Chapter 1: Windows on the World Economy An Introduction to International Economics: New Perspectives on the World Economy © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Introduction Task we take up in this book—discovering the nuances of globalization Will try to explore the world economy and globalization in as balanced a manner as possible Will help us develop informed views and opinions © Kenneth A. Reinert, Cambridge University Press 2012

Windows on the World Economy Will explore four windows on the world economy International trade International production International finance International development © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 International Trade The exchange of goods (merchandise) and services among the countries of the world. Goods: tangible and storable (something you can drop on your toe). Services: intangible and non-storable (something you cannot drop on your toe). Trade in services accounts for approximately one quarter of global trade. © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Figure 1.1 Gross Domestic Product and Exports in the World Economy, 1980 to 2013 (1980=100). Source: World Bank, World Development Indicators © Kenneth A. Reinert, Cambridge University Press 2012

International Production Production of a product in multiple countries Can take place through Contracts International licensing and franchising Foreign direct investment (FDI) undertaken by multinational enterprises (MNEs) Involves firms based in one country owning at least a 10 percent of firms producing in another country © Kenneth A. Reinert, Cambridge University Press 2012

International Production MNEs account for approximately one fourth of world gross domestic product (GDP) or aggregate output. The sales of foreign affiliates of MNEs now exceed the volume of world trade. MNEs are involved in approximately three fourths of all world trade. Approximately one third of world trade takes place within MNEs. MNEs account for approximately three fourths of worldwide civilian research and development. © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Figure 1.2 Nominal FDI Inflows to Low, Middle and High Income Countries, 1980 to 2013. Source: World Bank, World Development Indicators. © Kenneth A. Reinert, Cambridge University Press 2012

International Finance Refers to the exchange of assets among countries Individuals and firms around the world conduct international transactions in Currencies Equities Government bonds Corporate bonds (commercial paper) Real estate Plays increasingly important role in the world economy © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Figure 1.3. Daily Foreign Exchange Market Turnover and Annualized Multiple of Exports. Sources: Bank of International Settlements and World Bank, World Development Indicators © Kenneth A. Reinert, Cambridge University Press 2012

International Development Hoped that the processes of international trade, production and finance will contribute to improved levels of welfare and standards of living throughout the world Major issues involved How we conceptualize levels of welfare or standards of living How the processes help to determine international development © Kenneth A. Reinert, Cambridge University Press 2012

International Development Measure of these differences in living standards is the human development index (HDI) Per capita income Average life expectancy Average levels of education © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Table 1.1. Measures of Living Standards (2010). Sources: World Bank, World Development Indicators and United Nations Development Program Country PPP GDP per capita (U.S. dollars) Life Expectancy (years) Mean Years of Schooling Human Development Index (0 to 1) Ethiopia 358 59 1.5 0.358 India 1,375 65 4.4 0.542 China 4,433 73 7.5 0.682 Costa Rica 7,774 79 8.3 0.742 South Korea 20,540 81 11.6 0.894 United States 46,702 78 12.4 0.908 © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Connecting Windows Each offers a view, but each has a frame Each offers some insight into the world economy An insight that needs to be supplemented by one or more of the other windows © Kenneth A. Reinert, Cambridge University Press 2012

Figure 1.4. Connecting Windows International Trade International Development International Production International Finance © Kenneth A. Reinert, Cambridge University Press 2012

© Kenneth A. Reinert, Cambridge University Press 2012 Analytical Elements Countries Sectors Tasks Firms Factors of production Currencies Financial assets © Kenneth A. Reinert, Cambridge University Press 2012