Unit 2 Macro: China’s Trade Engine is Spluttering
New data suggests that the rapid growth of exports from China is once again slowing down. This Reuters business news video (2 minutes) provides some useful background information on the recent downturn in export and import volumes and mentions that rising imports and a shrinking trade surplus may help the Chinese to rebalance their economy and perhaps provide a demand stimulus for exporters from struggling European countries.
That said the continued weakness of many EU countries will make it difficult for Chinese exporters to maintain sales and employment. During the global recession of 2008-09 millions of workers in Chinese manufacturing industry lost their jobs prompting many to return to their rural homelands in search of work and income.
* Which industries in China are likely to be most affected by a reduction in the growth of exports?
read more...»Unit 2 Macro: Exporting to the Booming Chinese Economy
Before you read this blog please have a look at another blog written by our good friend Mark Johnston from New Zealand. Students of China and the US economy will find it fascinating!
There are good grounds for no longer calling China an emerging economy - it has arrived! The multiple significance of the rapidly-growing Chinese economy is plain for all to see but for Britain, only a small percentage of our exports of goods and services go there and this must change if Britain is to fully engage with and benefit from the rising might of the Chinese consumer. This article from the Daily Mirror provides a non-technical but clear explanation of the growing purchasing power of newly wealth Chinese, thousands of whom are flocking to western shopping malls to buy premium brands. Chinese foreign exchange reserves are also being used to buy up real assets - last week we heard that a Chinese sovereign wealth fund is set to buy nearly 9% of Thames Water.
read more...»Beyond the Bike - The Importance of Remittances
Joseph is 29 years old and makes a living selling vehicle parts in the dusty trucker town of Igawu in Southern Tanzania. When he approached me during my breakfast and flashed 2 fresh $100 bills, I was naturally interested to know where they came from. I offered him a ride north to find out…
read more...»Unit 4 Macro: Competitive Advantage in Trade (Some Videos)
Here is a selection of short video clips that I use when teaching competitive advantage in markets and when introducing the factors that determine the competitiveness of UK producers in global markets. The focus here is on the UK economy but I will add some more videos to the blog as I work my way through this teaching topic.
read more...»Unit 4 Macro: China and India - Notes from Martin Wolf
Pete Davies from Greenhead College attended a superb talk by Martin Wolf CBE (Financial Times) at Leeds Business School last week. The focus was on the Great Convergence between developed and emerging economies, and Peter kindly took some excellent notes from the talk which will be of great use to teachers and students covering this key globalisation / development topics. They can be downloaded below as a word file - many thanks to Peter for making them available through the blog!
Martin_Wolf_Lecture_Oct_2011.docx
Unit 1 Micro: Economists attack food price speculation
Food prices are now rising by up to 10% a year in Britain and Europe and a new forecast from the United Nations predicts that prices can be expected to rise at least 40% in the next decade. Whilst conventional theories of changes in supply and demand conditions can be used to explain some of the increase in food prices, many economists are concerned that speculation by hedge funds and other investors has amplified the natural volatility of prices driving food prices away from fair values and contributing to a huge rise in global food poverty and hunger. These days, cocoa, fruit juices, sugar, staples, meat and coffee are all now global commodities, along with oil, gold and metals.
Is this the moment to legislate to limit the scope for speculative activity in food markets? The video below provides an excellent introduction to speculation in food markets - it features Neil Kellard, Professor in Finance at the University of Essex
read more...»Unit 2 Macro: Can Exports Drive a Recovery?
UK overseas trade is in the news today with the release of a batch of figures showing a record level of UK exports - see BBC news - UK trade deficit cut by higher exports
read more...»Hard Choice in Kenya
This short video report from Will Ross for the BBC from the island of Lamu, considers a number of economic concepts.
read more...»Unit 1 Micro: Producing Coffee - Kenya in Pictures
If you are teaching the economics of commodity prices and coffee in particular - this resource - will appeal strongly to your visual learners! The Guardian Pictures web site has a quite stunning set of photos of Kenyan coffee producers - growers who are hoping that rising world prices will bring respite after years of difficulty including volatile crop yields, poverty prices and incomes and a long term decline in investment.
Evan Davis ‘Made in Britain’ - and a new trade data tool to play with
The first episode of a 3-part series, Made in Britain, was shown on BBC 2 last night, and was a really useful hour for economics (or business) students. It examined how and why Britain has lost thousands of manufacturing jobs over the last two or three decades in the low-value part of the sector, with some film of outsourcing shot in China as well as plenty of archive material from this country, but argued that the move to high-end, low scale manufacturing has become Britain’s area of comparative advantage in industrial manufacturing. This included Evan being taken for a test drive in the new McLaren sports car, which was clearly an amazing experience - watch the clip to see his reaction! And this surely emphasises the Economic Importance of Manufacturing to the UK economy - see below! Sadly this episode is not to be broadcast again, but is available on i-player for another 22 days and is thoroughly worth watching. I will certainly be setting the recording machine for the next two programmes, on Mondays at 9.00 on BBC2 - episode 2 is to focus on how innovation can help keep Britain ahead in the global economy.
read more...»Invisible Exports - Originating Journalist is remembered
I was looking through my old O level economics class notes a few days ago and in there was a really neat table showing the make up of the balance of payments. Students and teachers of a certain vintage will have no difficulty remembering the vital distinction we were taught to make between visible and invisible trade and this has stayed with ever since - I was well taught! UK newspapers today carry obitiuaries for William Clarke, the doyen of London’s financial journalists and a man thought to be the progenitor of the idea of “invisible trade” and the importance of it to economic growth.
Invisibles were (and remain!) exports of services – as opposed to exports of physical goods. The publication of “Britain’s Invisible Earnings” in 1958 marked an important moment for understanding the importance of services in contributing to aggregate demand and employment. Over fifty years later we need reminding of the significance of service exports. Britain is the second largest exporter of services in the world economy and the annual trade surplus in services makes a major contribution to the current account of the balance of payments. Here is a link to William Clarke’s obituary in the Independent written by Hamish McRae.
UK economy - as seen by the Bank of England
Students who want to be able to quote current data and trends in the UK economy could do worse than spending some of their revision time picking out the highlights from the Bank of England’s Agents Summary of Business Conditions, published today.
There is plenty of opportunity to find evidence which can be used to back up evaluative arguments in macroeconomics papers here.
Key points
1/ Growth in domestic markets is sluggish at best, but investment in the export sector looks better, probably driven by the rise in exports to emerging markets, Germany and the US.
2/ The service sector looks far from buoyant, with so much spare capacity that investment intentions are low and recruitment in consumer services is down.
3/ Unsurprisingly, import and raw material prices are driving a need to pass on cost push inflation to buyers, although many found that their power to pass on price increases to consumers was very limited, in spite of widespread awareness of the increase in costs - reflecting fears that price elasticity is very high at the moment.
EU Economics: Comparing the UK with Europe
Stephanie Flanders has posted a very useful blog examining Eurozone growth, and whether the UK can best be compared to France and Germany or to Greece, Portugal and Spain. She starts with Ed Balls rejection of the Chancellor’s habit of likening the position of the UK economy to those of the southern states which are struggling so badly at present; the Shadow Chancellor believes a better comparison would be with our traditional competitors in northern Europe.
read more...»A2 Macro: Revealed Advantage
Tim Harford’s piece in the New York Times today is a stunning visualisation of what economists term revealed competitive advantage - if you have a few moments please do read through it - superb for understanding the inter-connections between trade performance and structural changes in output, jobs and investment.
“Economies change in structure over time, moving from simpler goods to scarcer, more valuable ones. Countries rarely make radical structural changes. Instead, they generate capabilities gradually, and new industries usually develop from existing ones. Unfortunately, some industries — oil extraction, say, or fishing — do not naturally lead to anything new without a huge leap.”
Here is the link to the article
AS Macro: Essay Plan on Rising Imports
Here is an essay plan on this question: Assess the extent to which a rise in imports may affect macroeconomic performance (25 marks). Like many macro questions, the focus is on the longer-term performance of the economy – this requires a brief explanation at the start of the answer – e.g. economic growth, unemployment, inflation and material well-being. The essay plan can be downloaded using the link below:
Essay_Plan_Imports_Economy.pdf
A2 Macro: Twin Deficits
Here is a revision note on the economics of twin deficits. Twin deficits refer to a situation where an economy is running both a fiscal deficit and also a deficit on the current account of the balance of payments. The revision note is available for download as a pdf file.
Twin_Deficits.pdf
AS Macro Key Term: Balance of Payments
The Balance of Payments provides data on how an economy is doing in international trade and investment with other countries. There are a variety of different items that together make up the balance of payments. For AS level you need to understand what goes into the current account – namely:
* The trade balance in goods and services (i.e. the value of exports – value of imports)
* Transfer balance – cash transactions which do not form payments for goods or services such as foreign aid or payments to the EU budget
* Investment income balance – measures earnings on foreign investments minus the earnings paid to foreigners on their investments in this country. Income can come in the form of interest, profits and dividends.
What is happening to a country’s current account can tell us a lot about the macroeconomic performance and competitiveness of a nation and in particular whether businesses and industries are competing successfully in the world economy.
Our charts below track what has been happening to the various components of the current account of the UK balance of payments. The data is taken from the OECD World Economic Outlook and thus the data is measured in US dollars ($).
read more...»AS Macro Key Term: Current Account Deficit
A current account deficit is the amount by which money relating to trade, investment etc going out of a country is more than the amount coming in. The current account is made up of balances in trade in goods and services, net incomes from overseas investments and net transfers. A current account deficit implies a net reduction of demand in a country’s circular flow. The UK’s current account position is shown in the charts below:
read more...»Timetric: UK Balance of Trade with China
There is a noticeable trend in the monthly trade balance! UK exports to China have grown over the years but the trade imbalance has widened enormously! According to former Business Secretary, Lord Mandelson UK exports to Brazil, Russia, India and China - the so-called ‘Bric countries’ - are lagging behind the rest of the world. The share of exports to the four BRIC nations remains persistently below our 3.7% share of world trade. Some economists point to an “export gap” worth £19.8bn with China, £3.2bn with India, and £1.8bn with both Russia and Brazil.
read more...»
The US-China Trade Deficit
The US trade gap with China hit a record $273.1 billion in 2010 raising fresh fears of a deteriorating trade relationship between the world’s two biggest economies. But a quick look behind the figures suggests that the US economy is enjoying a surge in exports a major stimulus to their recovery hopes.
The raw data is that US goods exported to China totaled $91.9 billion in 2010 while imports from China rose 24 percent to $364.9 billion. In fact that represents a rise in the value of US-China exports in 2010 of more than 31%.
And the true scale of the trade imbalance with China is likely to be much smaller than the conventionally published data suggests.
Migrants’ Transfers and the Balance of Payments
Transfers of money across national boundaries by migrant workers appears in both the current and capital account of the balance of payments.
read more...»Balance of Payments Data - Free Chart Download
I have put together a selection of updated trade and balance of payments data charts focusing on the UK economy but also including details of our trade performance with other countries and some international comparisons of current account deficits and surpluses. Many teachers are covering the balance of payments at this time of the year so I hope this resource might be useful.
Balance of Payments
Balance_of_Payments_Data.pptx
The US-China power balance, trade and currencies
The BBC produced a nice little graphic this week to go illustrate comparisons between the US and Chinese economies, alongside the talks between President Obama and President Hu Jintao. Relations between the two countries have been strained by issues such as the trade imbalance and China’s growing military might. The figures here give some background to those issues.
read more...»Economics Q&A: Does the UK economy achieve a trade surplus in anything?
The answer is yes! Although the British economy has overall run a large deficit in the balance of trade in goods and services for many years, if we look a little deeper underneath the trade statistics we can reveal a comparative advantage in a number of industries. Many of them are in the service sector which - as a whole - has generated sizeable and growing annual trade surpluses for the best part of two decades.
read more...»EU has to reduce its import barriers
The EU imposes tariffs on imports from China, Vietnam and Cuba, because it considers that they are not market economies. The World Trade Organisation allows importers to place extra duties on goods which are being ‘dumped’ on the world market - that is, being sold at a price which is below the price in the country of origin. These two issues came together at the beginning of 2009, when the EU decided to impose anti-dumping duties of up to 87 percent for the next five years on screws, nuts and bolts imported from China - but in mid-2009 China claimed to the WTO that the threshold price had been wrongly calculated, and that the tariff breaks international trade rules.
Over a year later, the WTO has finally reached a decision in China’s favour, saying that the tariffs must be removed - marking a victory for China in its first WTO dispute against the European Union. In a trade dispute between the two, China has imposed its own tariffs on imports from the EU. This story, reported by the BBC and China Daily amongst others, gives evidence for the economic theory that import tariffs tend to lead to retaliation and there is a net reduction in trade - and also for the practical economics which shows that, however sensible the theory may sound, in practice countries often make decisions which suit their own domestic purposes.
Creative products lead the world and boost UK trade
Britain is the largest exporter of creative products in the world .... take a moment to allow this to sink in .... Britain stands at the top of the global league table for selling creative goods and services around the world, there is a strong demand for UK-centric cultural and creative output.
The Independent today carried an analysis article on the background to this wonderful success story. In 2009 - during a year when global trade slumped by more than 10 per cent - “the international sales of British TV programmes rose 9 per cent to £1.3bn….. the most popular UK shows and formats to be sold abroad include Strictly Come Dancing, Come Dine with Me and Spooks. The BBC’s commercial arm said its sales and distribution profits in the last financial year rose 4.6 per cent to £64.2m.”
According to the report - North America represented 41% of total export revenue in 2009, with Europe contributing 29% and Rest of World 30%
This is a staggeringly good performance and it is one specific area of our trade accounts where the UK is clearly able to build and sustain a competitive advantage. Trade figures do not lie - they reveal comparative advantage and this is an industry that the government would do well to nurture and support as best it can. It is a proven success.
Here is the Independent article and more here from BBC news
Sterling and Exports - The Importance of Time Lags
Roger Bootle has an excellent article on the lagged effects of a competitive exchange rate in today’s Telegraph. One of his arguments is that the default behaviour of many UK exporters is to take higher profit margins from their overseas sales rather than cutting their prices to boost export volumes. Crucially the impact of a lower currency takes time to show through in the international trade data and this is partly because switching production to countries where the exchange rate is favourable cannot happen overnight .... read this paragraph:
“Where export prices are not cut, this does not necessarily mean that the weaker currency will do no good. It is rather that the benefit will take longer to come through. In response to higher profit margins, firms will have more incentive to sell abroad. In the economic textbooks, selling abroad, or switching from European to Asia markets, is simply a matter of pressing a button. In reality it isn’t like this; sales networks have to be established, modifications to the products or services made; foreign relationships built up. These things do not happen overnight.”
The article reminds us that a more competitive exchange rate helps to re-balance the economy at a time of domestic weakness. But that the benefits of a weaker pound have been diluted by
(i) Supply-side weakness in UK industries (e.g. a lack of some aspects of non-price competitiveness)
(ii) Low demand in key export markets - not least the European Union
(iii) Longer than expected time lags between a fall in the currency and a pick up in export sales
Many exporters have also been held back by problems in accessing trade credit - few importers pay in advance for goods and services sold overseas!
More of the Roger Bootle article can be found here: The competitive pound is one of the few things we have got going for us
FDI bowls cricket over
We are familiar now with overseas investors moving into UK sport, with foreign ownership of many Premiership football clubs - just ask Jim O’Neill and the Red Knights what they think about the subject. Breaking news this week shows that this approach is moving into cricket, as Durham County Cricket Club is now more than 90% owned by the Indian media figure Gautam Radia and his brother Hiren. Their stake in the county that has won the county championship for the last two seasons cost them just short of £2.5m.
Their motivation? - well, it is not unreasonable to suppose that Indian businessmen have a genuine passion for the sport, although they may find themselves watching cricket in Durham in rather different weather conditions than they are used to. But Durham is part of a group of counties, who own Test match venues, currently examining the structure of county cricket and exploring the prospect of a new Twenty20 tournament that could be a big revenue earner. It would be modelled on the Indian Premier League and there is a suggestion that while the clubs would retain 51% ownership of the business, 49% would be sold to investors who could make a big return on sponsorship, advertising and sale of the TV rights. So the investment into the club now enables it to develop the facilities needed at the beautiful Riverside ground for hosting major matches like an Ashes test in 2013, as well as to develop the commercial potential of new developments in the game - and also provides the Indian investors with the potential for a future stock market flotation of the club from which they could make a rewarding profit.
AS Economics Revision - The Balance of Payments
Here is a brief two page revision note on the balance of payments designed as a resource for AS macroeconomics students. Click below for the file.
Balance of Payments revision note
Revision_on_Balance_of_Payments.docx
Brazil looks to diversify
BBC World Business news carries an interview with Luciano Coutinho, CEO of BNDES Bank in which he argues that Brazil is looking to diversify its economic base as a platform for stronger long term economic growth
“The Government is stepping up efforts to diversify the economy, creating global champions in a range of industries, from telecoms to farming. Brazil dominates global trade in several agricultural commodities, from coffee to sugar, or chicken and beef.”
