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CDAE 272 International Economic Development

CDAE 272 International Economic Development. Spring 2008. Class 05 Jan. 29 Last class: Introduction Quiz 1 Today: Introduction 2. Measuring economic growth & development Next class: 2. Measuring economic growth & development Reading: Reading package: Introduction

jayme-ramirez
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CDAE 272 International Economic Development

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  1. CDAE 272International Economic Development Spring 2008

  2. Class 05 • Jan. 29 • Last class: • Introduction • Quiz 1 • Today: • Introduction • 2. Measuring economic growth & development • Next class: • 2. Measuring economic growth & development • Reading: • Reading package: Introduction • Important date: • Problem set 1 due Tuesday, Feb. 5

  3. 1. Introduction 1.1. Economic growth and globalization 1.2. Rapid growth in world trade 1.3. Development patterns of selected nations 1.4. The U.S. economy and international trade 1.5. Potentials and challenges

  4. Economic freedom index Hong Kong 9.3 Singapore 8.9 New Zealand 8.8 United Kingdom 8.7 United States 8.5 Assignment: Australia 8.5 Google search “economic Ireland 8.5 freedom index” and find the Switzerland 8.4 five nations with the lowest Luxembourg 8.4 economic freedom indexes Netherlands 8.3 Argentina 8.3 Bolivia 8.3 Canada 8.2

  5. 2. Measuring economic growth & development 2.1. Economic growth vs. economic development 2.2. Classical indicators 2.3. New indicators 2.4. Trends in economic development

  6. 2.1. Economic growth vs. economic development (1) Economic growth ≠ economic development (2) Economic growth: increase in national income or per capita income (3) Economic development: -- increase in income (purchasing power) -- improvement in health care -- increase in life expectancy -- improvement in education -- improvement in welfare distribution -- reduction in poverty -- improvement in environment quality ……

  7. 2.2. Classical indicators (1) GNP and GDP and per capita GNP and GDP -- How are they calculated? -- What are their major differences? -- General problems -- GNP ≈ GDP for most nations For example: The difference in China: < 0.5% USA: ? Assignment: Canada: ? Find the missing Mexico: ? numbers Malaysia: about 7% Philippines: about 6%

  8. 2.2. Classical indicators (2) What are the Gross National Income (GNI) and per capita GNI GNI = GNP Per capita GNI = per capita GNP (3) Nominal vs. real terms (adjust inflation) (4) Growth rate and average growth rate How to calculate growth rate? How to calculate average annual growth rate? Examples (see classes 2-4 and quiz 1) (5) Comparison across nations Absolute indicators (e.g., per capita GNP) Growth rates

  9. 2.3. New indicators 2.3.1. What is left out in GDP and GNP -- Include only products and services traded in the markets Examples: -- How about the economic “bads” (e.g., pollution) Examples: -- Problems in international comparisons

  10. 2.3. New indicators 2.3.2. New indicators: -- Net economic welfare (NEW) NEW = GDP – value of economic bads -- Green GDP (e.g., China) -- PPP or per capita PPP in cross-nation comparison -- Human development index (HDI) ……

  11. 2.3. New indicators 2.3.3. Purchasing power parity (PPP) -- The idea is similar to the CPI for cross- region comparison in the U.S. -- The same product or service should have the same value in different nations -- One example: Steel production and retail sales in the U.S. and India

  12. Steel production and retail sales in the U.S. and India USA India Production 100T x $200/T = $20,000 8T x R9,000/T = R72,000 Retail sales 2 x $5,000 = $10,000 4 x R60000 = R240,000 GDP $30,000 312,000 Rupees Official exchange rate based on steel R9,000 / $200 = 45 GDP based on this rate $30,000 $6,933 Using the U.S. prices $30,000 $21,600 PPP ratio = 21,600 / 6,933 = 3.115 What does this result mean?

  13. Per capita GNP and PPP in 2002 Per capita GNP* Per capita PPP Ratio USA $35400 $35400 1.0 Japan $34010 $27380 0.8 Germany $22740 $26980 1.2 Poland $4570 $10450 2.3 India $470 $2650 5.6 China $960 $4520 4.7 Ethiopia $100 $780 7.8 * Based on office exchange rates

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