World Economics PDF

World Economics 1-2. Introduction, basic concepts; World order, world economy, world economics; World economy: formation and some major characteristics of development until the end of the 20th century About the subject: competences to be achieved Knowledge: The main trends of world economics and the economic trends of individual regions of the world, with special regard to the economic situation of the European Union. The deeper relations of international political, economic, legal and social institutions and issues. Capabilities: Comparative economic analyses with basic economic and statistical knowledge, and with knowledge about world economic theories. Attitude: Openness and being receptive to the findings of different international research projects of his/her field, and commitment to publicizing the new findings which he/she finds useful in his/her country. Autonomy and responsibility: He/she is an independent and responsible person in the academic life of his/her professional field, and represents its professional principles and research results in every possible forum. He/she makes independent and responsible decisions in his/her work with regard to his/her own academic work, and the work programmes of people managed by him/her. Topics of the lectures (syllabus) 1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction, basic concepts. World order, world economy, world economics World economy: formation and some major characteristics of development until the end of the 20th century The world economy at the beginning of the 21st century Concept and practice of globalization International trade processes. International financial processes Transnational and multinational corporations in the world economy National development and international competitiveness Growth and development – „life beyond GDP” 10. International Trade: Regulation and Institutions 11. The „new economic geography” 12. Regional economic integrations 13. European and regional integration processes from a Hungarian perspective 14. Classroom test for an offered mark Basic concepts World order World economy World politics World order World order as a term is used sometimes analytically, sometimes prescriptively. Both usages serve important purposes in grasping the realities of political life on a global level. Analytically, world order refers to the arrangement of power and authority that provides the framework for the conduct of diplomacy and world politics on a global scale. Prescriptively, world order refers to a preferred arrangement of power and authority that is associated with the realization of such values as peace, economic growth and equity, human rights, and environmental quality and sustainability. https://pesd.princeton.edu/node/696 Task: Read and create a mindmap on World Order (Definition, Historical Evolution, Theoretical Implications, Practical Applications) – (15+10 minutes) World economy Elements and actors of the world economy: National economies (‚countries’) International division of work World market: - individuals, enterprises- transactions- regulations, patents- infrastructure- international institutions The world economy or global economy is the economy of all humans of the world, referring to the global economic system, which includes all economic activities which are conducted both within and between nations, including production, consumption, economic management, work in general, exchange of financial values and trade of goods and services. In some contexts, the two terms are distinct "international" or "global economy" being measured separately and distinguished from national economies, while the "world economy" is simply an aggregate of the separate countries' measurements. Beyond the minimum standard concerning value in production, use and exchange, the definitions, representations, models and valuations of the world economy vary widely. It is inseparable from the geography and ecology of planet Earth. World politics World politics: the totality of international power relations. Power relationship: the political, economic, or intellectual potential that appears in decisions. Based on: violence or its possibility (e.g. possession of weapons) power over goods, money prestige (authority, influence) Centres of world politics: the centre(s) of power - e.g. parliament and government, or a dictator and his environment and / or a party Internal and international power relationship: non-transformable and non-analogous Reason: There is no single global centre of power at the international level → World politics depends on power relations Global politics, also known as world politics,names both the discipline that studies the political and economic patterns of the world and the field that is being studied. At the centre of that field are the different processes of political globalization in relation to questions of social power. The discipline studies the relationships between cities, nation-states, shell-states, multinational corporations, non-governmental organizations and international organizations. Current areas of discussion include national and ethnic conflict regulation, democracy and the politics of national self determination, globalization and its relationship to democracy, conflict and peace studies, comparative politics, political economy, and the international political economy of the environment. One important area of global politics is contestation in the global political sphere over legitimacy. Global politics is said by some to be distinct from the field of international politics (commonly seen as a branch of international relations) as it "does not stress the primacy of intergovernmental relations and transactions". This distinction however has not always been held among authors and political scientists, who often use the term "international politics" to mean global politics. World economy and world politics: interactions World order = world economy + world politics + ecological system + social structures + ideas, cultures (Huntington) World economy can be the… …target (e.g. embargo) …source (agricultural overproduction, trade war) …of world politics Introduction World economy: formation and some major characteristics of development until the end of the 20th century Source: http://hu.wikipedia.org/wiki/Kereskedelem; www.weboldal.biz; http://users.atw.hu/bagabr/kereskedelem.html A Brief History of Global Trade https://www.youtube.com/watch?v=q 4CcPpX50gk(9) The beginnings The „big bang”: Source: blog.uzletiajanlatok.hu According to some authors: 1492 (Columbus) and 1498 (Vasco da Gama) According to the majority of economists: the first real globalisation of the economy has begun in the 19th century Proof: the international convergence of the prices of raw materials International trade: 1800: 3% of world production; 1913: 33% of world production The volume of international trade had a 20-fold increase between 1830 and 1913 First Merchants and Evolution of Trade in Prehistory https://www.youtube.com/watch?v=Fep-ueSNE9g (7) The Silk Road: Connecting the ancient world through trade - Shannon Harris Castelo - https://www.youtube.com/watch?v=vn3e37VWc0k The Amber Road: International Trade in the Ancient World https://www.youtube.com/watch?v=OqR0yfE1M-Q (18) (5) The development and the geographical structure of international trade The increase in trade: Exports/’GDP’ (~ production) 18th century: 2-3%; 1830: 5,5%, 1913: 14% In absolute terms: 1850: 800 mn pound sterling; 1913: 8 bn pound sterling The geographical structure of trade Europe in the centre of trade 1850: 70% (GB: 20%) Europe’s share gradually decreases Early 1900-s: 64% (GB in 1913: 14%) Source: fotolia.com The Growth of International Trade in Nineteenth Century- https://www.youtube.com/watch?v=Au4zAYRujHA (4) Determinants of international economic relations (1) Innovations, inventions Mechanisation of spinning and weaving Iron production Means of transport Steamboat Shipping costs Source: buvarinfo.hu Their decrease has contributed to the decrease in raw material prices (which has already been significant due to the decrease in production costs) Economic growth Population growth Migration International Trade Explained - https://www.youtube.com/watch?v=HfN8BnRJryQ (7) Illustration: relative transportation and communications costs, 1920-1990 Source: http://www.pisani-ferry.net/base/ecointerx/en-xei-chap5.pdf Determinants of international economic relations (2) Increase in investments and in the living standard Capital accumulation/’GNP’: 1830: 7%, 1870: 14% Textile, iron and steel, railway, commercial shipping Liberal ideas and free trade French physiocrats: "laisser faire, laisser passer" Smith, Ricardo GB: center of free trade 1880-1890: The return of protectionism Continental Europe: customs wars, retaliatory actions Source: interdouane.com Illustration: average level (rate) of customs tariffs, 35 countries, 1860-2000 Source: http://www.pisani-ferry.net/base/ecointerx/en-xei-chap5.pdf Undulating development Shift in the focus of trade (1913-1950) World wars, economic crisis: international trade falls apart 1948: The weight of Western Europe in world trade: 35% (1880: 60%) The Golden Age of growth and its end in 1973-1974 „Les trente glorieuses” (Thirty glorious years) 1973-1974: The oil crisis affects all developed countries simultaneously Structural changes of world trade and of the world economy (1) Globalisation Markets – competition – technology – enterprises and industries – financial markets World trade and GDP, 1950-2001 Source: http://www.pisani ferry.net/base/ecointerx/en-xei-chap5.pdf Structural changes of world trade and of the world economy (2) Increasing importance of trade in manufactured products Emergence and expansion of intra-industry trade Trade in services The changing role of developed countries - the geographical concentration of world trade is declining The rise of newly industrialised countries The rise of China Coexistence of regionalisation and globalisation What global trade deals are really about (hint: it's not trade) | Haley Edwards | TEDxMidAtlantic https://www.youtube.com/watch?v=-v3uqD1hWGE (11) The Inside Story of the Ship That Broke Global Trade https://www.youtube.com/watch?v=iVJ94tM7pNA (18) World Economics 3. The world economy at the beginning of the 21st century World economy– introduction (and recapitulation) World economy: the totality of economic relations between nation states Acontinuously changing, developing system In a geographical sense Formation, transformation, merging of states Regarding the content (the nature, the types of relations) The emergence of new forms of international division of labor (beyond traditional foreign trade) Services, trade in intellectual property rights, technological-scientific cooperation New actors/actors with increasing/decreasing importance The interdependence between individual national economies is increasing, relations overarching nation-states are emerging (and strengthening)> globalisation Current key issues: company / state, international organisation / state, regional cooperation / world economic liberalisation Political framework conditions for the development of the world economy Political / non-economic risks - uncertainty Risk Uncertainty Sources of tension and event risks Elements of political risk and uncertainty in world economic growth It is difficult to predict (in case of event risks: impossible https://www.youtube.com/watch?v=mHjH1sl1o9s ) Possible longer-term effects of certain political developments Economic growth and international trade (1) The volume of production of the world economy: Gross World Product (GWP), purchasing power parity (PPP): USD 127,8 trillion USD (2017, estimation) GWP, official exchange rate: USD 80,27 trillion (2017, estimation) Real growth rate of GWP: 3,7% (2017, estimation); 3,2% (2016, estimation); 3,3% (2014, estimation) GWP per capita, PPP: USD 17.500 USD (2017, estimation) (All data in 2017 USD) Source: https://www.cia.gov/the-world-factbook/countries/world/#economy Economic growth and international trade (2) Source: M Tracy Hunter - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=34088589 Economic growth and international trade (3) Carriers of growth at the beginning of the 21st century : Asian rapidly-industrialising and/or catching-up countries OPEC members https://www.opec.org/opec_web/en/about_us/25.htm Russia Serious fluctuations Conditional convergence: convergence between developed and medium-developed countries The least developed often lag even further behind than before The increasing role of institutions in economic competitiveness Economic growth and international trade (4) The „classical” triad: EU, USA, Japan Changes: The emergence of China, India, Brazil, Russia The „classical” triad is still alive in many ways, but the rearrangement of power relations is clearly visible International trade continues to expand at a faster pace than production At the same time, domestic demand is also becoming more important in more and more countries This phenomenon is especially important in large, emerging economies This also contributes to the slow rearrangement of power relations Drivers of technological development (1) Research and development (R&D) Innovation New economy (new economic order, new paradigm): The most important source of economic growth: information and communication technology (ICT) and ICT-related technological developments Capitalisation The amount of capital per unit of labor (capital intensity) increases Overall productivity growth Drivers of technological development (2) Question: Sustainability of the development path IT bubble Dotcom bubble: https://www.youtube.com/watch?v=5ksVshqVuiM Y2K The increasing need for human capital (1:17) In the absence of an adequate workforce, technological progress cannot be exploited (or only to a limited extent) After the bursting of the “bubble”, the role of these technologies in growth weakened Perspective sectors: Biotechnology Healthcare Key product markets Special key markets of key importance: Oil Natural gas Physically limited (and constrained) supply - strong, trend-increasing demand Futures transactions: overall, they amplify price increases Consumer goods market: Overall: a significant oversupply Oil Monthly Oil Market Report 2023 https://players.brightcove.net/34306109001/default_default/index.html? videoId=6333063967112 (8) / https://www.opec.org/opec_web/static_files_project/media/downloads/ publications/OPEC_MOMR_August_2023.pdf OPEC sticks to oil demand growth view citing resilient economy - By Alex Lawler September 12, 2023 , https://www.reuters.com/business/energy/opec-sticks-oil demand-growth-view-citing-resilient-economy-2023-09-12/ Source: BP Statistical Review of World Energy 2021, p. 17 Source: BP Statistical Review of World Energy 2021, p. 17 Source: BP Statistical Review of World Energy 2021, p. 25 Source: BP Statistical Review of World Energy 2021, p. 25 Source: BP Statistical Review of World Energy 2021, p. 28 Source: BP Statistical Review of World Energy 2021, p. 33 Source: BP Statistical Review of World Energy 2021, p. 33 Natural gas Natural gas - 2023 Data - 1990-2022 Historical https://tradingeconomics.com/commodity/natural-gas Natural Gas Forecast & Price Predictions for Today, 2023 and Beyond: Rebound Could Extend https://capex.com/en/overview/natural-gas-price-prediction Natural gas prices fall in first half of 2023 amid record production and mild temperatures- https://www.eia.gov/todayinenergy/detail.php?id=57200 Natural gas prices are spiking again. Here’s why https://edition.cnn.com/2023/08/10/energy/natural-gas-prices-spike/index.html Natural Gas Technical Analysis for August 07, 2023 by FXEmpire - https://www.youtube.com/watch?v=QnCLN7xLehE (1) Source: BP Statistical Review of World Energy 2021, p. 35 Source: BP Statistical Review of World Energy 2021, p. 35 Source: BP Statistical Review of World Energy 2021, p. 40 Source: BP Statistical Review of World Energy 2021, p. 40 Source: BP Statistical Review of World Energy 2021, p. 41 Source: BP Statistical Review of World Energy 2021, p. 45 BP Statistical Review of World Energy 2021 Full document available at: https://www.bp.com/content/dam/bp/business sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review 2021-full-report.pdf Statistical Reviewof World Energy 2022 https://www.bp.com/content/dam/bp/business sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review 2022-full-report.pdf International financial and capital markets (1) As globalisation deepens, the role of international financial and capital markets increases Real transactions represent only a fraction of foreign exchange market operations The key role of the USD – and the increasing importance of the EUR Banknotes in circulation Foreign exchange reserves Global government securities market On the role of the EUR: https://ec.europa.eu/info/business-economy-euro/euro area/international-role-euro_en International financial and capital markets (2) Dynamic development – with turning/breaking points Source: UNCTAD World Investment Report 2021, p. 2 https://unctad.org/system/files/official-document/wir2021_en.pdf) World Investment Report 2022 https://unctad.org/publication/world-investment-report-2022 Global sources of tension and their (coordinated) management Significant current account deficit in the US The combined effect of a low (private) savings rate and a general government deficit Main financiers: China, EU, Japan They have a high savings rate Reducing global imbalances would require: Increase in the savings rate in the US Elsewhere, increase in domestic demand The tools for coordinated management are limited OECD, G8, IMF, EMU World Economics 4. Concept and practice of globalisation Introduction Globalisation is not a new phenomenon A complex process Not only economic (even if the focus of this subject is economic globalisation) Social, political, institutional, cultural aspects “Global problems” – some of them have been present for a long time Food crisis, pollution, nuclear war,…pandemic Novelty: the acceleration of the process of globalisation, the increasing prominence of its effects https://www.youtube.com/watch?v=UO4r1KEDl1Q (4.55) Interpretation and drivers of economic globalisation Interpretation of economic globalisation (1) The process of the development (transformation) of the world economy into a more and more all encompassing and organic system Expansion of economic relations Deepening of economic relations Durable and functional system of relationships International division of labor International trade International flow of production factors With increasing importance: economic processes and conditions becoming transnational and global Interpretation of economic globalisation (2) "Horizontal expansion" of the world economy Reintegration of former socialist countries since the 1990s Deepening of interdependencies In several processes Production process The process of reproducing the factors of production Consumption Information flow Intermediary processes (financial, monetary) Interpretation of economic globalisation (3) Increasingly transnational economic relations International trade and division of labour International ownership International economic power relations Relationships in global income distribution http://www.oecd.org/social/inequality.htm Consequence: literal economic “independence”/sovereignty is practically non-existent The approaches and theories of international economic relations must be examined and interpreted in the light of these changes Main drivers of economic globalisation Key element: technological development The acceleration of globalisation is related to The development of communication and information technology The activities of transnational corporations (TNCs) The opening up of the former socialist countries to the world economy The spread of liberal economic policy A turning point? - We'll see… The deeper integration of international financial markets Effects of globalisation The effects of globalisation vs. effects of local conditions It is a question of sovereignty "National economies"? The role of government policy Its scope and strength decrease - its necessity may increase Impacts on national cultures Globalisation and national development Absenteeism is not an (attractive) alternative The key factors of competitiveness and catching up have changed Integration into the network of TNCs, creation of new competitive advantages Asymmetric interdependencies in the world economy The asymmetry of international ownership structures Foreign direct investment (FDI) https://www.investopedia.com/terms/f/fdi.asp Capital exporting vs. capital importing countries Important Significance of capital imports (weight in relation to total capital and total investment in the capital importing country) Equilibrium/imbalance of capital flows (in- and outward FDI) Distribution of inflows of foreign capital by countries of origin Possible consequence: less control over the economy and natural resources The asymmetries of international trade of goods and services and of the international division of activities Aspects: Trade openness Geographical distribution of exports and imports Product structure of exports and imports Supply elasticity of export sectors and their relations with other sectors Substitutability of imports The size of the domestic market Structure of consumption The asymmetries of international financial relations (1) Recourse to foreign financing is now a common practice Dependency on external financing: Debtor-creditor, assisted-assister relationship Important: Importance of net debt Composition, direction and conditions of debt Annual debt service balance Ratio of foreign and domestic funds The degree of relational coincidence/difference between this dependency and other dependencies Purpose of using foreign funds Debt vs. indebtedness The asymmetries of international financial relations (2) Asymmetries in international monetary relations Hierarchical structures They have a real economic basis They are linked to the international monetary system as well as to the economic policies of states Hierarchical system of national currencies Key, dominant currencies vs. the other currencies Dominant currencies are needed by every country Convertible vs. non-convertible currencies In the case of a non-convertible currency: the formation of a double exchange rate The asymmetries of technological interdependencies (1) Striking asymmetries Technological dependence To what extent? In which sectors/spheres does it exist? How one-sided? Consequences: Onehasto pay a higher price for technology that is only available from external sources Access to state-of-the-art technology is questionable This can also lead to long-term backlogs (restrictions on domestic development, emigration of professionals, brain drain) The asymmetries of technological interdependencies (2) The important role of incentives Market incentives Incentives to strengthen the link between production and academia Incentives to promote competition and cooperation within the corporate sphere Technology transfer, technological-scientific cooperation In the long run (also) it is important to raise/maintain the standard of education The asymmetries of the international flow of labour Guest workers, "migrant workers" https://www.youtube.com/watch?v=i06rqwkpUh4 Flow of labor related to “technical assistance” (1.49) If it is a mass phenomenon, it has serious consequences Advantages: experience, gaining higher qualifications; remittances Disadvantages: labor shortages (in some areas or in general), development of distorted income and consumption conditions; potentially: the formation of power influence At the same time: labor flows are a natural part of globalisation Risks and adverse effects can be reduced by geographical and structural diversification (this can also increase the expected benefits) Asymmetry in the international flow of information On the one hand: international differences in information culture, mechanisms, methods, technologies On the other hand, the need for information is growing in all areas as globalisation progresses The consequence of both is: An increase in the value (and often in the price) of information In the case of asymmetric relations, its effect is also asymmetric Increased possibility of manipulating information One-sided and/or unreliable, filtered, etc. information https://tlp-lpa.ca/digital-citizenship/fake-news Objective: to make the relationships as symmetrical as possible Concluding remarks The "solution" is not confinement, but (in all areas examined): Reduction of external vulnerabilities Diversification, development Making international relations as symmetrical as possible Relationships are asymmetric for a number of reasons (in many respects, partners can be unequal); bearing in mind these characteristics, a conscious effort should be made to improve the situation of a given country We must not forget the benefits of an international division of labor See the basic models of international economics (Smith, Ricardo, Heckscher-Ohlin) Videos Avengers: The Story of Globalization (episode 1) https://www.youtube.com/watch?v=PPZZQ0fmI2Y&t=87s Creative Destruction: Technology and Trade (episode 2) https://www.youtube.com/watch?v=lH2kSCPyZQ8&t=87s (10.38) (7.51) Are There Winners and Losers of Globalization? (episode 3) https://www.youtube.com/watch?v=DQ1YZGTgTYA&t=59s (11.03) News Latest News & Videos, Photos about globalization https://economictimes.indiatimes.com/topic/globalization More about this topic Globalization https://www.euronews.com/tag/globalization [email protected] World Economics 5. International trade processes World trade (1) Globalisation Intensity of world trade: 19th century: Waterloo - World War I: very rapid growth; 1929-1933: fall during the world economic crisis; 1950s-1960s: Golden Age; Slowdown with the oil shocks; 2007-2009: another slowdown (financial and economic crisis); The geographical distribution of export performance: Relatively stable until World War I; 1929-1933: Europe loses more than the rest of the world (the rise of Japan) 1950s and 1960s: Reinforcement of Europe (by 1972, Northern and Western European countries and the United States together accounted for more than 50% of world exports); Since then: Asia is moving forward (irresistibly?) World trade (2) Trade openness (exports/GDP): Trade Openness Index by Country and World 1970-2020 https://www.youtube.com/watch?v=-eekx6FA53Q From 1830 to 1870, it increased spectacularly (doubled) Rich countries were the main beneficiaries (e.g. Latin America or the European periphery were able to realise less profits through trade); 1870-1913 - stagnation; 1929-1933 - fell back to 19th century level; Significant increase again from 1970 to 2007; The 2007 value is the highest one ever recorded. Source: Federico and Tena-Junguito (2016) World trade (3) Note: Interdependence and trade > a possible guarantee of peace! Free trade binds governments and forces important reforms (e.g. lobby groups reach out to support them with a protective duty, etc. > otherwise they would not be competitive; e.g. 778% import duty on rice in Japan); During periods of stagnation: a flare-up of protectionist, nationalist overtones and autarch development policies could be observed; Since 2007, world trade seems to have stalled 2018 – prelude to a global trade war? Trump’s Trade War Timeline „In 2018, former President Donald Trump started a trade war with the world involving multiple battles with China as well as American allies. Each battle has used a particular US legal rationale, such as calling foreign imports a national security threat, followed by Trump imposing tariffs and/or quotas on imports. Subsequent retaliation by trading partners and the prospect of further escalation risked significantly hampering trade and investment, and possibly the global economy. President Joseph R. Biden Jr. must now determine whether to keep US tariffs and other trade barriers in place or adjust policies in the wake of changing conditions, as well as the COVID-19 pandemic.” https://www.piie.com/sites/default/files/documents/trump-trade-war timeline.pdf World trade volume change and GWP (world GDP) growth rate Source: WTO The role of innovation Transport vehicles Shipping container Pre-container period: Products were packed directly into cargo ships > break-bulk shipping; An average cargo was thus able to ship approx. 200,000 products; Loading / unloading time: approx. 1 week; 60-75% of the total transport cost was port-related loading (labor, downtime, thefts and damages) The shipping container Before Ship loading cost: $5.8/ton; Shiploadingspeed:1.3 tons per hour; 1955 -0% of goods were transported in containers After Ship loading cost: $0.16/ton; Shiploadingspeed: 10 thousand tons per hour; 90% of purchased products are transportedin containers How a Steel Box Changed the World: A Brief History of Shipping - https://www.youtube.com/watch?v=0MUkgDIQdcM (4.05) Source (book cover)): https://s.s-bol.com/imgbase0/imagebase3/large/FC/9/0/5/1/9200000048091509.jpg Photo: Tamás Szemlér Foreign trade indicators (1) Export coefficient Ratio of exports to national income (%) It can be compared to GDP, GNP, GNI What percentage of the value of total annual production goes abroad? Export capacity of the given country and the propensity to import of partner countries Many use it to judge the extent of export dependence - but other things matter, as well: Commodity structure of exports Geographical (relational) structure of exports Foreign trade indicators (2) Import coefficient Ratio of imports to national income (%) It can be compared to GDP, GNP, GNI How much (%) of annual national income is imported (what percentage of the value of total annual production is spent on foreign goods) Propensity to import Import dependence? - It is important to have information on the… … Commoditystructure of imports … Geographical (relational) structure of imports Trade openness, economic openness Trade openness Export coefficient - import coefficient Economic openness (Openness to the world economy) It is much more complex Organic involvement vs. inorganic relationship Examples of the latter: “Free trade zones”, “-impex” companies Exports are often treated as an “exogenous” factor while imports are treated as an “endogenous” factor This is a simplification in general and is related to a specific (Keynesian) approach Foreign trade indicators (3) Export multiplier How much change does export change bring about in national income? Marginal propensity to import How much change does national income change bring about in imports? Income elasticity of imports Ratio of change in imports to total imports divided by the ratio of change in national income to national income Foreign trade indicators (4) ‚Terms of trade’ indicators Terms of trade Export prices/import prices Another concept: volume of exports/ volume of imports (of a given product) What is important is the change in these ratios Is it getting better or worse? Statistical indices TERMS OF TRADE – OECD - https://data.oecd.org/trade/terms-of-trade.htm Foreign trade indicators (5) Terms of trade indicators Statistical indices + Terms of Trade Practice- Comparative Advantage https://www.youtube.com/watch?v=RDqq4gaLrmQ (6.30) Net barter terms of trade index: export price index/import price index (most frequently used) Gross barter terms of trade index: export volume index/import volume index Net income terms of trade index: export value index/import price index Gross income terms of trede index: export value index/import value index Single factoral terms of trade index: export index * productivity index of export sectors/import price index Double factoral terms of trade index: export index * productivity index of export sectors/import price index * productivity index of import (substituting) sectors Employment-weighted double factoral terms of trade index: the double factoral terms of trade index multiplied by the number of persons employed in the export sector/the number of persons employed in the production of imported goods Problems related to terms of trade indicators What is not taken into account by them? Changes in the composition of exports and imports The quality of exported and imported products The geographical (relational) structure of foreign trade The cyclical development of the world economy Structural and organizational changes in the world economy Structure of production and consumption Concentration and integration Technical and technological changes International Trade by Commodity Statistics https://www.oecd-ilibrary.org/trade/international-trade-by-commodity-statistics_22195076 Terms of trade and GDP growth in Hungary (2006 2017, % change compared to the previous year) 103 102 101 100 99 98 97 96 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Terms of trade (E/I)*100 Cserearány-mutató, (K/B)*100 Real GDP growth rate Reál GDP növekedés 0 2 4 6-2-4-6-8 Source: graph by Olivér Kovács, based on CSO Hungary data Foreign trade indicators (6) Elasticity indicators Elasticity vs. inelasticity Sub-question: sign vs. absolute value Various indicators Price elasticity of supply Income elasticity of demand Price elasticity of demand Cross-price elasticity of demand Problems World market demand vs. domestic demand Tariffs and other barriers, product specifics, import propensity, export pressure Inferior goods, Giffen goods, special cases The structure of foreign trade Commodity pattern of trade Geographical pattern of trade Illustration: A brief overview of EU trade: https://ec.europa.eu/eurostat/statistics explained/index.php/International_trade_in_goods_for_th e_EU_ _an_overview#The_relative_importance_of_different_pro ducts Geographical pattern of UK trade: https://commonslibrary.parliament.uk/research briefings/cbp-7593/ Foreign trade balance Other names: balance of trade, commercial balance, net exports Difference between the monetary value of a country’s total exports and total imports for a given period (one year or less (usually a quarter, a month)) Trade surplus (positive trade balance) vs. trade deficit (negative trade balance) Overall balance of trade Balance of trade for goods Balance of trade for services EU Statistics on international trade in goods Statistics on international trade in goods distinguish between intra-EU and extra-EU trade. Intra-EU statistics concern transactions that occur within the EU, in other words, exports of goods leaving one EU Member State that are destined to arrive in another. The advent of the single market on 1 January 1993 and the removal of customs formalities between EU Member States resulted in a loss of information and required the establishment of a new data collection system — Intrastat — which is closely linked to VAT systems and is based on collecting data directly from taxable persons (traders). Extra-EU statistics record flows of goods exported and imported between the EU and non member countries; note that goods ‘in transit’ through an EU Member State are excluded. Extra-EU trade statistics are collected through a different system — Extrastat — which uses records of trade transactions for customs declarations that are gathered by customs authorities. The trade balance is the difference between exports and imports. When exports are higher than imports, the balance is positive and this is called a trade surplus. In contrast, if exports are lower than imports, the balance is negative and this is called a trade deficit. https://ec.europa.eu/eurostat/statistics-explained/index.php?title=International_trade_in_goo ds_for_the_EU_ _an_overview#The_relative_importance_of_different_products International trade in goods - an overview EU policymakers see the promotion of international trade (and investment) with the rest of the world as a key driver of economic growth and job creation. The EU is one of the world’s biggest players in global trade: in 2021, it was the second largest exporter and importer of goods in the world, as extra-EU trade accounted for 13.7 % of global exports and 15.2 % of global imports. China exported more goods (18.1 % of the world total) than the EU, while the United States imported more goods (16.3 % of the world total). The EU has achieved this position, at least in part, by acting in a united way with a single voice, rather than having 27 national trade strategies: the EU Member States share a single market, a single external border and a single external trade policy within the World Trade Organisation (WTO), where the rules of international trade are agreed and enforced. https://ec.europa.eu/eurostat/statistics-explained/index.php?title=International_trade_in_goo ds_for_the_EU_ _an_overview#The_relative_importance_of_different_products The role of foreign trade in the national economy Profit/advantage - loss/disadvantage Specialisation- role in the international division of labor Trade, capital flows, employment, input-output relations Exports: Impact on the domestic market Effects on capital formation (investments) Effects on the division of labor within the national economy The possibility of increasing returns to scale Imports: Demonstration effects Stimulation of competition on the domestic market https://ec.europa.eu/eurostat/statistics explained/index.php?title=International_trade_in_goods_for_the_EU_ _an_overview#The_relative_importance_of_different_products https://ec.europa.eu/eurostat/statistics explained/index.php?title=International_trade_in_goods_for_the_EU_ _an_overview#The_relative_importance_of_different_products International trade – theoretical concepts The rationale of international trade: Differences in natural conditions and resources Differences in labor productivity Absolute advantages/benefits (Smith) Comparative advantages (Ricardo) Differences in the relative supply of factors of production and the relative factor intensity of products (Heckscher-Ohlin) Differences in the level of technological development ("technological gap", Posner) Specialisation explained by Product Lifecycle (Vernon) Internal economies of scale External economies of scale https://www.economicsdiscussion.net/economies-of-scale/economies of-scale-internal-and-external/6917 Different consumption habits, "differences in taste" Product differentiation The limits of trade theories In many cases, the assumptions of the models do not match the real conditions They are simplistic They do not (or no longer do) reflect real conditions Today: not only trade, but also capital flows TNCs: A significant part of international trade takes place within them The active role of state regulation and the institutional system The effects of foreign trade on the long-term development of the national economy Important question: to what extent can an export sector become a "pull sector" Effects: For the development of human capital For technological development For the development of input-output relations within the national economy (organic development or "islands"?) The effects also depend on export products From the development of their demand, labor and technology needs, etc. Beyond economics… Openness and closedness: not absolute concepts Worldview and/or economic dimension (British left: open worldview with limited free market; British conservatives: anti-immigration but free market supporters; hybrid: Singapore); The greats of the past (e.g. city-states were closed in a sense… - did it work/how long did it work?) Supporters of Brexit- intruders, or open-minded people who leave intruders? (Or is it all about something else?) [email protected] World Economics 6. International financial processes Exchange rate Exchange rate: the price of a currency expressed in another currency Exchange rate and exchange rate policy play a decisive role in the regulation of foreign trade processes and foreign economic relations Its level and its change affect all items of the balance of payments (exports, imports, services, income, capital flows) It also influences the fundamental processes of the economy (e.g. inflation), so exchange rate policy is a key instrument of economic policy Imports, Exports, and Exchange Rates https://www.youtube.com/watch?v=geoe-6NBy10 (10.10) 2 Factors influencing the demand and the supply of the national currency Factors increasing demand: Exports of goods Domestic services used by foreigners Capital inflows Inflow of profits and other income Factors increasing supply: Imports of goods Services used by residents abroad Capital outflows Outflow of profits and other income Equilibrium exchange rate, appreciation, devaluation Equilibrium exchange rate: where supply and demand for the national currency are equal Appreciation (strengthening) of the national currency: if the demand for it increases or the supply of it decreases One unit of foreign currency can be bought for less domestic currency Depreciation (weakening) of the national currency: when the demand for it decreases or the supply of it increases One unit of foreign currency can be bought for more domestic currency The effects of changes in the exchange rate (1) Appreciation: Exports: Loss of revenue in domestic currency Price: in domestic or foreign currency? Loss of revenue or worse competitive position? Imports: + Decrease in expenditure (for the importer) in domestic currency Competitive advantage for foreign producers It can also benefit domestic producers of products with high import content The effects of changes in the exchange rate (2) Devaluation: Exports: + Increase in revenue in domestic currency Price: in domestic or foreign currency? If price cuts: the competitive position improves - the long-term effects must be taken into account Imports: Increase in expenditure (for the importer) in domestic currency Competitive advantage for domestic producers It can be detrimental to domestic producers of products with high import content Other effects of exchange rate changes Inflation Devaluation: generates inflation Appreciation: can reduce inflation Investments Portfolio investment: short-term Investors are looking for security and a high rate of return They increase the demand for the domestic currency > they can cause its appreciation Foreign direct investment: longer-term Investors expect a long-term, moderate and safe rate of return They increase the demand for domestic currency > they can cause its appreciation Repatriating profits (and investing in the capital owner’s country) can provide higher returns If devaluation occurs: it encourages influx, it is unfavorable for repatriation The long-term effects cannot be simply predicted (they depend on a number of factors) Exchange rates Buying – Selling Spot – Forward Effective exchange rate Nominal exchange rate – real exchange rate Cross exchange rate Exchange rate policy Foreign exchange market: the demand and the supply of currencies Fixed foreign exchange management: there is no foreign exchange market, the exchange rate is determined exclusively by the foreign exchange authority Free exchange (convertibility): the foreign exchange market is functioning the foreign exchange authority can intervene with market instruments exchange rate systems depending on the role of the market and that of the foreign exchange authority Exchange rate systems (1) The value of the domestic currency can be compared To gold To a currency used in another economy The market can also be a measure of value: the value of a national currency is determined by the demand and supply of the international foreign exchange market In this case, the state (in principle) waives exchange rate policy as an instrument of economic policy Exchange rate systems (2) What kind and extent of regulation is necessary/beneficial? Depends on the characteristics of the economy: Onits openness Onits position on the world market Onthe structure of its exports On the importance of portfolio investments The larger, more open, more diversified the export structure and the more developed the financial market integrated into the global financial market, … …the more justified it is to allow a high degree of market mechanisms. The types of exchange rate systems Fixed Mixed Fixed – with an intervention band Crawling peg Managed floating Fully flexible (free floating) Floating and Fixed Exchange Rates- Macroeconomics - https://www.youtube.com/watch?v=_pL_5trI6YY&t=4s (3.25) Exchange rate systems: from authority to market (1) Fixed exchange rate system: The exchange rate is set by the foreign exchange authority, this is officially declared, transactions can only be concluded using this rate In order to keep the exchange rate at a fixed level, the central bank is constantly intervening Foreign currency reserves are important The exchange rate is pegged to a key currency (or basket of currencies). Stable currency, high share in foreign trade Inflation and interest rates cannot be very different Subtypes: monetary union, currency board, dollarisation, euroisation. Source: https://en.wikipedia.org/wiki/Euro Historical currencies of the Eurozone Currency Code Rate Fixed on Yielded Austrian schilling ATS 13.7603 31 December 1998 1 January 1999 Belgian franc BEF 40.3399 31 December 1998 1 January 1999 Dutch guilder NLG 2.20371 31 December 1998 1 January 1999 Finnish markka FIM 5.94573 31 December 1998 1 January 1999 French franc FRF 6.55957 31 December 1998 1 January 1999 German mark DEM 1.95583 31 December 1998 1 January 1999 Irish pound IEP 0.787564 31 December 1998 1 January 1999 Italian lira ITL 1,936.27 31 December 1998 1 January 1999 Luxembourg franc LUF 40.3399 31 December 1998 1 January 1999 Portuguese escudo PTE 200.482 31 December 1998 1 January 1999 Spanish peseta ESP 166.386 31 December 1998 1 January 1999 Greek drachma GRD 340.75 19 June 2000 1 January 2001 Slovenian tolar SIT 239.64 11 July 2006 1 January 2007 Cypriot pound CYP 0.585274 10 July 2007 1 January 2008 Maltese lira MTL 0.4293 10 July 2007 1 January 2008 Slovak koruna SKK 30.126 8 July 2008 1 January 2009 Estonian kroon EEK 15.6466 13 July 2010 1 January 2011 Latvian lats LVL 0.702804 9 July 2013 1 January 2014 Lithuanian litas LTL 3.4528 23 July 2014 1 January 2015 EUR/BGN exchange rate Source: https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rat es/html/eurofxref-graph-bgn.en.html Exchange rate systems: from authority to market (2) Fixed exchange rate system with intervention band: The exchange rate is set by the foreign exchange authority, but depending on the width of the band, market effects also prevail (Band: e.g. ± 2.25%; ± 15%) The ± 15% band, which allows up to 30% movement, is in fact a transition between a fixed and a floating exchange rate system Exchange rate systems: from authority to market (2a) Regularly adjusted official exchange rate supplemented by an intervention band: The direction and extent of the adjustment are linked to the development of various indicators (inflation rate, wage index, possibly balance of payments position). Exchange rate systems: from authority to market (3) Crawling peg: A „sliding fixed exchange rate” The foreign exchange authority announces in advance when and to what extent it will adjust the exchange rate Its use needs careful foresight, keeping monetary policy under control and coordinated fiscal and monetary policy Monthly rates of devaluation during the crawling peg system in Hungary From 16 March 1995: 1,9% (0,060%/day) From 29 June 1995: 1,3% (0,042%/day) From 2 January 1996: 1,2% (0,040%/day) From 1 April 1997: 1,1% (0,036%/day) From 15 August 1997: 1,0% (0,033%/day) From 1 January 1998: 0,9% (0,030%/day) From 15 June 1998: 0,8% (0,026%/day) From 1 October 1998: 0,7% (0,023%/day) From 1 January 1999: 0,6% (0,020%/day) From 1 July 1999: 0,5% (0,0163%/day) From 1 October 1999: 0,4% (0,0133%/day) From 1 April 2000: 0,3% (0,0098%/day) From 1 April 2001: 0,2% (0,00654%/day) From 1 October 2001: the system has been terminated Source: https://hu.wikipedia.org/wiki/A_forint_le%C3%A9rt%C3%A9kel%C3%A9sei Exchange rate systems: from authority to market (4) Managed floating exchange rate system: The exchange rate is basically determined by market processes, i.e. the demand-supply relationship, but the foreign exchange authority can intervene if necessary Exchange rate systems: from authority to market (5) Fully flexible (free floating) exchange rate: It is shaped solely by the market, the foreign exchange authority cannot intervene in any way It exists only theoretically - it doesn't work anywhere in practice If things turn bad, intervention comes… As of 2016…. Source: https://upload.wikimedia.org/wikipedia/en/timeline/e1ade484687ae69d59d2b5c4af79338d.pn g The balance of payments The Balance of Payments Explained- https://www.youtube.com/watch?v=QF3Nsbl3i_o The balance of payments is a numerical summary of the value of financial transactions between economic agents of a country and abroad Its task is to provide information on the country's foreign exchange transactions It makes possible to forecast the exchange rate, assess the development of international solvency, and assess the international performance of the economy as a whole (6.56) The structure of the balance of payments It follows the principle of double-entry bookkeeping Credit – debit structure It consists of rows and columns Lines: titles Columns: credit, debit, balance Positive: cash (capital) inflow Negative: cash (capital) outflow Source: National Banks, Eurostat, IMF The structure of the balance of payments (structure used by the IMF, the OECD and UN SNA) 1. Current account Goods and services account (overall trade balance) Primary income account (factor income e.g. from loans or investments) Secondary income account (transfer payments) 2. Capital account 3. Financial account 4. Balancing item(statistical errors) The sum of the values of 1, 2, 3 and 4 = 0 Balance of payments - illustration „3 Ways a Country Pays for Its Growth” https://www.thebalance.com/what-is-balance-of-payments-components-and-deficit-3306278 IMF Balance of Payments and International Investment Positions Statistics https://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52 The traditional instruments of trade policy (1) Customs duties, tariffs Import duty; sometimes: export duty Ad valorem tariff X percent of the value of the goods Specific tariff for goods A flat rate duty per unit (quantity) of a given good Compound tariff A combination of the previous two Their effects: Consumption effect Production effect Trade effect Budgetary implications The traditional instruments of trade policy (2) Non-tariff barriers to trade Quantitative restrictions, quotas Administrative and other regulations Specific requirements, e.g. public procurement requirements Export subsidies - measures taken against them Dumping prices - anti-dumping measures Voluntary export restraints (restrictions, VER) Other international agreements with partner countries World Economics 7. Transnational and multinational corporations in the world economy The international flow of production factors Exchange of goods: a one-off operation Flow of production factors: a process with long-lasting effects Flow of labour In general: administrative and cultural constraints International mobility of capital Much less limitation; international capital market Foreign direct investment (FDI) Technology transfer Trade, services, flow of capital Multinational Companies- https://www.youtube.com/watch?v=txuvc6ZOBrA (12) The forms of the international flow of capital Loan capital Loans, credits, international financial assistance Foreign direct investment Foreign direct investment (FDI) - outward/inward Investment of capital abroad in the form creation/acquisition of an enterprise controlled by the owners (agents) of the capital „Real investment" Rapid development; reasons: increasing openness of countries, technological development (communication, transport), proliferation of transnational corporations Portfolio investment “Cross-border” securities purchases In practice, it can also become a tool for “direct” investment The role of stock exchanges Purchases of shares, M&A M&A: https://www.investopedia.com/terms/m/mergersandacquisitions.asp The motives for the international flow of capital Loan capital In case of export: obtaining interest payments There can be other motives, as well: helping partners in difficulty, securing influence over the debtor, maintaining the debtor's solvency Portfolio investments Getting a higher return on capital Important: risk diversification Foreign direct investment Get higher returns + risk diversification Take advantage of the higher profit rate available abroad Transnational corporations: other possible motives, as well FDI inflow to Hungary hits new high- https://www.youtube.com/watch?v=6udaMLW9Qys Chinese investments in Hungary are state-of-the-art: Péter Szijjártó https://www.youtube.com/watch?v=hixOhFp0imU (3.47) Foreign Direct Investment in Africa between 2011-20 (1.05) https://www.youtube.com/watch?v= onwh3LRuw8 1.46) The notion and the types of transnational corporations UN definition: transnational corporations (TNCs): They operate in more than one country They have a centralised decision-making system and a global strategy Information, resources, tools, and responsibilities are shared among their companies in different countries Transnational vs. multinational companies: the two notions are by now practically synonymous (originally: "multi" - refers to ownership - now most TNCs are also multinational companies) Their shareholders are natural or legal persons belonging to different states Vertically integrated companies vs. horizontal conglomerates In practice: a combination of the two Main motivations for FDI and transnational corporate strategy (1) Traditional view: capital flows from relatively richer countries to relatively poorer countries Because the latter have a higher marginal return on capital Problem: the theory does not deal with differences in the level of technology, nor does it explain the flow of capital in other directions TNCs aim to increase their aggregate profit rate Main motivations for FDI and transnational corporate strategy (2) Modern, eclectic theory (Dunning) Several types of categorisation are possible Motivation of capital investments: Gaining some advantages Country specific, related to the host country Utilizing and retaining existing advantages Company and industry specific advantages Overcoming some disadvantages The specifics of the motherland; world market competition Main motivations for FDI and transnational corporate strategy (3) There are four main types of foreign direct investment by TNCs: Resource seeking Earlier: mainly natural resources Today: R&D capacities as well Market seeking Earlier: economies of scale Today: market quality, product differentiation, as well Efficiency seeking Aggregate profit rate; today, the relative differences in productivity and wage levels are dominant Strategic asset/capability seeking Crowding out rivals and/or strategic alliance Main motivations for FDI and transnational corporate strategy (4) The „OLI paradigm” (Dunning, 1979) Ownership specific advantages Location specific advantages Internalisation advantages Many specific forms of these advantages are possible https://www.business-to-you.com/choosing-the-right-entry-mode-strategy/ The Eclectic Paradigm or OLI Framework https://www.youtube.com/watch?v=rfbV6 h_tXVs (10) Potential benefits of FDI for the recipient country Expansion of financial resources (access to foreign funds) Expanding employment opportunities Access to modern technology Access to state-of-the-art organisational, management, market research, information and accounting knowledge Development of foreign market relations Risk sharing for (partly new) enterprises with foreign investors Positive impact on the macro-level efficiency and of the national economy and on its adaptability to the world economy Potential disadvantages/dangers of FDI for the recipient country Possibility of TNCs controlling strategic sectors - a risk to national sovereignty The influence of TNCs on the economic structure of the host country Profit repatriation – (but: the activity leading to the profit should also be taken into account) Decrease in budget revenues (tariff and tax benefits) – (possible, but: what is the basis for comparison?) Technology that is difficult to adapt; inflow of secondary technology Drain of the best-skilled labour froce from other parts of the economy Organisational, corporate governance problems The possibility of a one-sided distortion of the country’s foreign economic orientation Discrimination against locals with subsidies and discounts provided to foreign companies Advantages-disadvantages: balance Potential advantages vs. potential disadvantages Empirical fact: without foreign investment, since the second half of the twentieth century there has been no catching up, no spectacular progress of countries One of the basic conditions for economic development is integration into the international network of TNCs The role played in the network is of key importance Best position: TNC's "home base" Where strategic decisions are born Where important R&D activity is taking place How big are the biggest companies (including many TNCs)? According to their market value „These are the world's 10 biggest corporate giants” https://www.weforum.org/agenda/2017/01/worlds-biggest-corporate-giants/ According to their income/ Visualize the Global 500 global-500-2023/ https://fortune.com/franchise-list-page/visualize-the Largest Companies In The World- https://www.gfmag.com/global data/economic-data/largest-companies https://www.blackrock.com/corporate/about-us/global-impact Multinational Corporations (MNCs) and Their Effects on Host Governments & Countries https://www.youtube.com/watch?v=Z1sk1F7jXwk&t=428s (10) World Economics 8. Growth and development- „life beyond GDP” Measurement– some basic issues "How much? - "How much WHAT?" Measurement and measurability Growth versus development Objectives, data, methods Theoretical possibilities versus practical feasibility Perceived and real limits Introduction– IN A NUTSHELL Economic growth (inflation adjusted market value- GDI, GNP, per capita measures…phenomenon of market productivity) Economic development (HDI, Gini…)– term used frequently in 20. and 21. century, but the concept known well before at first viewed in the context of economic growth, Amartya Sen: only one aspect of the process Structural change (industrialization, capital accumulation) Modernization (technological change) Societal change (improving living standards) thus ec. dev. policies use to focus on industrialization and infrastracture, but since 1960s rather on poverty reduction International development A regime approach Policy recommendations Institutions/Organizations (UN, WB, aid, goals, NGOs…) In the early 2000s, a loosely knit holistic paradigm emerged that recognized the deficiencies of its predecessors, yet built on their strengths. “development cooperation” - embraces methodological pluralism in the scholarly study of development The University of Iowa's Center for International Finance and Development states that: 'Economic development' is a term that practitioners, economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernisation, and especially Industrialisation are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment.’ Economic development „As the name suggests, economic development was originally thought of as economic growth, but in recent years it has increasingly come to be thought of as poverty reduction. The World Bank proclaims that our dream is a world free of poverty. and increasingly works to direct all of its activities towards poverty reduction. The General Assembly of the United Nations adopted in 2000 a set of Millennium Development Goals the first of which is to eradicate extreme poverty and hunger, more specifically to reduce by half, between 1990 and 2015, the proportion of people whose income is less than $1 a day.” Measuring Poverty (Angus Deaton- 2015—Awarded with the Nobel Prize in Economic Sciences for his analysis of consumption, poverty, and welfare.) International development or global development broad concept denoting the idea that societies and countries have differing levels of economic or human development on an international scale. It is the basis for international classifications such as developed country, developing country and least developed country. TASK (group work) Economic Freedom Index https://www.heritage.org/index/pdf/2023/book/02_2023_IndexOfEc onomicFreedom_METHODOLOGY.pdf World Happiness Report 2023 - https://happiness report.s3.amazonaws.com/2023/WHR+23_Ch0.pdf HDI https://hdr.undp.org/data-center/human-development index#/indicies/HDI (Report 2021/22 - overview) The Commissiononthe Measurement of EconomicPerformance and Social Progress Objectives: „toidentifythe limitsof GDP asan indicatorof economic performance and socialprogress, includingthe problemswithits measurement” „toconsiderwhatadditionalinformationmightbe requiredfor the productionof more relevantindicatorsof socialprogress” „toassessthe feasibilityof alternativemeasurementtools, and todiscusshowtopresentthe statisticalinformationin an appropriateway” Recommendations The report: https://www.researchgate.net/publication/258260767_Report_of_the_Commission_on_the_ Measureme nt_of_Economic_Performance_and_Social_Progress_CMEPSP/link/5834488208aef19cb81f 795f/download Recommendation 1 „When evaluating material well being, look at income and consumption rather than production” Problems of the computation of GDP It mainly measures market production for this, it is useful GDP is often treated as an indicator of well being it isn’t that Net national income, real household income, consumption could be better Question: how to compute and how to „sell” the alternative indicators? Methodological and technical issues different countries to a different extent in Recommendation 2 „Emphasise the household perspective” Citizens’ individual living standards can be better mapped this way In some cases, important differences between GDP per capita and real household income The household perspective should take into account payments between sectors Taxes, government support, interest payments, in services Question: feasibility and transparency kind government Methodological, but also communication difficulties Recommendation 3 „Consider income and consumption jointly with wealth” To capture effects on current and future well Balance sheets are necessary –- being this necessitates comprehensive accounts of assets and liabilities „Measures of wealth are central for measuring sustainability” The right valuation of stocks is crucial Questions: The readiness of economic actors to provide reliable information Methodological difficulties Recommendation 4 „Give more prominence to the distribution of income, consumption and wealth ” Average measures should be accompanied by others, reflecting distribution Median indicators can be better in this respect Regarding the situation of the „typical” individual But information about the high is also required and low end of the population Question: structuring available information Joint distribution of wealth and income yes, but how? Recommendation 5 „Broaden income measures to non market activities” This is a basic step towards a more objective picture Problems: data uncertainty and conceptual differences Leisure: a key issue Question: how to quantify international differences (be their reasons cultural, historical etc.) in preferences With regard to market With regard to leisure and non market activities Recommendation 6 „Quality of life depends on people’s objective conditions and capabilities. Steps should be taken to improve measures of people’s health, education, personal activities and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction” Proposed dimensions: Material living standards (income, consumption and wealth); Health; Education; Personal activities including work; Political voice and governance; Social connections and relationships; Environment (present and future conditions); Insecurity, of an economic as well as a physical nature. Question: how to quantify qualities? Is the reconciliation of cardinal and ordinal approaches possible on a stable and internationally valid basis? Recommendation 7 „Quality of life indicators in all the dimensions covered should assess inequalities in a comprehensive way” Appropriate separate measures of inequality (for each field of analysis) are needed Taking into account linkages and correlations Question: how to present a long list of indicators? The creation of an overall index is a possible solution weights for the different fields? with what Recommendation 8 „Surveys should be designed to assess the links between various quality of life domains for each person, and this information should be used when designing policies in various fields” The interdependence between different fields The treatment of cumulative effects Question: effectiveness in practice Is it possible to have an effect on policies related to different fields? Can field specific policies (driven by field integrated? specific interests) be Recommendation 9 „Statistical offices should provide the information needed to aggregate across quality of life dimensions, allowing the construction of different indexes” Need for a single summary measure Composite indices (like HDI), average levels of life satisfaction do exist Further ones could be elaborated Question: comparability across countries A formal harmonisation is possible; the real harmonisation of the content seems difficult Recommendation 10 „Measures of both objective and subjective well being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own survey” Subjective measures provide valuable information Small scale and unofficial surveys provide interesting results Question: can we quantify happiness in general? Would the methodology of small scale, as well? scale survey work on a larger Recommendation 11 „Sustainability assessment requires a well identified dashboard of indicators. The distinctive feature of the components of this dashboard should be that they are interpretable as variations of some underlying „stocks”. A monetary index of sustainability has its place in such a dashboard but, under the current state of the art, it should remain essentially focused on economic aspects of sustainability” The question of sustainability is complementary to the issue of current well Confusion should be avoided Wanted: indicators about factors crucial for future well Several „stocks” To be measured separately or to be converted into a monetary equivalent being being Question: how to estimate the value of the „stocks”? The question arises in real terms, as well How will the importance of the given „stock” change in time? A highly problematic issue in case of conversion into a monetary equivalent How to measure market values? How to treat (statistically) their future changes (trend like changes and fluctuations, as well)? Recommendation 12 „The environmental aspects of sustainability deserve a separate follow up based on a well-- chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks)” Placing a monetary value is difficult Different sets of physical indicators are necessary Especially in the case of irreversible and discontinuous alterations of the environment E.g. clear indicators expressing the effects of climate change are needed Question: while environmental considerations show a globally increasing importance, there are huge territorial differences in this respect how to reduce this? Could appropriate indicators help this (also politically)? 12 recommendations Maybe more… Convincing Clearly articulated Detailed Strong support national OECD, EU, World Bank +A Ministries well chosen What now just professional background „a dozen plans to political put the support of key results into international practice organisations institutions ”? and , statistical offices moment (2020)? [email protected] World Economics 9. National development and international competitiveness The interpretation of the concept of national development National development (the traditional approach): the development of the power relations and wealth of nations and countries “Unilinear” process: all countries go through the same stages Independent national developments Today: a more complex issue, with more levels and actors Regions within countries Cross-border cooperation Regionalisation and globalisation Development economics Originally, it addressed the causes of backwardness and the problems/opportunities of catching up "Less developed" countries = "developing" countries Later: a broader, complex, multi-dimensional analysis of development Economic aspects Non-economic aspects (social, political, institutional, cultural, technical, etc.) Human content and purpose; sustainability Global and regional dimension and context Determinants and conditions of national development Interaction of external and internal factors Development policy (for catching up) Internal integration Input-output connections Social and economic cohesion "Revolutions" in science and technology TNCs In relation to the above and also independently: the state of human capital The nature of the “pulling” export sector, its need for resources, its spill-over effects Methods measuring (the level of) development GDP per capita (GNP per capita, GNI per capita)– for economic development Advantages and limitations Structural and dynamic indicators Weight of economic sectors (in GDP, employment) GDP (or per capita GDP) growth rate Development is more than economic growth Widespread use of social, public health and cultural indicators Absolute and relative poverty/deprivation; mortality/birth rate, infant mortality; illiteracy rate, education Has China's Belt and Road Initiative been a success? | FT - https://www.youtube.com/watch?v=NYAiuqU20iQ (10.52) HDI and Better Life index UNDP www.undp.org Sustainable development goals: http://www.undp.org/content/undp/en/home/sustainable-development-goals.html https://youtu.be/aLrLcODGMmo Human Development Index (HDI): http://hdr.undp.org/en/content/human-development index-hdi OECD www.oecd.org Better Life Index: http://www.oecdbetterlifeindex.org/ Variable weights of dimensions - variable results Interpretation of the concept of competitiveness Whose competitiveness? Products / Services Price, quality Companies, institutions (and their managers) Profit rate, costs, revenue, R&D, human capital Countries ("nations") Economic and other areas World market competition vs. global economic competitiveness Regions within countries Multi-country regions, integrations Why Is Europe Always Lagging Behind The US? - https://www.youtube.com/watch?v=tsahMxXdW30 (17.10) Main factors of a country's global economic competitiveness Development compared to other countries (where is it (going)?) Ability to acquire external resources (physical and intellectual capital) The ability of the country to become a “domestic base” for competitive companies, especially TNCs Ability to provide an appropriate economic, institutional, political and cultural environment Ability to increase its share in world exports and total capital exports (world market competitiveness) The ability to improve its position in the world economy in general Indices of “national” competitiveness Competitiveness is a complex phenomenon As a result, measuring it is not easy, either Several dimensions Several possible weightings Different indicators - "competitiveness rankings" Internationally recognised rankings World Economic Forum - Global Competitiveness Report IMD World Competitiveness Report World Bank Group - Doing Business Index What is Competitiveness? https://www.youtube.com/watch?v=-2547RlpEIM (2.57) World Economic Forum – Global Competitiveness Report Since 2004 Two main parts: Growth Competitiveness Index (GCI) Macroeconomic data, data describing the state of public institutions, data describing the technological level Business Competitiveness Index (BCI) The degree of development of the companies; the quality of the business environment in a given country The 2019 report (141 countries) https://www.weforum.org/reports/how-to-end-a-decade-of-lost-productivity-growth http://reports.weforum.org/global-competitiveness-report-2019/ Global Competitiveness Report Special Edition 2020: How Countries are Performing on the Road to Recovery https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf IMD World Competitiveness Report Since 1994, by the IMD World Competitiveness Center By now: three rankings (WCR, WDCR, WTR) https://www.imd.org/wcc/world-competitiveness-center/ WCR 2020: Video, main results, documents: https://www.imd.org/wcc/world-competitiveness-center-rankings/world competitiveness-ranking-2020/ World competitveness ranking https://www.imd.org/centers/wcc/world-competitiveness center/rankings/world-competitiveness-ranking/ What is political fragmentation doing to the prosperity of nations? https://www.youtube.com/watch?v=J8KC82w8-mo Exercise: How does the IMD World Competitiveness Yearbook measure competitiveness? What is the purpose of the Executive Opinion Survey? How are the rankings calculated? https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-competitivene ss-ranking/ The IMD World Competitiveness Ranking – Which countries are the world’s most competitive economies? (https://worldcompetitiveness.imd.org/rankings/wcy ) How does the competitiveness landscape look like in Denmark? https://worldcompetitiveness.imd.org/countryprofile/DK/wcy World Bank Group Doing Business Report Since 2004 The 2019 report (for 2020): https://www.doingbusiness.org/en/reports/global-reports/doing-business-2020 The 2020 ranking (190 countries), including components: https://www.doingbusiness.org/en/rankings The analysis of the situation of Hungary: https://www.doingbusiness.org/en/data/exploreeconomies/hungary Afterdata irregularities on Doing Business 2018 and 2020 were reportedinternally in June 2020, World Bank managementpausedthe next Doing Business report andinitiateda series of reviewsandauditsof the report and its methodology. Read the full statement released by the World Bank Group on the Doing Business report. https://archive.doingbusiness.org/en/doingbusiness About the rankings There is no “perfect” ranking Each ranking measures differently, partly examines different aspects, weights differently - so it shows different things A better position in one ranking or another is not an end in itself The aim is to improve the country's international position A change in position gives information The information requires detailed evaluation Stepes/measures are possible based on the detailed evaluation and the situation in the country (economic policy, administrative, etc.) It’s worth paying attention to the experiences of others, as well - but one-on one copying rarely works World Economics 26/11/2024 Recentchallenges High inflation Global economic slowdown Rising interest rates Supply chain disruptions Energy crisis Geopolitical tensions Debt crisis Climate change EconomicInequalityand DebtCrisis Developing economiesareexperiencing a significant debt crisis, with over a third at risk of default("World Economic Situation and Prospects 2024", 2024). Wealth stratification continues to deepen, as highlighted by Piketty's research, exacerbating social tensions and limiting economicmobility(Grabałowski, 2017). How Australia's Economy Got Rich and Is Getting Dumber | Economy of Australia | Econ https://www.youtube.com/watch?v=TEyOSx1x--Y (16.44) Over 18 million people unable to afford basic needs in Argentina - https://www.youtube.com/watch?v=SRVaIGZex3s (2.07) Geopolitical Tensions and Supply Chain Disruptions Ongoing geopolitical conflicts, including the fallout from the Ukraine invasion, have disrupted international trade and supply chains, leading to inflationary pressures(Obukhov, 2022)(Jiménez-Rodríguez & Prats, 2023). These tensions hinder effective global cooperation, essential for addressing shared economic challenges. The Impact Of Geopolitical Tensions On Global Supply Chains And Trade Routes - https://www.youtube.com/watch?v=GjW4a2_y28U (5.42) Why is the global supply chain so fragile and how can it be fixed? - https://www.youtube.com/watch?v=TLuHnWw6jCU (5.42) Digital Economy and Workforce Transformation The rapid evolution of the digital economy presents both opportunities and challenges, necessitating a workforce equipped with advanced IT skills and digital literacy(Churikanova et al., 2024). Automation and fintech innovations are reshaping job markets, demanding significant educational reforms to prepare workers for new roles. The Digital Economy Report 2024 | UN Trade and Development - https://www.youtube.com/watch?v=0iVoEdQ8rAc (1.34) Sources

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