeking sustained growth and development. I just wanted to share one or two of these essays with you because I was delighted with the depth of the independent research on show and the quality of evaluation in their arguments.read more...»
Workers in Peru say they are suffering because of competition from cheaper imports. Chinese imports are stifling what was one of the largest clothing manufacturers in South America and a free trade agreement could make matters worse. A short video clip on this issue/read more...»
Here is an updated presentation on aspects of the natural resource trap or natural resource curse issue facing low (and also high) income countriesread more...»
Here are some video resources on Shanghai's new tree trade zone. The Financial Times reports that "The Chinese government has declared that it wants to use the zone – a small 28 sq km sliver of Shanghai – as a test bed for policies from interest rate liberalisation to capital account opening - There are no residents in the zone – only offices, factories and hotels" There is much debate about whether the creation of a new free trade zone will bring about greater digital freedom in China - allowing for example, freer access to social networks such as Facebook and Twitterread more...»
Today in class we were discussing the forces of globalisation, and some of the discussion took us down the following route:
Globalisation is defined in many different ways – there is no textbook definition - but economic globalisation is usually characterised by some of the following features:
- An increasing interdependence between economies and an erosion of national boundaries
- Increased cross-border activity from MNCs
- Increased cross-border flow of trade in goods and services, movement of people, flows of financial assets, hot money, and FDI flows
- The growth of labour migration and outsourcing and global supply chains
The OECD’s definition is: “The geographic dispersion of industrial and service activities, for example research and development, sourcing of inputs, production and distribution, and the cross-border networking of companies, for example through joint ventures and the sharing of assets”
One index that attempts to quantify and measure globalisation is called the KOF index.
-The KOF Index of Globalization measures the three main dimensions of globalization:
Economic, Social and Political.
This revision presentation explains and illustrates the concept of protectionism. The presentation explains the factors that motivate protectionism and the methods employed, including tariffs, import duties, dumping, currency manipulation and the favouring of domestic firms and industries.read more...»
ASEAN is a trade bloc of 10 nations with an aggregate economic size of $2.3 trillion. Their aim is to establish a fully-fledged economic community (AEC) by the end of 2015. The trading bloc’s diversity – ranging from advanced economies like Singapore to developing countries like Myanmar is an interesting feature – who will be the winners and losers from deeper economic integration in the region?read more...»
Here is an updated revision presentation on international trade that can be downloaded from our tutor2u slide share streamread more...»
Our friends over at Marginal Revolution are starting a new short course in international trade.
- Why do countries trade? And how do they decide what to trade?
- What are the effects of trade on wages, prices, welfare, and economic development?
- What is protectionism, and how should we analyze tariffs and quotas in in a supply-and-demand framework?
As an introduction to trade theory I am looking at data on the pattern of exports for different countries drawing on 2010 data from the Observatory of Economic Complexity at MIT. The task for students is to match the country with their pattern of exports (% by value) for the year 2010. There are ten countries - who can get all ten right? Download the resource below - in pdf format and also the charts in a powerpoint formatread more...»
The main financial headlines in Mumbai recently have centred on the continued fall in the value of the Indian Rupee- now down by over 20% against the dollar in the last month. But what causes a currency to fall in value so sharply and so quickly?read more...»
This is a simply fabulous video to show to economics students of whatever vintage - there is so much relevant stuff in here it would struggle to fit into one of the containers that fill the world's largest ever freight ships. Challenge your students to find as much economics in this as possible and then make some connections between the topics!read more...»
They dominate the major championships in long distance events and the standard of their running is so high that several runners have opted to compete for other countries in order to gain selection for World and Olympic events. What makes Kenyan distance runners so good? From where have they established their enduring competitive advantage? Are there parallels and lessons for countries wishing to compete in the global economy? This news feature from the Guardian offers some interesting clues!read more...»
Another great short animated video from the Economist - highly relevant to students looking at the economics of protectionism / import controls. KAL, The Economist's resident cartoonist and animator, explains what dumping means and why companines do it.read more...»
The scale of the new London Gateway Super deepwater Port is truly stunning and its importance to the economy as a trading nation is hard to underestimate - Britain will have a new world class hub port in a key location impacting on many trades and services in and around the South East and beyond. It has taken 10 years to establish and build this huge new infrastructure project, building eventually started in 2008.
Behind the port sits Europe's largest logistics park connected to the South east by road and rail.
This Financial Times news video looks at the background to the project - it is a good example to consider of the macroeconomic consequences of the investment. What price a new Thames Estuary airport (supported by Boris Johnson) to amplify the transformative impact in the years ahead?
Update: BBC news (November 2013) - click hereread more...»
I have to come clean as a self-confessed container nerd (geek alert: follow the world’s containers using this amazing tool). Not only are the ships hugely impressive from an engineering perspective, but they are a gift for an Economics or Business enthusiast. You might want to be thinking about economies of scale, or the negative externalities associated with transport – or perhaps discuss supply side issues and infrastructure. Container ships cover the lot.
A while ago I argued that container shipping is the greatest of all 20th century innovations, and this week The Economist has reported that the container has been a greater driver of globalisation than all trade agreements in the past 50 years taken together.read more...»
This 10-question revision quiz focuses on the theory of international trade.
Revision blog on the economics of foreign direct investment in Africa with a special focus on investment from China and other BRIC countriesread more...»
Attention is often focused on the tariff and non-tariff barriers to trade and in particular, the extent to which trade from developing countries to advanced high-income nations is influenced by import taxes. Average tariff rates have come down to historic lows in recent years although non-tariff barriers proliferate.
New research from a group of European economists finds that trade costs - a concept that captures the broader expenses of getting goods and services across borders into international markets - are much higher than tariffs. And for developing countries these costs have not fallen to the same extent as richer countries.read more...»
Aggregate Demand may be stimulated by an increase in exports. Ha-Joon Chang, Author of the best seller, 23 Things They Don’t Tell You About Capitalism considers reasons in a short article for The Guardian why this hasn't happened after Sterling had fallen against other major trading economies. " Compared with ...2007, the pound has been devalued about 30% against the dollar, 50% against the yen, and 20% against the struggling euro. Yet despite the huge incentive to export created by such devaluation, Britain is still running trade deficits because it has lost the productive capacity to respond."
It may help students consider plausible policies to reduce its trade deficit, a macroeconomic goal overlooked in arguments over fiscal and monetary policies to control inflation or output. Finally it may aid evaluation, how different are the most pressing short and long term macroeconomic challengers facing UK governments.
Link to most trade figures.
The much anticipated surge in exports of goods and services from the UK economy has not really materialised in recent times. Hopes of an export-led recovery and contribution to re-balancing of aggregate demand have diminished somewhat. In this discussion, writers from the Economist explain why Britain is no longer one of the world's biggest goods exporters.read more...»
Dan Martin is curating a scoop.it board focusing on useful articles for IB students who cover aspects of the Balance of Payments. Check it out by clicking on this link
Mark Austen writes on this essay title: Evaluate the impact that the micro-finance and Fair
Trade movements can have in supporting development in some of the world’s
Andy Reeve explains that a 20 year trade dispute between the European Union and 11 Latin American countries has finally ended, with a historic trade agreement. The agreement was signed in front of Pascal Lamy, the Director General of the World Trade Organisation. The agreement was originally made in 2009, but has taken three years for all nations to ratify.read more...»
To fully understand trade, we must understand the value added at each stage ...... a crucial line in a new report from the OECD on the challenges of measuring the value of trade in a globalised world with deeply integrated supply chains. This is an important issue, traditional trade data rarely tells us the full story - a key evaluation argument that can be made in Unit 4 macro papers.
For example, the OECD report finds that one-third of the total value of motor vehicles exported from Germany actually comes from other countries, while nearly 40% of the total value of China’s electronics exports come from foreign sources.read more...»
countries have seen a growing share of their GDP directly linked to overseas trade - trade has many positive spillover effects
Comparative advantage is a dynamic concept meaning that it can and does change over time. For a country, the following factors are important in determining the relative unit costs of production:
Revision notes and resources on the World Trade Organisation (WTO)read more...»
As econoMAX Editor Liz Veal reports, in the post war period, the world economy has increasingly separated itself into trading blocs. Trading blocs have grown in size and some have become more economically integrated.read more...»
This blog entry provides a link to a live version of a new Prezi for A2 macroeconomics on aspects of international trade and development. You will be able to access the latest version of the Prezi each time.read more...»
A selection of visualisations from the MIT Media Lab Observatory of Economic Complexity - these cover changes in export patterns for a small cluster of developing and developed countries. What are the most notable and perhaps significant changes that students can identify?read more...»
I am launching into a short course in international trade, balance of payments and links to economic development issues. The standard fare is inescapable and there will be plenty of opportunity to cover theories of comparative and competitive advantage, evaluate the costs and benefits of protectionism and look at key trends in the balance of payments, terms of trade and capital accounts for developed and developing countries.
This time, in an attempt to freshen things up I am starting by looking at the work of Cesar Hidalgo and Richard Hausman at the MIT Media Lab and the Observatory of Economic Complexity. I first came across their work whilst reading Tim Harford's last book Adapt. They are mapping vast amounts of trade data from across the world to explore the extent to which export complexity, dynamic advantage and per capita incomes are connected. The data visualisations are tremendously interesting and I will be asking my Year 13 students to explore their site and choose some data of their own that sheds light on revealed comparative advantage in the world economy.read more...»
Ensuring students have a clear understanding of trading patterns across the world is an important topic in A2 Macroeconomics, and having the latest data at your fingertips will certainly be an important tool for both teachers and students.read more...»
In this prize-winning essay, James Richardson answers this question set by Professor Danny Quah from the London School of Economics
‘Global imbalance from the Rise of the East shows only that the
East is big enough to be culpable but not mature enough to be responsible.’
The unprecedented growth of the East has, in economic terms, defined the decades either side of the millennium. Led by China, which has enjoyed average real annual GDP growth of between 8% and 10% over this period  and which, according to Jim O’Neill, is now economically significant enough to be included in the G7 , Asia has propelled itself to the forefront of the economic scene. Indeed, the continent now accounts for 5 of the 20 largest economies by GDP , and projections by Jim O’Neill’s team at Goldman Sachs suggest that China could overtake the USA as the largest economy in the world ‘as early as 2027, perhaps even sooner.’  The Rise of the East, then, is as undeniable as it is impressive, but is it sustainable?
Identify four factors that act as constraints on Indian growth and development
Dambisa Moyo was on great form when she spoke to the Economics Teacher National Conference in London last week. Her new book Winner Take All investigates the causes and consquences of rising global demand for commodities. In particular Dambisa Moyo predicts increasing geo-political tensions and conflicts as countries scramble to secure ownership and supplies of land, water, energy and minerals. In this blog I have linked to some of Dambisa’s recent media appearances as Winner Take All was launched in the USA and here in the UK.read more...»
A useful series of flow charts on the BBC Business Webpage outlining some of the causes and effects of the present problems of the Eurozone economies.
A good starting point for AS students and teachers preparing for A2 Economics courses.
Will the East slow before it counts? Is the East only big enough to be culpable but not mature enough to be responsible? In this TED talk recorded at the LSE a few months ago, Danny Quah, Professor of Economics and Kuwait Professor at the London School of Economics and Political Science looks at some of the darker undercurrents, dangers and risks from the changing centre of gravity in the world economy.read more...»
The Human Development Index (HDI) forms part of the annual human development report and is a composite measure of economic and social welfare that has three main components. At its most basic it focuses on longevity, basic education and minimal income and progress made by countries in improving these three outcomes. The inclusion of education and health indicators is a sign of successful government policies in providing access to important merit goods such as health care, sanitation and education. World Human Development Map
1.Knowledge: First an educational component made up of two statistics – mean years of schooling and expected years of schooling
2.Long and healthy life: Second a life expectancy component is calculated using a minimum value for life expectancy of 25 years and maximum value of 85 years
3.A decent standard of living: The final element is gross national income (GNI) per capita adjusted to purchasing power parity standard (PPP)
“Human development is the expansion of people’s freedom to live long, healthy and creative lives; to advance other goals they have reason to value; and to engage actively in shaping development equitably and sustainably on a shared planet. People are both the beneficiaries and the drivers of human development, as individuals and in groups” Source: HDR Report, November 2010read more...»