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International Economics

International Economics. Economic Trade & Growth. Prof. D. Sunitha Raju. Economic Growth & Trade. What is Economic Growth Outward shift in the Production Possibility Frontier Sources of Growth Increase in the quantities of resources Technical progress Factor Mobility.

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International Economics

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  1. International Economics Economic Trade & Growth Prof. D. Sunitha Raju

  2. Economic Growth & Trade • What is Economic Growth • Outward shift in the Production Possibility Frontier • Sources of Growth • Increase in the quantities of resources • Technical progress • Factor Mobility

  3. Economic Growth & Trade • Growth of Factors of Production (more inputs) a) More labour and capital : Balanced growth b) More labour or more capital : Unbalanced growth Causes outward shifts in production frontier

  4. Balanced Growth in Labor and Capital Y 140 70 B’ · · 60 A B 40 · 20 0 50 140 260 280 X 130

  5. Balanced Growth & Welfare

  6. How Does Balanced Growth Affect Welfare?

  7. Growth in only Labor or Capital Y 130 80 · 70 A · B 0 140 150 X 275

  8. Labor Growth & Welfare

  9. Capital Growth & Welfare

  10. Economic Growth : More Productivity (a) Types of Technical Progress • Neutral technical progress • Capital saving technical progress • Labour saving technical progress (b) Productivity and Welfare

  11. Technical Progress • Causes the production frontier to shift outward • Shift depends on the type and rate of technical progress • Neutral technical progress leads to expansion of the production of all goods at the same rate

  12. Growth & Trade • Growth in output of a country’s exportables & importables • Shifts in Consumption pattern • National income growth Terms of Trade Implication

  13. Factor Mobility • Motives for Capital Flows • Portfolio Investment • To earn higher return • Risk diversification • Direct Foreign Investment • Horizontal integration • Vertical integration • To avoid tariff or other restriction • To take advantage of subsidies

  14. Factor Mobility • Motives for Labour Mobility • Economic factors • Higher wages • Cost of moving • Non economic factors • Economic freedom • Religions or [political freedom

  15. What Are the Effects of Labor Mobility? WA WB • E • • WA0 • G • • F • WB1 • WA1 • • • • WB0 H J • • VMPBL VMPAL • • OA OB L1 L0 Native labor in A Migration from B to A

  16. Effects of Labour Migration from Country B to Country A

  17. Immigration to the United States by Top Source Countries, Fiscal Year 2002 Source: Data from U.S. Bureau of Citizenship and Immigration Services (at http://www.uscis.gov).

  18. Capital Mobility : Motives • Portfolio Investment • To earn higher return • Risk diversification • Direct Foreign Investment • Horizontal integration • Vertical integration • To avoid tariff or other restriction • To take advantage of subsidies

  19. What Are the Effects of Capital Mobility? RA RB • E • • RA0 • G • • F • RB1 • RA1 • J • • • RB0 H • • VMPBK VMPAK • • OA OB K1 K0

  20. Effects of Capital Flow from Country B to Country A

  21. Selected indicators of FDI and International Production 1982-2006 Source: UNCTAD, based on the FDI/TNC database (www.unctad.org/fdi stastics), UNCTAD GlobStat database, and IMF, 2007b

  22. FDI Inflows, Global and By Groups of Economies, 1980-2004

  23. Developing Countries: Total Resource Flows

  24. Top Recipients of FDI in Africa, 1999-2003 (Million US$)

  25. FDI Inflows to African Fuel and Mineral-Exporting Countries Compared to Other Africa, 1970 and 2003

  26. Direct Investment Position of the United States, 2000

  27. Total FDI, Greenfield FDI Inflows and Profit Remittances, Selected Countries, 1995-2003 (Million Dollars ) Contd.:-

  28. Contd……

  29. Multinational Corporation • Demand Factors • Overseas subsidiaries to tap foreign market demand • Market competition • Cost Factors • Labor costs • Transportation costs • Government policies

  30. The World’s Largest Industrial Multinational Corporations in 2000 Contd.:-

  31. Contd…

  32. Multinational Corporation • Direct Exporting vs FDI • Foreign market size is large, FDI is profitable • Foreign market size is small, direct export is profitable

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