•World Economy Administrative information •Libor Žídek •Department of Economics – Room No. 613 •Office hours – Tuesday 13:00 – 14:30 •e-mail - zidek@econ.muni.cz •IS: interactive syllabus Administrative information •literature: Dějiny světového hospodářství •graphs and tables •supplementary literature: in IS by themes •lectures •don´t be afraid and ask questions •but, PLEASE, keep calm •play with any screen is impolite and for me highly unpleasant! •ROPOTS in IS! •obligatory for everyone on a weekly basis •absence •ONE possible during the semester •excused only in the case of written excuse in IS Final exam •written –both textbook and lectures are required •macroeconomics included •X to pass your exams as soon as possible -> my interest •ð continuous learning is recommended List of abbreviations •b/c = because •EP = economic policy •BofP = balance of payments •FT = foreign trade •U = unemployment •P = inflation •LF = labour force •G = government expenditures •T = taxes •LR = long run •SR = short run •WW = World War •CPE = centrally planned economy •WE = world economy •DC = developing countries •EEC = European Economic Community • Subject matter •Goal: to get know the basics of development and current situation of the WE •information •connections •effect of policy on the WE • •After the course – you would: •be familiar with basic connections of the development of the WE since 1800 •better understand the current international situation •be able to connect the current development with its historical causes What is WE? •Definition (e.g.): •WE as scientific discipline – subject of its study is the real global socio-economic system •WE is the single social organism in which national economies are integrated at varying degrees through international division of labour and material elements of economic relations. •We will consider within the WE •a global economy (at worldwide level) – its development as well as the development of individual economies, relations among them, relations among supranational blocs and relations to international organizations. Course content •Lectures No.1-6 – chronological development of WE from the beginning of 19th century to 1990 •Lecture No. 7 – development of the International Monetary System •Lectures No. 8-9 – development in 3 key economic centers (USA, Europe, Japan) after WW2 •Lectures No. 10-12 – DC, Russia and CPR, Czechoslovakia and international institutions •Lecture No. 13 – current situation in the WE Content of this lecture • A.Short revision of basics of macroeconomics B.Global trends Short revision of basics of macroeconomics • A. Macro •GDP •GDP real X nominal •shortcomings of GDP •econ. growth X econ. development • ð e.g. Human Development Index - HDI •since 1990 by UNDP •GDP per capita, literacy and life expectancy •actual data on WWW.UNDP.ORG (H) • •potencial product •economic cycle Ranking HDI and GDP p.c. in 2013 Macro •economic growth: intensive x extensive •classical recession x slumpflation •economic strength x economic standards •purchasing power parity(PPP) Macroeconomic results of CEFTA countries during 1994 - 96 GDP in USD billion, c.p. and PPP Historical development: •https://knoema.com/nwnfkne/world-gdp-ranking-2015-data-and-charts •https://knoema.com/nwnfkne/world-gdp-ranking-2015-data-and-charts Macro – foreign trade •Absolute and comparative advantages •Economic openness •measured by e.g. EX/GDP*100 or IM/GDP*100 •negative correlation between the size of economy and the degree of its openness •positive correlation between the level of economic development and the degree of openness •Terms of trade •Rc = Ie/Ii * 100 •Ie - index of export prices in time t •Ii - index of import prices in the same time Macro – foreign trade •balance of payments •stages of integration •free trade area- NAFTA, CEFTA, ESVO •customs union– German Customs Union, Benelux, CR + SR •common market- EEC after its establishment •economic union •complete economic integration (monetary union) •exchange rate regimes (floating, …,fixed) •devaluation x depreciation •impact on EX, IM, prices… •sterilizing of capital inflows •theorem of locomotive • Macro - other •Gresham´s law •Thomas Gresham (1519-79) •If there are 2 concurrently circulating currencies „bad money“ will drive out „good one“. •in general: money with higher intrinsic value will be retained •inflation - deflation – desinflation •causes and consequencies •equation of exchange! Global Trends B. Global trends •tendencies (changes) during the whole analysed period •long-term – institutions, demography, technologies, … •short-term – revolutions, crises, … • •during 1820 - 1990 in the western countries •ñ of value of production (goods and services) by 70 times •ñ of population by 5 times •ñ of income per capita by 14 times •ñ of life expectancy by 2 times •ò of hours worked during the year by 2 times Areas of global changes 1.demographic ch. 2.political ch. 3.institutional ch. 4.technological ch. 5.structural ch. 6.role of state 7.foreign trade 8.economic growth – creation of 3 centers B1. Demographic development •ò in death rate since the Industrial Revolution b/c: •advancement in medicine •improvement of hygiene and nutrition habits •cheaper clothes (cotton, ...) (industr. rev.) •taking a bath •mass use of soap (indust. rev) • better nutrition •simultaneously there was no ò in birth rate ð ñ of population ð demographic transition (DT) •beginning of the 19th – world population 1 billion of persons •length of DT in advanced economies – 100 years •DT is currently shorter in developing countries Demographic transition •https://www.youtube.com/watch?v=VcSX4ytEfcE GDP/person and fertility Life expectancy •https://www.gapminder.org/tools/bubbles#_state_time_value=1800 • • • Percentage of population aged 25-59, 1990-2025 Demographic development • •demographic characteristics ð countries´ level of development •relation to economic growth •economic implications • • • B2. Political changes •regional and world wars •from monarchies to democratic systems •establishment and collapse of CPE •establishment and collapse of colonies • • ñ of democracies •in1900 only 6 from 43 states with certain form of democracy •democratic boom after 1945 – DE, JP, IT + India from DC •in 1980 – 37 from 121 states with democratic system - 35% of world population •in 1998 – 117 from 193 states with democratic system - 54% of world population Political changes •changes in the position of superpower •Netherlands -> GB -> USA • •future development •theory of Fukuyama •theory of Huntington • • Fukuyama •essay: The End of History •1989 •basic thesis : the world is heading for democracy and liberal principles Huntington •The Clash of Civilizations- 1993 (The Clash of Civilizations and the Remaking of World Order) •national and cultural groups = civilizations •8 major civilizations: Western, Confucian, Japanese, Islamic, Hindu, Slavic – Orthodox, Latin American, +African and Buddhist (added later) •Geographic borders among them = bloody borders •fundamental differences among civilizations •history, language, culture, traditions and primarily religion •conflicts also inside the civilizations, but less likely and intensive Civilizations according to Huntington Western Slavic - Orthodox Islamic African Latin American Hindu Confucian Japanese Buddhist • B3. Institutional changes •institutions •organizations (e.g. WTO) •broadly understood as „rules“ (e.g. property rights protection) •Determinant of LR growth •pros •development of financial institutions •corporate culture •accounting systems •cons •infestation of law – e.g. complexity of tax law (unmanageable for ordinary people) Corruption and FDI B4. Technological changes •huge increase in technology •closely related to economic growth •changes in few waves •steam engine •electrical power •computers and biotechnology (e.g. Gmail) •changes in power sources and transportation •+ increase in human capital •constant growth in education • B5. Structural changes •division of economy: •agriculture (A), industry (I), services (S) •ASI traditional structure ð SIA modern structure •the ways of change from ASI to SIA •standard way– UK, France, Germany •structural shortcut - USA, Japan, Canada • Standard way of structural development Structural shortcut Structural changes •structure indicates the level of development •SIA insufficient sign of developed economy •small share of agriculture – with exceptions: •Chile •economic growth accompanied by small increase in share of agriculture • •differences even among developed countries •share of I Birth and death rates in selected countries (per thousand inhabitants) Share of agriculture in overall employment (in %) Manufacturing as % of total employment B6. The role of state •the role of state in economy is constantly growing •reasons: •political •economical •fiscal policies asymmetry •Wagner‘s law •unsuccessful attempts to break the trend •Reaganomics or Thatcherism •negative relationship to economic growth Total government expenditures as percentage of GDP, 1870-2009 B7. Foreign trade •permanent growth of foreign trade •exceptions: •WWs or the Great Depression •after WW2 unprecedented growth •globalization? •economic growth of countries involved in foreign trade X CPE (autarky) •bigger markets •specialization •labor division •commodity structure •increase of capital flows •specific migration Commodity share in international trade, 1937-1987 Primary production Products Total Food products Raw materials total 1937 23 40 63 37 100 1950 23 34 57 43 100 1960 20 25 45 55 100 1973 15 23 38 62 100 1979 12 29 41 59 100 1987 10 18 28 72 100 2005* 8,6 17,6 26,2 73,8 100 The Economist industrial commodity-price index – since 1845 B8. Economic growth •long-term economic growth •differences: before 1800 strong tendency to take chance of capital for new technologies (promise of higher profits) X before („prior to capitalistic period“) defensive strategies •determinants of econ. growth – foreign trade, investments, institutions (!) and other changes in he WE World GDP per capita growth The End Thank you for attention!