Global problems

Globalization has many benefits but is also creating significant global problems.

Short run issues:

• recessions caused by financial crash or banking crisis 
• Many global shocks = short term 
• Other short run occurrences might have long run impacts eg. oil shocks 1970s

Long run issues:

• global poverty
• Inequality in economic development
• depletion of non-renewable resources
• environmental damage and global warming

Globalization increases the inter-connectivity and interdependence of nations. This leads to long run benefits in areas such as economic growth and employment. However, globalization also creates challenges as well as risks.

Types of shock:

• Permanent shocks eg. oil shocks - permanently changes markets
• Temporary shocks eg. terrorist attackspolicy induced shocks eg. inflationary shocks due to rapid increases in the money supply
• asymmetric shocks - effect one areas more than others
• symmetric shocks - effect all areas equally
• demand side shocks - sudden changed in aggregate demand eg. due to huge decrease in consumer confidence
• supply side shocks - created to increasing costs
• financial shocks eg. break down of large credit bank

Brexit as an example of a global shock:

• Brexit will probably just have a short term effect.
• it will have benefits, but also negative impacts on the global economy
• the extent to which it will effect the global economy is still unknown and will depend on the negotiations between nations
• the long term effect of Brexit is still unpredictable

  

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Poverty:
Poverty can be defined in two distinct ways:

1. Absolute Poverty

There are no simple definitions of this as there is a lot of disagreement on the definition of this word. This is a difficult to do.

According to economicsonline.co.uk - The simplest definition of being poor is ‘…being unable to subsist…that is, being unable to eat, drink, have shelter and clothing. A common monetary measure of absolute poverty is ‘..receiving less than $1 a day…’’. (In 2008, the World Bank revised this figure to $1.25 a day, and then again to $1.90 a day in 2015.)

2. Relative Poverty

According to economicsonline.co.uk - It can be argued that poverty can be investigated in a relative way – what is poor in Germany is not the same as what is poor in Bangladesh.

Definitions of relative poverty differ, but the definition of the UK government is typical for developed countries – stating ‘..less than 60% of median income..’.

If we look at international poverty, then, Asia has the highest numbers of poor people due to its large population.

Sub-Saharan Africa has the highest level of poverty, at over 60%.

Human poverty index:

focuses on 3 areas to measure poverty:

• knowledge 
• living standards
• longevity

HPI 1 measured poverty in developing countries

HPI 2 measure poverty in developed countries

HPI – 1.

1. longevity - probability of not living beyond age 40
2. knowledge - checked using adult literacy rate
3. living standard - looked at availability of clean water and whether children are underweight

HPI-2

1. Longevity probability of not living beyond age of 60
2. knowledge - checked how many adults do not have sufficient literacy abilities
3. living standards - how many people live under poverty line 

Development Economics

Economic development are the efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
There are several indicators which attempt to measure the development of a nation, these are:

The Human Development Index (HDI)

HDI measures the development of a country in 3 areas:

• health - measured by life expectancy
• education - measured by adult literacy and number of years children are enrolled at school
• income per capita

The figures of HDI range from 0 to 1.  0 indicated no development. 1 indicated complete development:

• 0 – 0.49 = low development
• 0.5 – 0.69 = medium development 
• 0.7 to 0.79 = high development 
• more than 0.8 = very high development 

The HDI is a very useful means of comparing the level of development of countries. GDP per capita alone is clearly too narrow an indicator of economic development and fails to indicate other aspects of development, such as enrolment in school and longevity.

Life expectancy

A variety of factors may contribute to differences in life expectancy, including:

• The stability of food supplies
• War
• The incidence of disease and natural disasters

Adult literacy

The percentage of those aged 15 and above who are able to read and write a simple statement on their everyday life.

GDP per capita

GDP per capita is the commonest indicator of material standards of living, and hence is included in the index of development. GDP per capita It is found by measuring Gross Domestic Product in a year, and dividing it by the population.

International Economics Part 3.1 - Free trade and protectionism

Free Trade - Free trade is a policy followed by some international markets in which countries' governments do not restrict imports from, or exports to, other countries. (i.e. no trade barriers)

Protectionism -  Protection is the attempt to limit imports or promote exports by putting up barriers to trade. Despite the arguments in favor of free trade and increasing trade openness, protectionism is still widely practiced. Here are a few reasons why:

1. Protecting Infant Industry
2. Protecting domestic workforce
3. Anti-dumping measure
4. To increase government revenue and improve current account deficit

1) Protecting Infant industry: Barriers to trade are used to protect sunrise industries, also known as infant industries, such as those involving new technologies. This gives new firms the chance to develop, grow, and become globally competitive. Protection of domestic industries may allow they to develop a comparative advantage. For example, domestic firms may expand when protected from competition and benefit from economies of scale. As firms grow they may invest in real and human capital and develop new capabilities and skills. Once these skills and capabilities are developed there is less need for trade protection, and barriers may be eventually removed.

2) Protecting an industry may, in the short run, protect jobs, though in the long run it is unlikely that jobs can be protected indefinitely. If the unemployment occurs at large industries, it could lead to very high unemployment rates. However, since the protected industries will be in decline in the long run, protectionism will just prolong this process.

International Economics Part 2 - The World Trade Organization

The world trade organization (WTO), is an organization that sets the rules for global trading and resolves dispute between its members.

All WTO members are required to grant "most favored nation" status to one another, meaning that trade allowances granted by one country to another must be granted to all other members of the WTO.

The WTO attempts to promote free trade, which is a very difficult task, with varying success.

It aims to increase international trade by providing a place for negotiations and by attempting to lower trade barriers. The main functions of the WTO include:

1. be a forum for trade negotiations
2. handle trade disputes among its members
3. administer WTO agreements
4. providing technical assistance and trading for developing countries
5. coorporate with other national organizations
6. monitor national trade policies

Trade liberalization clearly brings many economic and political benefits, but many argue that the WTO has had limited success in certain areas. The main criticisms are:

1. Failure to confront ethical issues
2. Failure to confront environmental pollution
3. Favors the powerful
4. Low number of agreements
5. Takes too long to process and settle dispute etc.

International Economics Part 1 - Reasons to trade?

This series will focus on international economics. Today we will discuss the positive implications of international trade. Lets go baby!!!

1. Greater Choice - Eating fruits and vegetables off-season is a prime example of this. People not only have an access to the domestically produced goods and services, but also products from a number of different countries.

2. Lower prices - International trade gives consumers the opportunity to purchase goods and sevices at a cheaper price as they are able to buy their demanded goods and services from other countries. Producers also gain from international trade, since they can purchase raw materials and other goods from other countries at a cheaper rate. The reason why this is possible is because some countries have more access to natural resources, have better technologies or different quality of labour forces. This means that more raw materials and goods are available, which can be sold at a lower price.

3. Economies of scale - when firms operate on an international market as well as on the domestic one, they are gaining size and therefore will increase the demand. As firms get bigger they can exploit economies of sclae, which will reduce their average costs.

4. Differences in resources - Some countries have different resources than others. When a resource is not available, but a firm needs it to produce a certain product, they can import the resource from different countries. Without international trade this would not be possible and countries with limited amount of resources would not be able to develop.

5. More competition - Because of international trade, domestic producers compete with foreign firms. This results in more efficiency and a reduction in prices. Therefore, consumers will have more options and more qualitative products to choose from.

6. Better allocation of resources - If firms can compete freely without government intervention then countries that are best at producing certain goods and services will produce them. These goods and services will be produced at the lowest cost and the efficiency will be maximized.  Theoretically, if this happens in every country in the world, resources will be allocated most efficiently.

Inequality

One of the biggest problems in todays world is the widening poverty gap between developed and less developed countries.

One of the main economics objectives is to achieve equity, which means fairness or evenness. It is difficult to define and measure. Hence, it is seen as a normative concept. Many economist relate equity to how fairly income and opportunity are distributed between different groups in a society.

Inequality of opportunity:

This occurs when people cannot access employment or institutions. These people cannot benefit from living as much as others in a market economy. 

Example: some children cannot access education, which leats to lower income in the future and lower living standards.

Inequality of outcome:

This happens when some people gain more than others from a transaction. 

Measure of inequality:

Inequlity can be measured by analyzing income distribution. Income distribution can be visualized by looking at a Lorenz curve.

The Lorenz curve shows % of income earned by a given % of population. Perfect income distribution would occur when each % of the population would get the same % of income. For example, Where 75% of the population get 75% of the national income. On the diagram above, income is not equally distributed. 75% of the population only gain 35% of the national income.

Gini coefficient:

This is a mathematical tool, which is used to compare income distributions between different countries. The range is from 0 to 1. The closer the coefficient is to 1 the greater the inequality