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Guinea has agreed a huge new capital investment framework with a number of transnational partners including Rio Tinto and Chinalco to develop one of the world's biggest iron ore assets. This is a project that may double the country's GDP not least because as well as mining the iron ore, there is a proposal to seek funding to construct a 650km railway and a deep-water port to transport the rocks and minerals.
It is one of those examples that comes along every once in a while that prompts both students and teachers to re-visit the economics of large scale foreign direct investment projects. Is this nation building of the old style? Or is the proposed investment framework one that could be genuinely transformative for one of the world's poorest countries?
- Forecast of 45,000 new jobs created across the entire project
- State of Guinea will retain 15% of any proceeds from the mine
- In exchange, the joint venture with Rio Tinto / Chinalco will enjoy eight years' tax free operations in the country
- Production at the Simandou mine is expected to start within five years
- It will be Africa's biggest mine
Here is a short interview in which it is argued that China will increasingly focus on the quality of growth rather than the quantity. A Chinese slowdown may affect countries that have exported to China more than China itself.read more...»
This short World Bank info-video looks at what $1 buys in China. In China, over 98 million people live on less than 6.3 yuan ($1) per day.read more...»
It is a staggering statistics, but around 3 billion people in the world cook and heat their homes using open fires and simple stoves burning biomass (wood, animal dung and crop waste) and coal. Over 4 million people die prematurely from illness attributable to the household air pollution from cooking with solid fuels. And more than 50% of premature deaths among children under 5 are due to pneumonia caused by particulate matter (soot) inhaled from household air pollution. This short World Bank video looks at the subsidies available to stove manufacturers under the Clean Stove Initiative.read more...»
Here is a quick note about a news item which provides some excellent evidence of inward FDI in Africa, Chinese investment in access to commodities, and the costs and benefits for an LEDC of overseas investment.read more...»
At some point the United States ‘overtook’ Britain as a global power and many people fret (or celebrate) that one day China will ‘overtake’ the US. I’ve used inverted commas on purpose. What does ‘overtake’ mean? If the conversation is between economists, they are probably talking about the crucial concept of GDP.read more...»
New data suggests that China will soon overtake the United States with the largest GDP adjusted for purchasing power parity. This short Financial Times video from Chris Giles looks at the new data which are being driven by fresh estimates of what money can buy - i.e. the volume of goods and services that are produced in different countries and what one dollar can buy in one country compared to another. The data finds that poorer countries are cheaper than economists thought they were and richer countries are more expensive.
China barely breaks into the top one hundred of the countries of the world in terms of GDP per capita (PPP) - it is a large country but not rich!
The 2011 gross domestic product (GDP) of the European Union, the United States and China together accounted for half of the world GDP in 2011. In 2011, the GDP of the 28-nations EU represented 18.6 percent of the world's GDP, expressed in Purchasing Power Standards (PPP). It was followed by the United States with a share of 17.1 percent and China with 14.9 percent.read more...»
Boston Consulting Group have produced a fascinating new report which investigates the competitiveness of the world's top 25 goods exporting nations. Their press release highlights significant changes in the world order over the last decade. The newly-minted BCG Global Manufacturing Cost-Competitiveness Index incorporates four factors: energy costs, productivity, wages and exchange rates. That analysis shows that Brazil is now one of the highest-cost countries, and the UK is the cheapest location in western Europe. Mexico now has lower manufacturing costs than China, while costs in much of eastern Europe are basically at parity with the U.S.read more...»
Here is a Country Profile revision sheet that I have created as part of my revision programme for my A2 students.
The idea is to complete (neatly) one sheet each for six countries – leaving room on the other side for additional useful revision concepts and background context. ideally students will choose at least one African country, a middle income nation, one or more of the BRICS or MINT countries and an EU country other than the UK.
The sheets can be duplicated for class use and make an excellent prompt for discussion. Download a free version by clicking this link. Country_Profile_Revision_Sheet.pdf
For many developing countries tourism is already a major part of their economy and a significant source of extra factor incomes and employment. But there is a fierce debate about the economic and social consequences of tourism - what roles can tourism play in economic development? Can travel to developing countries do more harm than good? This revision blog provides some arguments and resources on this topic.read more...»
Using pubic data from the Asian Development Bank here are some illustrations of the structural changes in output that have occurred across a selection of countries in Far East Asia, Australia and New Zealand. Consider the magnitude of the changes that have taken place over the last twenty years. Note for revision which countries appear at the top and the bottom of each individual chart and think about WHY they appear in that position.read more...»
This is a revealing perspective on the challenges facing China in producing enough food to feed the hundreds of millions of Chinese squeezed into their ever growing cities.
China's policy makers are trying to increase the size of farms to exploit economies of scale and get their farmers to focus on cash crops. But the reality is that China will have to import a huge amount of food in the years to come - this creates big opportunities for farmers in China's trading partners.read more...»
The new annual report from the Asian Development Bank outlines what developing Asia needs to promote inclusive growth in the years ahead. Governments in the region should tackle widening inequality that is keeping millions poor, by using fiscal policy to help close income and wealth gaps and promote more inclusive growth, says the theme chapter of Asian Development Outlook 2014. The importance of equity in shaping future growth and development continues to gain momentum across the world and not just in the fast-growing Asian region.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...»
In a rather low key report on the BBC website this week, I found the shock news that China had a trade deficit of $23bn in February. This is alongside the HSBC Purchasing Managers' Index (PMI) which focuses on small privately owned businesses, and which gave a reading of 48.1 for March, compared to 48.5 in February - with any figure below 50 indicating a contraction in activity.
And today there is a forecast of the 'official' PMI, which looks at the larger state-owned factories; although this is slightly over the 'expansion' measure of 50, it is only predicted to come in at 50.3 - and is subject to a 0.3 downwards correction to allow for seasonal patterns, according to Louis Kuijs, chief China economist at the Royal Bank of Scotland.read more...»
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...»
The Atlas of Economic Complexity is a new book (perfect for the coffee table) from Richard Hausmann and Cesar Hidalgo. It maps out the degree of complexity of individual economies around the world and provides a hugely visual and interesting insight into the importance of knowledge in shaping the future prosperity of countries in the global economy. I have put together a 10 question quiz on some of their key results - a useful activity I hope for students interested in the commodity composition of trade of developed and developing countries. Have a go!read more...»
Robert Peston looks at the astonishing investment in urban infrastructure in China in recent years - 30 new airports, 26,000 miles of motorways and a new skyscraper every five days have been built in China in the last five years - required viewing for those interested in a key aspect of Chinese economic growth and development. Link to How China Ruled the World (BBC World)read more...»
Here are some notes taken from a talk given by Peter Coy, Economics Editor for Bloomberg Businessweek, at the Marshall Society Economics Conference in Cambridge in January 2015read 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...»
The Third Plenum has finished in China and with it has come some potentially significant reforms designed to rebalance the Chinese economy and shape future growth and development. The BBC's Linda Yueh has been prominent in reporting on this crucial stage of Chinese development and we have linked below to some of her recent output broadcast on the BBC.read more...»
This revision presentation highlights the key opportunities and threats faced by firms outside China looking to do business in and with China. It also provides examples of businesses that have succeeded in China and those that have struggled!
A fully editable and printable version of this presentation is included in our AQA BUSS4 2014 Toolkit on China which is being published on 8 November 2013.read more...»
This looks like being a great resource for students wanting to deepen their awareness and understanding of the Chinese economy. Here is the BBC's new China Blog. All the BBC's China journalists will be blogging here
China’s government wants its economy to grow more sustainably. Currently, the Chinese economy is growing at a rate of 7.8% in the period July to September, compared to 7.5% in the previous quarter. However, this is significantly lower than the high and unsustainable rates of growth that the Chinese economy experienced over the last decade. The Chinese government have set a target growth rate of 7.5% over the next year and analysts believe that this will be achieved.read more...»
In a recent assignment, A2 students were asked to write a 500 word profile on each of two development economists of their choice and to capture their key ideas and connect to one or more current issues in development. I will be adding some of their responses to the economics blog. Here Ben Evans focuses on the work of Daron Acemogluread 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...»
Growth elasticity of poverty is a measure of elasticity (responsiveness) that calculates how much poverty falls for each percentage point in economic growth. According to a recent estimate from World Bank development economists Luc Christiaensen, Punam Chuhan-Pole and Aly Sanoh, that elasticity was about 2.0 in the developing world as a whole (excluding China) during the 2000s, but only 0.7 in Africa. In other words, the rapid growth achieved in many African countries over the last decade or more has not had as much impact on inequality as in other regions.read more...»
The nature of A2 economics specifications is that they lag interesting and important developments in the subject much of which are directly relevant to what students are taught in the classroom. The role of complexity in understanding how and why countries grow is one such example and I have blogged before about the work of Cesar Hidalgo and Richard Hausmann through the Observatory of Economic Complexity - see "Teaching Trade in a Different Way"
It is a joy to find the Financial Times covering some of their ideas in a brace of short videos as part of the John Authers Daily Note. You can always find these clips on the FT's You Tube Channel and I strongly recommend this for ambitious and enthusiastic students.read more...»
Where would you expect a Starbucks latte to be cheaper - in a coffee store in downtown New York or in a Starbucks store in China? Keep in mind that per capita incomes in China are around one tenth of those in the United States.
The answer may come as something of a surprise!
In a report on coffee prices that has caused something of a stir across social media platforms, the state-owned broadcaster CCTV reported that a medium-sized latte cost Rmb27 ($4.43) in China compared with Rmb19.98 in Chicago, Rmb14.6 in Mumbai and Rmb24.25 in London.
Starbucks responded that its pricing strategy was based on local market costs, including infrastructure investment, real estate and labour costs. It also added that its Asia-Pacific profit margin was for 14 countries, not just China. They added that each Starbucks market is unique and has different operating costs and that it would be inaccurate to draw conclusions about one market based on the prices in a different market.
The prices of imported goods in China are often raised because of the effects of import taxes (tariffs) - in this case the customs duty on roasted coffee beans is 15%. Add to that a sales tax of 17%.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...»
It was a pleasure to visit the LSE earlier on this week to hear a lecture from the distinguished economist Professor Angus Deaton from Princeton University in the United States. His new book "The great escape from inequality" is on my must-read list for the half term holiday and brings into focus over 250 years of changes in health and income inequalities across the world economy.
I will blog about his book a little later on but for now this Financial Times interview provides an introduction to some of the main themes of his book. Incidentally, Professor Deaton has strong views on the efficacy of foreign aid and this chapter of his book has provoked some strong responses from the pro-aid lobby active on twitter. Click below for the full video of his lecture at the LSE.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...»
A revision presentation on aspects of the links between investment and economic growth. Plus some slides on the causes of the so-called Middle Income Trapread 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...»
More than half of U.S.-based manufacturing executives at companies with sales greater than $1 billion are planning to bring back production to the U.S. from China or are actively considering it, according to a new survey by The Boston Consulting Group.
The share of executives who are planning to "onshore" or “reshore” or are considering it rose to 54 percent, compared with 37 percent of executives who responded to a similar BCG survey in February 2012.read more...»
Here at Tutor2u we are really looking forward to the launch of a new programme on BBC - Talking Business with Linda Yueh. Linda has spoken at several of our Tutor2u events in recent years and her ability to communicate important and often complex ideas to a wider public has been clearly evident in her presentations. This is a programme well worth tuning into and sharing with your students. Click here for details. See also: China's Transformation - The Long View (Linda Yueh at the Tutor2u Conference)
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.
In the whole of the 20th century, only a few countries managed to transform themselves and join the club of rich economies. Japan is the most prominent example. The key question for the first half of the 21st century is whether or not China will manage to do the same. It is a difficult and elusive feat, and the number of failures, of countries who nearly made it but then fell back, is as great as the successes.read more...»
China’s track record on using its currency as a tool for manipulating its international competitiveness has been well documented, especially during the period of 1995-2005, where it was pegged at 8.28 RMB to the USD.
However, adopting such strict policies on the exchange rate, leads to the Impossible Trinity / Trilemma - that is, that it is not possible for a country to have all three of the following at the same time:
- A fixed exchange rate
- Free movement of capital
- An independent monetary policy
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...»
Few places come close to matching the revenues from gambling generated by casino-led Macau as this Economist graphic illustrates! Macau is a special administrative region of China on the other side of the Pearl River Delta from Hong Kong. Jobs in casinos are easy to come by and unemployment is said to be little more than 2% of the labour force. But what are the economic risks and social costs of having a local economy chronically dependent on gambling for the bulk of jobs and incomes?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 are some summary notes from a discussion between Danny Quah and Ha Joon Chang at a recent LSE panel discussion on the question "Is there a future for market-led development?"read more...»
There has been renewed focus in recent weeks on the slowing growth rates in the BRIC countries - Brazil, Russia, India and China. It is inevitable that the pace and sources of growth will change as these countries develop and experience continued structural adjustments. How successful will they be in responding the the challenges and opportunities of the next stage of development? In this blog we link to some recent articles on the BRIC countries for students wanting to deepen their understanding of this important area of the A2 macro course.read more...»
Here is another good resource for students who are looking at prospects for the Chinese economy as part of their macro economic studies. While the Chinese economy continues to slowdown, policymakers in Beijing are faced with the dilemma of how to rebalance an economy that till now has relied heavily on investment. The FT's Simon Rabinovitch reports from Guiyang. A re-balancing China will have to be a slower-growing China.
Follow the tags at the bottom of this blog for connections to all of our recent Unit 4 macro blog entries on China.read more...»
What effects does the rapid growth and development of the Chinese economy have on the prices we pay in the UK for different goods and services. This short video from the Bank of England looks at some research into the impact of China on our own consumer price index. It is good for deepening your understanding of the inter-connections between the two economies.read more...»
The pace of growth of the Chinese economy is weakening with new data showing an annual growth of real GDP dipping to just over 7%. China's economy is re-balancing away from investment and exports towards consumption. But at present there is a squeeze in household spending. Consumption in China contributed 60.4% to GDP growth in first half of 2012, only 45.2% in the first six months of 2013.
We link here to some resources on the issues surrounding the reduction in growth rates for the Chinese economy.read more...»
If this research is accurate the results are truly shocking. Coal related air pollutants have been shown to reduce lifespans in China by over five years, according to a new study conducted by researchers at Massachusetts Institute of Technology and three other universities.
It is a compelling example of the human consequences of the externalities created by intense air pollution in one of the world's fastest-growing countries. Almost half of the world's coal is burnt in China - rapid development in the north of the country has increased the incidence of strokes and lung cancer, in part connected to the distribution of free coal for burning in millions of homes.
The Chinese government has announced plans for a new carbon emissions trading scheme as part of a strategy to lower pollution and achieve more sustainable development. It has ordered firms in heavy-polluting industries to cut emissions by 30% by 2017read more...»
Changing tastes and preferences drive resource allocation in a market economy. Coffee consumption in China has been growing steadily as the country's middle class tries new drinks and the result is that new coffee cash crops are being grown China to help satisfy growing demand from the domestic market. The Chinese Coffee Federation is also hoping that Chinese coffee will establish itself as a major coffee exporting nation.