Market Economy and Econmic Growth Special Lecture on Contemporary Oct 27, 2004 Ajou University

1. Market Economy and Econmic GrowthSpecial Lecture on Contemporary Oct 27, 2004 Ajou University Yonghun JUNG Vice President Asia Pacific Energy Research Centre, Tokyo

2. Main Points • Globalization of the world • Transportation and Telecommunication • Coercion, Control, Competition • Economic growth • Our situation in terms of Resource, Technology and Market • China in Perspective • Energy in Korea • For you….

3. Globalization • Coercion – control – competition • Democratization • Technology • Finance • Role of international financial organizations • Information • Self-sufficiency is the road to poverty • Non-action can be protected only until others do see the opportunity somewhere else

4. Net Long-Term Resource Flow to Developing Economies Declining trend of financial flow to the developing countries. (Source) World Bank (2001)

5. Economic Growth • Resources: Capital, land, labor • Technology Development – Solow Residual • steam engine, automobile, computer • International trade • Market – provide incentives for efficient allocation of the resources • Demand • UK and USA • American railroad

6. International Trade • How have economic structures changed in the last two centuries? • Multinatioal: • scale of economic actors is much greater • the capacity for the organization of human activity over time and space has increased • the quality, quantity, and velocity of information available to economic actors has increased • the nature of the products and the nature of production has changed - new product and tech’y

7. What is the cause of change? • Changes in scale, information, organization, and product and production alters the nature of the global economy. • Technological change is the main cause of change. • Why is technological change so important? • It reduces costs, sometimes in exponential terms • Increase productivity • Change the production process in a more efficient way • Creates new products • Changes the relationship of factors of production- e.g., less energy intensive

8. Our situation • Resources • Capital resources: Japan and USA • Natural resources • Human resources: chinese student • Technology • Basic Manufacturing: Steel, Ship building • ICT • Market • Regulation, Public Monopoly, Entry Barrier • Reform only on equity not on efficiency

9. China in Perspective • Almost two decades of two digit economic growth • High economic growth for the next two decades expected – 3 regions • Resources • Human resources: Ph.D in the US • Western region: abundant resources • Technology • Space technology • ICT technology • Electric appliance technology – “Haier” • Market • Liberalization and privatization • Strong demand base

10. “Black cat, white cat. It doesn’t matter. All that matters is that it catches mice”. - Deng Xiaoping

11. Energy in Korea • Rising Energy Demand • Public Monopoly • Near 100% import dependence • Asian premium • Many big projects • Sakhalin, Irkutsk, Yakutsk • Power interconnection • Domestic energy • Nuclear, New and renewable

12. Economics of National Oil Security (Source) Tietenberg (1996)

13. Oil Import DependenceB98, by region Regionally different, generally rising (Source) APERC (1998)

14. OECD electricity generation costs 1990 (Euro cts/kWh) 85.3 Upper limit 51.2 Lower limit 7.2 5.9 4.0 4.5 3.6 3.5 PFBC GTCC Lignite Biomass waste Nuclear Wind Solar (PV) Source: Green Paper towards a European Strategy for the Security of Energy Supply. 2000.

15. Natural Gas Pipeline Projects in the NE Asia

16. For an economist • Avoid extremes – “balance” • Max. Speed of the perfectly safe car • Population scaremongers • Environmental exhibitionist • Avoid too simplified causality • Beaver, Oil crisis • Look out for the terra incognita • US patent office • “Think” yourself • Extensive and daily reading • Return to basics • Question, question, and question (nothing for granted) • No value in judgement • Not “bad or goo”, but “appropriate or in appropriate”

17. “An emotional load of valuation conflicts presses for rationalization, creating blindness at some spots, stimulating an urge for knowledge at others, and, in general, causing conceptions of reality to deviate from truth in determined directions.” Gunnar Myrdal

18. A lesson I do not know what I may appear to the world; but to myself I seem to have been only like a boy playing on the seashore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me. Sir Isaac Newton (1642-1727) From Brewster, Memoirs of Newton (1855)