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One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
Data on export patterns for goods from countries around the world provide a fascinating window on the degrees of complexity that nations have achieved. There is growing interest in the significance of knowledge capital or know-how in lifting productivity, competitiveness and improving trade performance for economies at different stages of development. Below is my selection of countries.
There then follows links to videos from Cesar Hidalgo and Riccardo Hausman on their theory of productive knowledge - and in particular how it is acquired at the level of the individual, the level of organizations, and cities, regions, countries and societies.read more...»
Imagine that, for some reason, you were forced to choose between having to read a long, turgid novel like Westward Ho or Middlemarch, or a book on the methodology of the national economic accounts. Most people, however reluctantly, would plump for the former. But the latter can at times be very exciting. A recent paper uses national accounts concepts to revolutionise the conventional view of world trade.read more...»
This is a screamer of an article on TPP from Linda Yueh. all students taking Econ4 must be aware of what the TPP is and what it might mean for the world economy if the TPP is finalised and completed. There are numerous barriers in the way. Can the USA and Japan resolve and reduce decades-long and deeply embedded protectionist measures covering farm products and car making? TPP has the potential to boost trade and growth in both countries - but politics and vested interests often get in the way. Watch Linda's video here: http://www.bbc.co.uk/news/business-27122428read more...»
Here is an extract from a recent speech by Charlie Bean at the Bank of England - the full speech can be found here: www.bankofengland.co.uk/publications/Docume...
For the economic recovery to be both sustained and sustainable we really want to see three things happenread more...»
All exam boards require candidates to have an understanding of the Balance of Payments and Exchange Rates. In this session we will focus on the causes of the UK’s Balance of Trade (aka Current Account) deficit, what we can do about it, and how an exchange rate depreciation should affect an economy, and has affected the UK post financial crisis.read more...»
Preferential market access to China is providing an important growth-enhancing outlet for African exporters that find it difficult to break into industrialised countries’ markets. But there remain dangers that current export structures and national capacity constraints may further entrap Africa given its comparative advantage in primary resources and China’s comparative advantage in manufacturing products.read more...»
Membership of the European Union (EU) has had a big positive effect on average incomes in all but one of its member countries. That is the central finding of research by Nauro Campos, Fabrizio Coricelli and Luigi Moretti, to be presented at the Royal Economic Society’s 2014 annual conference. They also find that the more financially developed countries have grown significantly faster after joining the EU.read more...»
More on the implications of the UK’s massive current account deficit. Geoff has put together almost everything you need on the topic here, and he points out that the main implication is a net leakage from the circular flow of income, reducing AD and weakening multiplier effects.
A current account deficit is not necessarily a disaster; after all, imports are good too, sustaining our standard of living and is partly a reflection of the demand for intermediate goods our economy needs to stay efficient.
I’m going to pick up on the the statement that there is nothing wrong with a trade deficit. It simply means that a country must rely on foreign direct investment or borrowed money to make up the difference.read more...»
Britain’s current account deficit for 2013 as a whole (4.4% of GDP) was greater than in any other developed economy and the widening current account gap is raising fresh concerns about whether the UK's economic recovery is balanced and sustainable.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...»
Notes from a talk given by Liu Xiaoming, Chinese ambassador to the UK at the Marshall Society economics conference in Cambridge in January 2014.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?
Which of these brands are British?
- Newcastle Brown
- Aston Martin
- Rolls Royce
- Branston's pickle
- Land Rover
- HP sauce
- PG Tips
- John Smiths bitter
- Sarson’s vinegar
- Rowntree Mackintosh
Two cartoons to illustrate two key issues: Britain doesn't export enough (especially goods) and so has a large current account deficit.
That's not to say that the UK doesn't have significant exports markets - but where?read more...»
This topic is of profound importance. It gets the heart of a fundamental economic issue: the distribution of income. When national income rises, does that extra income go into the pockets of workers or capitalists?
The answer is clear cut: labour is getting a smaller slice of the pie. How and why might that be happening, and what might be done? Here are links and summary of a couple of articles, plus a great Economist video clip.read more...»
In the second part of his conversation with Professor Richard Hausmann, John Authers from the FT asks which countries are well set for growth in the years ahead. Hausmann argues that there are three factors that explain growth - firstly how well natural resources are used, second how many productive capabilities a country currently has. And thirdly, how easy can a nation can acquire new productive capabilities. He claims that Mexico is better placed than Brazil on account of improved diversification into more sophisticated products. Hausmann forecasts that China will grow at a rate of around 5% between now and 2020, well below the growth target set by the Chinese government.read 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...»
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 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...»
Economist Anthony Beaumont considers how the deeper economic integration within the ASEAN single market can act as a stimulant to economic growth and development for member nationsread 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...»
KAL, The Economist's resident cartoonist and animator, explains global trade
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...»
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...»
The UK's membership of the EU is among the hottest of topics at the moment. With the UKIP party doing so well in recent elections and various senior political figures starting to show their real views on UK membership of the EU club even Barrack Obama was giving his opinions yesterday. This doesn't mean that the topic is any more likely to turn up on macro-economic exam papers over the next few weeks at AS and A2 (the OCR AS paper has already been and gone! Hope it went well) - the papers will have been written before the more recent votes.
However, the economic question about the UK's membership has been an important topic for quite a while and so it is worth having a look again just in case it rears its multi-lingual head. Added to that, students of economics will be in an ideal situation over the next few years to be able to make an informed decision in any referendum, based upon having some of the facts and figures and having developed their outstanding evaluative skills on the matter!
With this in mind, follow this link to find a short (10 minute) teaching resource that asks that very simple question - What are the economic arguments for and against remaining in the European Union? The Powerpoint file has a 4 minute timer to give students the chance to think about the answer and then a nice little graphic illustrating some possible answers that they could use in an exam. The BBC have also produced a succinct balanced webpage on a similar question.
This 10-question revision quiz focuses on protectionism.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.
It’s not often you read such a clearly set out, even-handed article on macroeconomic policy, so this relatively lengthy piece was interesting in itself as its writer appears to deal relatively equally with both sides of the big austerity debate. But you really have to take notice when the writer is the Secretary of State for Business, Innovation and Skills, Vince Cable.
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...»
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:read more...»
Revision notes and resources on the World Trade Organisation (WTO)read more...»
An updated glossary of key terms for AS macroread more...»
As the sun rises on another year will the headwinds be favourable for Britain or are we facing up to another year of stresses and strains? Here is a brief commentary and overview of some of the key macroeconomic data for the UK economy together with some links to external articles and videos on economic prospects for Britain as we head in 2013.read more...»
There has been plenty of discussion in recent weeks about whether Britain might seriously start to consider leaving the European Union? Here is a selection of news pieces and discussion videos on the vexed question of UK membership.read more...»
At our Teaching the Global Economy at the RSA (London) in November 2012, the distinguished development economist Professor Paul Collier spoke on some of the leading development issues of the moment. A-level student Mark Austen was there to scribe some notes on the talk and the subsequent Q&A discussion. Here are his notes together with some connecting links and other resources. We hope that you find them useful.read more...»
Here is a streamed revision presentation on aspects of micro finance and fair trade as part of a course on development economics.read more...»
A hat tip to our good friend Vasilis Nicolaou, an economics teacher from Cyprus for spotting this excellent overseas aid data set available from the Guardian web site. As Britain renews its pledge to increase the aid budget, the Guardian has highlighted five datasets to help understand the debates - here is the link to click
Our focus in an AS macro revision session was on the difference between cyclical issues and events and the wider / deeper structural problems and issues facing the UK economy at this fascinating time. Key macro policy decisions affect the path of an economy out of recession, but are these the same policies that will address the supply-side constraints and weaknesses that hold back growth, development and contribute to growing inequality?read more...»
A revision blog on UK overseas trade in servicesread more...»
Here is an updated version of the WEESTEPS approach to economics evaluation designed to boost the evaluation scores and exam results for AS and A2 Economics students.
It gives you some great pointers about the evaluative approaches that can be used. Works well for micro and macro - but particularly when you have to evaluate a specific policy intervention in a market / industry / or a macro policy discussion.read more...»
Following on from Ben Christopher’s article, a BBC Radio 4 interview with Andrew Balls, an investment fund manager, and younger brother of The Shadow Chancellor on the possibility of a Grexit - Greek exit from the Euro.read more...»
A short glossary of key terms connected to the economic cycleread more...»
The US and China rely heavily on each other for trade but retaliatory protectionist policies continue to be a recurring theme between these two nations that prevent the free movement of goods and services between the two countries.
Allegations that the undervalued Yuan gives an unfair advantage to Chinese exporters, twinned with high US unemployment has led to protectionist American responses and a tariff (tax on imports) on Chinese solar panels to protect this strategic and growing industry. The move followed a review by the US Commerce Department which in a preliminary decision claimed that Chinese firms are benefiting from unfair export subsidies.read more...»
One of the dangers for a country implementing protectionist measures is the risk of retaliatory action. We have only to look at US-China trade relations to find plenty of evidence for this. The US objects to what they see as a Chinese policy of deliberately holding down the value of the yuan in order to boost Chinese exports. However, in addition to this they also object to government subsidies which the Chinese government give to some of their producers in order to help lower their production costs and so make their goods even more competitive in world markets.read more...»