CDAE 272 International Economic Development Spring 2008

Class 04 Jan. 24 Last class: 1. Introduction Today: 1. Introduction Quiz 1 Next class: 2. Measuring economic growth & development Reading: Reading package: Introduction Important date: Problem set 1 due Tuesday, Feb. 5 (To be posted on the class website on Jan. 25)

Questions from the class 1. How to calculate growth rate when it is negative? Example 1. If the per capita GNP dropped from $1500 in 2006 to $1455 in 2007, what was the growth rate? Example 2. If the per capita GNP dropped from $2000 in 2005 to $1805 in 2007, what was the average annual growth rate?

Questions from the class 2. Could you give one example that has different contributions to GNP and GDP? A small broom company, located in Swanton, VT, produced 1,000 brooms and sold them at $10 each in The 1,000 wood handles were purchased from Canada at $2 each and the 5,000 lbs of straws were purchased from Swanton at $0.5 per lb. It is a family business without any hired worker and the owners are Canadian citizens. What are the contributions to Canadian GNP and GDP and U.S. GNP and GDP?

1. Introduction 1.1. Economic growth and globalization 1.2. Rapid growth in world trade 1.3. Development patterns of selected nations 1.4. The U.S. economy and international trade 1.5. Potentials and challenges

1.2. Rapid growth in world trade International trade and indicators -- Exports and imports -- Trade deficit or surplus Balance of trade = Exports - Imports -- Trade barriers (restrictions) -- Index of openness -- How to calculate the index? = Export / GDP -- How can it be greater than 100%? -- Economic freedom index

U.S. balance of trade

China’s exports and imports ($ billion)

Index of openness (exports/GDP) China (mainland) 6% 22% India 6% 12% Indonesia 34% 28% Egypt 31% 17% Hong Kong 90% 125% Canada 28% 41% UK 27% 29% USA 10% 12% Japan 14% 19% Singapore 215% 187%

Economic freedom index Hong Kong9.3 Singapore8.9 New Zealand8.8 United Kingdom8.7Assignment: United States 8.5 Australia 8.5Google search “economic Ireland 8.5freedom index” and find the Switzerland 8.4 five nations with the lowest Luxembourg 8.4economic freedom indexes Netherlands 8.3 Argentina 8.3 Bolivia 8.3 Canada 8.2

1.2. Rapid growth in world trade Growth in world trade since World GNP and exports -- Major factors for the increase in trade

World GNP and Export Trade (index): GNP (index):

1.2. Rapid growth in world trade Trends of world trade -- Likely to increase at significant rates -- Increasing negotiations and disputes -- Distribution and redistribution of the benefits and costs of international trade -- World trade under WTO

1.3. Development patterns of selected nations Read the reading package and pay attention to the economic indicators we have discussed in classes.

1.4. The U.S. economy and international trade -- Read pages 1-13 to Trade deficit (billion dollars) Total With China 1970: : : (12%) 2003: (25% 2004: (26%) 2005: (28%) 2006: (28%)

1.5. Potentials and challenges Rapid increase in trade More and more disputes Free trade vs. government interventions Development issues related to trade -- Environment -- Poverty and inequity … World trade under WTO -- Functions -- Efficiency …...

A comparison of pork product prices (US dollars per pound) China United States Loin Lung Pork stomach Pork kidney Lard Pork feet Boneless butt Nape of neck with bone

U.S. ag. export to China (thousand dollars)

McDonald’s in China (number of restaurants)