International Economics Developing Countries Organizations of International Economy

What is necessary for a poorer country to get ahead? Economic development –The size and sophistication of a nation’s industrial, service, technical and ag sectors

Developed Nations High levels of industrial and technical expertise. Variety of economic institutions –Banks, stock markets, and trade networks

World Bank Classifies 25 nations as being “high income” or highly developed. –US –Canada –Japan –Most of Europe –14% of the world’s population.

Developing Nations Low per capita GDP Limited resources or inefficient use of resources Rapid population growth rate Dependency on agriculture as main form of production

World Bank Data 90 nations are considered “developing” Average income $3,000 per year Examples –China, Mexico, most Eastern European countries

Least Developed Countries 49 countries listed as LDC Average income less than $900 a year. Weak human assets High economic vulnerability Economic smallness

What do nations need to “get ahead”? MOST IMPORTANT! Capital formation! –Countries don’t get ahead because of a lack of Savings Private investment Lack of existing capital

Also needed to get ahead Get away from “one crop” economies –Can be mining of one item or ag speciaization. Population control –Need long term investment in health, education, job training.

Also needed to get ahead Encourage entrepreneurship Adequate infrastructure Political stability Social and cultural obstacles need to be overcome

How Nations are Developing International Private Capital –Multinational corporations (MNCs) Provide jobs, money, products, services

How Nations are Developing Foreign Aid –Provide economic assistance, military assistance and emergency assistance.

Economic Assistance Financial and technical aid, loans and cash grants –Supply services of specialists such as engineers, scientists, teachers, physicians.

Military Assistance Loans, cash payments, technical expertise and equipment for military purposes. –Make allies for countries

Emergency Assistance Food, medical supplies, clothing and other goods that sustain life in times of crisis.

Why give foreign aid? Foreign aid encourages international trade. Economic and social improvements help distribute money through world economy. Reduce political strife

International Public Sources for Capital World Bank International Monetary Fund (IMF) United Nations

World Bank 180 countries contribute money to it. Focuses loans for internal improvements like roads, railways, port facilities. Economic reorganization

IMF Makes hundreds of short- term loans to countries. Must show certain economic policies or structural reform to get the money. –To get money to get clean water in Thailand they had to increase taxes, reduce spending, etc.

United Nations Finances thousands of development projects in education, health, agriculture and industry. –UNICEF for children’s health –Red Cross for humanitarian aid

TRADE Trade Barriers –Tariffs: import taxes to make imports cost more or as much as our goods. –Import quotas: fixed amount of an item that can be imported –Embargoes – political rather than economic reasons for keeping goods out of the country.

Why have trade barriers? Protectionism –Infant industries –Job protection –Standard of living –Specialization –National security –fairness

International Trade Agreements NAFTA (North American Free Trade Association) –Mexico, US, Canada –Goal is to eliminate all tariffs on goods and services between countries.

International Trade Agreements European Union (EU) –Most European countries. –One currency for all countries –Elimination of tariffs and consistent regulation of goods. Cheese made in Holland follows same safety protocols as cheese from Switzerland.

Strong Dollar v. Weak Dollar in Trade Currency exchange rates: How much does our dollar “buy”. –2000 Strong dollar –$1 = 1.20 English pounds. –87 pounds was $104.40

Strong Dollar v. Weak Dollar 2004 Weak Dollar –$1 = 1.90 English Pounds –87 pounds = $165.30

Weak Dollars in 2005 Encourages other countries to buy American goods upping EXPORTS. Encourages tourism to our country. Discourages dollars from leaving the country.

Strong Dollars Encourage IMPORTS because our dollars buy more. Discourages exports and can hurt jobs. Encourages Americans to travel.