1. 1 ECONOMICS 3150B Fall 2015 Professor Lazar Office: N205J, Schulich flazar@yorku.ca 736-5068

2. 2 Lecture 1: September 10 Ch. 1

3. 3 Course Requirements Three tests October 8; November 12; December exam period 30%; 30%; 40% Format: 3 questions of 6 – short essays Open book: No cell phones, no wireless-enabled communication devices No excuses for missing first two tests

4. 4 Important Dates TESTS: October 8; November 12; December exam period NO CLASSES: September 15, October 29, November 19 LAST CLASS: December 3

5. 5 Other Ground Rules No taping of lectures No cell phones in class – no texting If you need to talk to anyone, leave classroom quietly and discreetly Responsible for all chapters in text Responsible for all lecture notes Listen before you write

6. 6 Office Hours Tuesdays: 15:00-17:00 N205J, Schulich Phone: 736-5068 Email: flazar@yorku.caflazar@yorku.ca

7. 7 Introduction Does anyone know what the “equilibrium” value is for the Canadian dollar? Has the Canadian dollar become a petro or commodity currency? Does economic theory have much to tell us about exchange rates, trade patterns and capital flows? Can economic theory explain the near meltdown of the global financial system? Should Greece leave the Eurozone, or should the country be expelled? What about Quebec in Canada? Will the Eurozone survive? Should it? What is excessive risk?

8. 8 Introduction Is the annual US current account deficit (approximately US$400 billion) a problem? What will China do with its currency? Can economic theory explain the creation and location of companies such as Wal-Mart, Sinopec, VW, Apple, Bombardier, Embraer, Samsung, Siemens, Microsoft, Google, Non Hai Precision, Gilead Sciences, Alibaba, Wipro, ArcelorMittal, Whampoa, Flextronics, H&M, Ikea, McDonalds, Nestle, Pfizer, BHP-Billiton, Tata, Hyundai? Does Canada play “fair” in international trade? Is globalization good? Were the Occupiers right?

9. 9 Introduction Is there any hope for Africa? –Of the 22 countries with GDP per capita of less than US$800 per year, 20 are in Africa –Burundi at the bottom with GDP per capita of $260 –Zimbabwe ($860) v. South Africa ($6,800) Do free trade agreements jeopardize social policies? –Should there be minimal standards in free trade agreements –Are regional free trade agreements legal under the GATT? Genetically modified foods and free trade – EU vs. the US Is the Canadian economy de-coupled from that of the US? Is anyone’s? –Will China drive world economic growth? –Will China follow the same path as Japan?

10. 10 Introduction Why don’t economists support open-enbded migration as strongly as they do free trade in goods and services? Are sanctions useful? Is more trade liberalization really the solution to Canada’s lagging productivity? (Stephen Gordon, Laval University) Lazy manufacturer syndrome makes a low loonie a crutch (Barrie McKenna, Financial Post, Sept. 7) If the oil economy is dead, what does this mean for Canada, for world trade? Why China and not India?

11. 11 Countries with GDP per capita < US$800 (2014) Table 1 1.Burundi ($260) 2.Malawi (270) 3.Central African Republic (320) 4.Liberia (390) 5.Dem. Rep. Congo (400) 6.Niger (410) 7.Madagascar (440) 8.Guinea (460) 9.Ethiopia (470) 10.Eritrea (490) 11.Gambia (500) 12. Togo (530) 13. Guinea-Bissau (590) 14. Uganda (600) 15. Mozambique (610) 16. Rwanda (630) 17. Burkina Faso (660) 18. Sierra Leone (680) 19. Mali (690) 19 Afghanistan (690) 21. Nepal (720) 22. Benin (790)

12. 12 Introduction Are the oilsands Canada’s future? How important is infrastructure for trade? –Bridges –Pipelines –Roads –Ports Did SNC Lavalin have a choice in bidding for foreign contracts? Can everything be outsourced? –Why is anything outsourced? Will the Internet make education and health tradable? Why do people emigrate? Should they be stopped?

13. 13 Introduction What might be the trade effects of emission cap and trade systems? How about carbon taxes? –Are cap and trade systems needed? Are they a fraud? –Poor countries are low emitters Is it possible to settle trade disputes? Should there be a Tobin tax? Is international policy coordination realistic? Can sanctions work? Are free trade agreements really in our best interests?

14. 14 Largest CO2 Producers, 2010 (000s Metric Tonnes) Tables 2.0, 2.1, 3 1.China (8,256,969) 2.US (5,408,869) 3.India (1,950,950) 4.Russia (1,742,540) 5.Japan (1,168,919) 6.Germany (750,697) 7.Iran (571,605) 8.South Korea (566,717) 9.Saudi Arabia (533,094) 10.Canada (496,105) 11. UK (492,192) 12. Mexico (445,064) 13. Brazil (419,754) 14. Italy (405,361) 15. Australia (368,170) 16. France (357,437) 17. Kazakhstan (247,214) 18. Netherlands (181,927) 19 UAE (167,597) 20. Czech Rep. (111,169)

15. 15 Objectives Globalization – what does this mean? Determinants of exchange rates – capital flows or current account balances? International capital markets: determinants of capital flows, stability, risks – consider stcok market swings in August Exchange rate regimes Supra-national regulation of capital markets – regulatory failures Central banks and blank checks – quantitative easing –The Fed –The ECB

16. 16 Objectives Trade in goods and services – patterns, volumes, winners/losers –Cyclical vs. long-term trends –Price takers vs. price makers (China, Canada and commodity prices) The service economy and trade Role of outsourcing; oil prices Trade policies – liberalized trade, protectionism Foreign ownership restrictions – the new trade barrier? –New rules restricting SOEs in Canada Role of the U.S., China, EU Need for new rules?

17. 17 Critique Limits of open economy macroeconomics Stability of capital flows – distinction between flows and stocks Momentum trading Markets and rules Returns and risk Systemic risks Exchange rates Adjustment mechanisms Trade theory cannot explain Airbus, Microsoft, Starbucks, Samsung Competitive vs. comparative advantages Culture Role of U.S. Interdependence and spillovers

18. 18 Markets Markets and players –What is a market? –Rules and regulations: role of governments Labor laws, anti-bribery laws, contract laws Trade agreements Government ownership; ownership restrictions Ex ante vs. ex post rule making – political risk Ability to influence rule makers – corruption Political stability –Market boundaries: Who’s in, who’s out? Who’s waiting to get in? Are the boundaries shifting?

19. 19 Markets Examples of laws and rules –Competition, employment, labor, contract, criminal, environment, human rights, banking, tax, trade, privacy, copyright, anti-corruption, IP protection –Mark-to-market rules (EU and US), capital rules and risk weighting, bank tax, foreign ownership of financial institutions, deposit insurance

20. 20 Markets During the past 30 years, increasing emphasis by governments in Canada, the US and the UK, and to a lesser extent in other countries in the EU, South America and Asia, on using market mechanisms to achieve economic and political objectives Less reliance on regulations, crown (government-owned) corporations, and other forms of direct intervention Wave of privatizations (airports, water and electrical utilities, waste collection, education, health care, etc.), and deregulation (transportation, communications, financial services, foreign ownership limits, etc.) Governments adopted more outward-looking policies to increase competition; for example, free trade agreements – the GATT, the Canada-U.S. Free Trade Agreement, NAFTA; and a more benign stance towards foreign investment. Bi-lateral free trade agreements more common – CETA (Comprehensive Economic and Trade Agreement between Canada and EU); TPP (Trans Pacific Partnership)

21. 21 Markets Global financial crisis in 2008-09 led to increasing demands for re- regulation and more direct government intervention Sovereign debt crisis and the resulting financial crisis in Europe in 2010-12 also have resulted in demands for re-regulation But the more recent crisis has led to demands for austerity and a dramatically reduced fiscal presence by governments Germany is leading the way, and refuses to allow any European Union institution to prop up the profligate governments in Southern Europe unless these governments agree to severe belt-tightening measures China’s intervention in equity markets and exchange rate markets