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International Economic Integration The World Economy Is all the economic activity in the world. That is the combination of each domestic economies production and the links between individual economies such as trade, financial flows, technology and labor movement. Globalization Is the integration of national economies through Trade flows Capital flows (finance) Migration (labor flows) The spread of technology Why is it Happening? Increase in the trade of goods and services beyond national boundaries Increase in the movements of capital, labor and technology between nations The related increase in the interdependency between national economies The growth in the size and number of transnational corporations in multiple nations Tendency for consumer trends to be worldwide and westernized Increasing environmental damage which does not stop at the national boarders Gross World Product GWP= the sum of total output of goods and services produced by all economies in the world over a period of time. Calculated by adding up the GDP of every domestic economy. In 2009, GWP was $69 809 billion USD PPP Purchasing Power Parody is a method used to convert all values into the same currency, so they can be compared. Real GDP- adjusted to take into account inflation and exchange rates. 48% of GWP comes from the top 5 countries. Australia contributes approximately 1% Trade In Goods and Services World trade as a percentage of GWP has risen from 12% in 1962 to 53% in 2008

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Germany is the world leader in exports with 9.1%, China is second with 8.9%, followed by the US, Japan and the Netherlands Australia has 1.2% of exports Half of the worlds exports come from the top 10 countries China has made rapid progress in past few years. USA has slumped form 11.9% in 2001, to 8.1% in 2008 Types of International Financial Flows Direct Investment- involves the purchase of a significant degree of control (10%+) over foreign assets. Portfolio Investment- purchasing equity in foreign assets without gaining any significant control over the issue of these assets. Direct has grown from 32 billion to 418 billion from 1980 to 1997 Portfolio has grown from $34 billion to $1002 billion from 1980 to 1997 This is due to deregulation of financial markets in the 80s and 90s. International trade has expanded at roughly twice the rate of real GDP International direct investment has grown by 3 times the rate of real GDP International portfolio (equity) investment has grown 10 times the rate of real GDP. World private capital flows have leaped from 3% of GWP in 1978 to 32% in 2005. 85% of direct investment involved high-income countries in 1990, the figure has fallen to 67% in 2008. Australia saw a net inflow of $47 billion in 2008, compared $7billon in 2003. This is due to the mining boom and foreign investors want a piece. Examples of financial products- Futures- a contract that you can effectively lock in the price at which you sell of by an asset, at a set day in the future. Options- same as future, but an option to bail out. Swaps- a currency swap is an agreement to exchange a currency during a specified period of time. For example swapping 100 million Australian dollars for US dollars now and an agreement to reverse the swap within a set period of time. Transnational Corporations A corporation that delivers a good or service in more than one country They are responsible for the bulk of direct investment as they set up subsidiaries in other countries. Many have a large influence on employment, production, and play a large role in the international economy Top 5 cities for TNCs Tokyo, Paris, Beijing, New York and London

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Enticing TNCs- Many governments offer tax incentives, government assistance, infrastructure etc. Example of Ireland in the 1990s They can increase the technological know how and encourage development of local economies and provide valuable taxation revenue for the government. Technological Process The birth of e-commerce has had benefits to business: Stock ordering systems Client/employee records- databases Time saving- less need to travel Reduction of wholesalers and middle men Innovation and product development The International Business Cycle The ups and downs of world economic growth, which refers to the changes in the level of economic activity in the global economy over time. Most countries experience booms while others are, and vice versa. This is due to increased levels of globalization and economic integration. This was explained during the GFC. 63% of our output levels can be explained by changing economic condition in the G7 Factors that Strengthen International Business Cycle: Trade flows, investment flows, TNCs, financial flows, technology, global interest rates and international organizations. Factors that weaken international business cycle (differ between economies): Domestic interest rates, government fiscal policy, other domestic policies, exchange rates, structural factors and regional factors.

Trade, Financial Flows and Foreign Investment Free Trade- A situation where governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of shielding domestic producers form foreign competitors. Protectionism- Is the economic policy of restraining trade between countries through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take over of local markets and companies.

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Comparative Advantage Theory Pretend there are only two goods, and two countries. Have a look at production. Assume they each used the same amount of resources to produce these figures. Computers Wheat China 300 (2.6) 800 (0.375) USA 200 (2) 400 (0.5) USA should produce computers because they lose less wheat (opportunity cost of producing computers from wheat is lower) than if china were to produce computers. In this way they have a comparative advantage over China in the production of computers. They should sell computers to China, and use this money to buy wheat from China. China should specialize in wheat because the lose less computers when producing wheat. They have a comparative advantage over USA in Wheat production. In economics, absolute advantage refers to the ability of one country to produce more of a good or service than competitors, using the same amount of resources. China has the absolute advantage in both areas above. Comparative Advantage: A country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in that country than it is in other countries. USA has a comparative advantage in producing computers. Trade between two countries can benefit both countries if each country exports the goods in which it has a comparative advantage. The total output of the world economy increases when countries specialize in the production of goods in which they have a comparative advantage. Factor Endowments- Each country has different amounts or types of resources that will determine what they can or cannot produce. The combination of these resources is referred to as a countrys factor endowment. Advantages of Free Trade Each country can specialize in good in which they have a

comparative advantage, and trade for the good in which they dont. Leads to higher world output.

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Better foreign relations, less conflict. Increase standard of living due to higher output (higher incomes) Increase in enterprise and innovation (increasing sales increases

R and D) Increases competition (innovation, better quality, reduced prices

leading to lower inflation) Lower prices with no tariffs, reduce inflation. Low inflation = low interest rates Increase sales for exporters because of wider market Allows economies of scale for large companies with access to

more customers Efficient allocation of resources Allows countries to trade for goods they cannot produce themselves

Disadvantages of Free Trade

New industries may find it difficult to establish if they are not protected from larger foreign companies. They cannot achieve economies of scale required to compete, therefore will fail to establish. (infant argument)

Production surplus from other countries can be dumped onto other markets, undermining domestic producers.

The most efficient and competitive producers attract resources away from less efficient industries, creating structural employment in those industries.

If a country is reliant on another country for goods, a conflict will restrict supply of the good. (military self sufficiency)

Trading Blocs and Agreements What is a trading bloc? When a group of countries join a formal preferential trade relationship to the exclusion of other countries. They tend to be discriminatory to outsiders because they provide free trade for those on the inside but keep protection from goods and services from outsiders. Examples- European Union, North American Free Trade Area (NAFTA), Asian Free Trade Area (AFTA) European Union With almost 500 million citizens, the EU generates a 30% share ($US 18.4 trillion in 2008) of the normal GWP 27 countries Most use the same currency (Euro) NAFTA Is an agreement between the USA, Canada and Mexico creating a trilateral trade block in North America.

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Spectrum of Free trade- Free Trade Area- where a group of countries abolish trade restrictions between themselves but retain restrictions against non-members. (each country is free to have its own unique tariffs set against outsiders) Customs Union- free trade area, but the member countries adopt a common set of trade restrictions against all other non-members. Called a common external tariff (CET). Common Market- is a customs union, but also allows for the free movement of labor and capital. Monetary Union- is a common market, that also shares the same currency and monetary system i.e. common central bank. Advantages of trade Agreements (EU- monetary union) Reduced transactional costs by using single currency to do all

business, estimated at 1% of GDP in EU. (eliminates exchange fees)

Elimination of exchange rate uncertainty increases investment across boarders

Price transparency- easy to compare prices across boarders. Should increase competition and lower prices and inflation in the EU zone.

Disadvantages Loss of national currency controls. Reckless behavior by Greece

saw the Euro lose value for all other nations. Loss of monetary policy as a tool to solve specific issues in your

domestic economy. (The European Central Bank will make decisions on the basis of the whole European economic situation, not just your own country)

Difficult to reach consensus on decisions. Free Trade Area- Are They Beneficial to World Trade? Trading blocs are beneficial to world growth if trade created within regions is larger than the amount of trade that is diverted because of the blocs. Trading Bloc- A type of intergovernmental agreement where the regional barriers to trade are reduced or eliminated for participating members

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Members Influence on world economy

Advantages Disadvantages

EU Most of Europe 21% of total world output. Largest importer. 161 0f largest 500 corporations based in EU

Reduced transactional costs by using single currency to do all business, estimated at 1% of GDP in EU. (eliminates exchange fees)

Elimination of exchange rate uncertainty increases investment across boarders

Price transparency- easy to compare prices across boarders. Should increase competition and lower prices and inflation in the EU zone.

Loss of national currency controls. Reckless behavior by Greece saw the Euro lose value for all other nations.

Loss of monetary policy as a tool to solve specific issues in your domestic economy. (The European Central Bank will make decisions on the basis of the whole European economic situation, not just your own country)

Difficult to reach consensus on decisions.

APEC Pacific Rim 54% of world output,

44% of trade. Greatly increased trade and investment in the Asis Pacific Region

Political relations within Asia Pacific. Has increased investment etc. among Pacific

Is yet to establish free trade agreements. Debatable whether it has accomplished much.

ASEAN Association of South East Asian Nations (south east Asia)

1.8 Trillion GDP Free trade area, common market for certain good. Also has established free trade agreements with other nations, including Australia

NAFTA USA, Canada, Mexico

Largest bloc in the world (in terms of ppp). Second largest in terms of GDP.

Has not caused trade diversion. Movement of professional labor among boarders. Free trade area

Bi-lateral Agreement- Australia-United States Free Trade Agreement came in to effect in 2005. Australias third largest import and export partner, two way trade of over 48 billion dollars, and outward investment of 788 billion dollars. World Organizations (role, influence and work) World Trade Organization Monitors developments in world trade and reviews barriers to world trade such as tariffs and subsidies. It is the most important multilateral trade treaty, governing the rules or world trade. Ability to negotiate trade agreements with the 153 members. They advocate for trade liberalism (free trade), work to stabilize trade relationships, and allow discussions and scrutiny of trade relationships at forums.

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Uruguay Round- worked to decrease tariffs and subsidies, to increase world trade. Doha Round- Further cuts to tariffs, but also gave developing countries more access to free trade. International Monetary Fund Improve international financial stability. 5 main responsibilities: 1. Promoting international monetary cooperation. 2. Facilitating expansion of international trade 3. Promoting exchange rate stability 4. Supporting multilateral payments system 5. Making resources available for member countries

Three main influences. Surveillance of global economy and member economies. Technical Assistance- especially for low-income economies. Fiscal and monetary policy advice. Lending- at low interest rates to help countries meet their international payments, and reduce poverty. Global Financial Crisis- lending money to developing countries, who had no access to private funds. Boosted global liquidity by increasing the amount of Special Drawing Rights to members. Provided financial assistance countries in times of disasters (tsunami)

World Bank Long-term development projects in emerging countries. Influence economies to donate, to help them achieve their objectives. Ability to give aid to countries in need Aid programs etc. United Nations Efforts for peace, human rights, democracy, strong governance, environmental sustainability and eradication of poverty. Peacekeeping, getting nations to work together for the benefit of humanity. Aid programs for developing nations, Millennium Development goals. Organization for Economic Cooperation and Development Sustainable economic and employment growth and raising living standards in member countries, while promoting world development. Contains the biggest economies of the world Used monetary and fiscal stimulus to reduce effects of the GFC

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G7 Largest seven economies in the world who discuss economic and trade issues Account for half of the worlds GDP Use fiscal and stimulus policies to reduce effects of economic downturns G8 Eight largest economies discuss economic and trade issues. Work with world bank to reduce poverty. Policies to increase economic growth G20 Six monthly forum for finance ministers from the G8 nations and 12 other nations. Discussed re-capitalizing the financial system and more regulation of financial markets. Support expansionary fiscal and monetary policy to increase global spending.

Protectionism Different Types of Protectionist Methods Tariff: a tax on imports Quota: only allowing a certain number of goods into a country Embargo: complete ban on a certain good entering a country Subsidies: payments from the government to keep local

industries strong and competitive relative to overseas competitors.

Technical Standards: Forcing importers to comply with health, safety, quality or packaging regulations simply to make it difficult for them to qualify to import to Australia.

Quarantine Regulations: A country could potentially fake reasons for preventing foreign good into our country under the guise of saying that they are dangerous to Australia. Reasons for Protection

1. Infant Industry Argument Is the oldest argument for protection. It argues that import barriers are required to help protect new domestic industries who cant produce at the necessary economies of scale to drive costs low enough to compete. After they establish themselves the import barriers should be removed allowing free trade. There should only be temporary protection.

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In reality this rarely happens as they are immune from competition and never have to innovate and always suffer from inefficiency.

2. Protects Domestic Employment If protection was reduced unemployment would rise. Increases in protection therefore should reduce unemployment. In the short term this appears to be true. Protection does save Australian Jobs. The problem is, by exporting less, trading partners will see a rise in their unemployment figures. In the long run, reductions in protection have potential to create more jobs as those structurally unemployed workers retrain in more efficient areas. Having workers in jobs that are inefficient is bad for Australian growth.

3. Dumping Argument Dumping refers to selling a product in a foreign market at a price below its cost of production. It is usually a temporary phenomenon used to dispose of surplus stock. It undermines the prices of local producers and can put them out of business.

4. Defence Need to ensure that Australia can still provide protection for itself in terms of war. This means we should retain industries such as ship building, aircraft construction and communications. Note this is not an economic argument, it is a military argument.

Method of Protection and Effects on Domestic and Global Economies Tariff Diagram

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example of shirt industry in Australia: 1. The price of the shirts have risen after the tariff was imposed 2. This sees a rise in the level of inflation as higher prices are now

being paid by consumers. Price effect 3. Domestic producers were producing Q1, but after protection now

produce Q2. This should lead to greater local employment. Protection effect

4. The quantity demanded falls from Q3 to Q4f after the introduction of the tariff. This is a non desirable outcome for consumers. Consumption effect

5. The government receives tariff revenue equal to Pw-Pt x Q2-Q4f. Tax effect

6. Income is redistributed from foreign exporters and consumers towards government and local producers. Redistribution effect Quota Diagram

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Quota is he size of the red line. Domestic production rises from y axis to blue to y axis to red. Demand has fallen due to the higher prices that result from a quota. The more extreme the quota the less imports and higher the price. Quota diagram type 2

Subsidy Diagram

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Imports make up the difference between supply and demand at P2. After the imposition of a subsidy , supply increased (as production costs are lowered) and the level of domestic producers increased. Therefore less imports are needed to meet the demand. Effects of subsidies- anti inflationary (lower prices, and increase domestic production. Subsidies are preferred by economists because it does not raise the price of the good, and the government (because it is a cost to them) are more likely to remove a subsidy. Local Content Rules A regulation that requires that some specified fraction of a final good be produced domestically. In return for guaranteeing a certain percentage of a good be made locally, the imported components may not attract a tariff. For example, the Australian motor vehicle industry may not attract tariffs on certain imported good, provided that certain percentage of the vehicle be Australian made. Local content rules apply for television (55% from 6 am to midnight) Export Incentives Grants, loans, tax concessions and technical advice that is available to encourage local exporters to penetrate foreign markets.

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Focus on capturing foreign markets rather than protecting imports. Provides an artificial advantage to exporting firms overseas. E.g. Export Market Development Grants Considered part of protection because it restricts free trade by giving domestic producers an unfair advantage.

Globalization and Economic Development Differences Between Economic Growth and Development Growth has to do with GDP and GDP growth rates. While development measures the human side, that is the HDI (GDP per capita, mortality rates and adult literacy rates). Economic Growth Measured by GDP or GNI (the sum of all value added by resident producers in an economy plus the receipts of primary income from foreign sources. Figures are converted into PPP for fair results. (a theory that states that exchange rates should adjust to equalize the price of identical goods and services in different economies throughout the world. Allows for a standard comparison between countries) High income earners ($38 000) make up 1 billion of the worlds seven billion. Economic Development Economic development is a broad measure of welfare in a nation that includes indicators of health education and environmental quality as well as material living standards (GDP per capita) Quality of life indicators are factors that measure the living standards of people in a nation such as:

Health standards, education levels, domestic work that is not given a financial value, the level of damage to the environment and inequalities in income distribution.

HDI- is a measure of economic development devised by the UN. It takes into account life expectancy, levels of education(quality of workforce) and, material living standards (GDP per capita) Categories Of Development Developing Economies- also known as low income nations since their income range from $975- 3 855, according to the world bank. Most are located in Africa. Common Characteristics:

Limited industrialization Agricultural societies High income inequality Reliance on foreign aid

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Low levels of labor productivity , technological innovation and infrastructure

Weak political and economic institutions, with high levels of corruption

Emerging Economies- BRIC (Brazil, Russia, India, China) have become very dominant in world trade and experienced high economic growth compared with developed nations. Incomes between $3856-11905 per capita Rapid increase in development due to opening up of markets and increased output and great improvements in living standards. 30% of world output Advanced Economies- economies that have been through the process of industrialization, experience high output, incomes and living standards. Incomes over $11905 per capita. Account for 54% of world output. Usually have close economic ties with each other. Liberal/democratic economic and political institutions. Most are members of the OECD. Includes a subgroup called Newly Industrialized Economies (Singapore, Hong Kong etc.) Transitional Economies- is an economy which is changing from a centrally planned economy to a free market. Most are still emerging or developing Causes of Inequality in the Global Economy Global Factors Global Trade System- advanced economies tend to subsidies their industries so they can compete with developing nations. Subsidies to OECD farmers totaled $265 billion. Expanding regional trading blocs also tend to discriminate poor nations (if developing economies increased trade by 1% in the world , 120 million people are predicted to escape poverty). Failure of Doha round also means that poor nation have little ability to negotiate trade agreements Global Financial Architecture- International financial flows favor high income economies (over half of FDI inflows went to advanced economies). Short term financial flows favor emerging economies (speculators on share markets). IMF has been criticized to have implemented policies to favor rich countries. Access to global financial markets have created massive foreign debt burdens for poor countries (2008 poor nations debt = 3.7 trillion). This means

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domestic governments are not able to spend money on pressing issues such as health and education. Global Aid and Assistance- only 0.3% of GDP of rich nations is given as aid (0.7% was promised, difference between money promised and money delivered was 4 trillion). Reductions in aid have been caused by the recession. In addition, most aid is phantom aid and does not help standards of living. Most American aid is given to aid war efforts in Afghanistan and Iraq. Global Technology Flows- Technology is geared towards the needs of high income nations (health needs in rich nations sorted before needs of poor nations). Poor nations also cannot afford the technology that would help them. Domestic Factors Natural Resources- countries have different levels and quality of resources, countries with an abundance have an advantage. Labor Supply and Quality- low income nations have poorly educated work force. Heath issues also reduce supply of labor. Access to Capital and Indebtness- low savings rate, less money for investment and capital goods. Businesses in poor economies cannot find funds to expand. Entrepreneurial Culture- low innovation in poor nations Political and Economic Institutions- political instability and corruption undermines investor confidence (corruption index: Somalia 1.1) Government Responses to Globalization- policies relating to trade , investment flows, TNCs and participation will influence an economies ability to take advantage of globalization. Impact of Globalization Economic Growth East Asia and Pacific 8.7% (China 10.5%) South Asia 6.3% (India growing at approx 6.8%) Europe + Central Asia (soviet states) 6.8% Middle East 4.2% (Egypt 4.5%) Sub-Saharan Africa 3.6% (Sudan 6.5% ,not enough to catch up) Latin America 3.9% (Brazil and Argentina 3-4%) High Income Economies staying around 1-2% Globalization has led to increased economic growth

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This statement is partly true, that is, it is true for some economies and not for others. Economic growth has increased in emerging economies due to increased markets, foreign investment and access to new technologies (China 10.5% growth). High income economies and Least Developed Countries (LDCs) have experienced very little change during the globalization era. Economic Development Globalization has led to economic growth and therefore may benefit economic development. Economic growth leads to more money and higher incomes in an economy. Therefore the extra money will improve GDP per capita and could be used to improve health, education etc. Rapid industrialization in China has increased incomes, health and education, improving economic development. Globalization can be detrimental to economic development as cheap labor and the environment may be exploited. Trade, Investment and Transnational Corporations Vertical Specialization- how goods are produced in different stages in different countries. Motor Vehicle example: material manufacturing, components manufacturing and final assembly occurring in three different countries. There are approximately 82 000 TNCs operating in the global economy. They have a profound effect on the economy including:

Responsible for one third of world exports Employ over 77 million people Top 100 TNCs account for 4% of GDP Dominate major industries

Criticisms include: Move operations to areas with weak government

regulation, especially tax Exploit lower labor standards and environmental protection

law, especially in developing economies. Environmental Sustainability Disadvantages of globalization- more exploitation of environment to improve growth, especially in developing countries. Also, TNCs will move operations to exploit countries with weak environmental laws. Advantages of Globalisation- environmentally friendly technologies are able to be shared, international conferences set up to achieve solution, cost of protecting environment shared amongst many countries International Business Cycle

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Advantages of globalization- allows for countries to specialize in certain types of production (export what they produce, and import goods and services in which they are inefficient). Also allows nations to benefit from the growth of other economies Disadvantages- a recession in one economy will affect global economy (example of GFC), increased reliance on solid domestic policy setting

Case Study-Brazil Economic Growth Statistics- 2-3% growth during 90s, increasing to 4% in 2009. Increasing to 7% after the GFC Economic Linkage- Globalisation begun during the 1980s as Brazil borrowed funds from overseas to finance their industrialisation process. This increase of funds (especially FDI), through the deregulation of financial markets, helped increase economic activity. However the economic issues of stagflation (inflation coupled with unemployment) and foreign debt in the 80s, and protection of trade kept growth moderate as investors preferred the fast growing Asian region. The policy of pegging the Brazilian currency against the US dollar helped stabilise the economy, coupled with the liberalisation of trade, aided faster growth during the 90s and early 00s, becoming a hotspot for FDI. An early recovery from the recession, sound economic policy, increased wages leading to more consumption and the prospects of the World Cup and Olympics have further increased growth, predicted at 7%. Economic Development Statistics- 0.813 HDI, 0.7s in 80s. Literacy rate from 82% (1990) to 90%. Life expectancy 67 (1990) to 73. GDP per capita 5000 to 10 000. Economic Linkages- Globalisation has increased economic growth and therefore employment and wages, effecting economic development in two ways. Firstly, people are now able to provide for themselves and live above the poverty line (high demand for labor put workers in a better bargaining position with wages). Secondly, with more people in jobs, earning higher wages, the government will receive more income tax revenue and company tax revenue and therefore be able to provide better service in education and health. This has resulted in higher literacy rates, life expectancy and GDP per capita, thus increasing Brazils score on the HDI. Unemployment Statistics- 8.1%. 10-20% in 80s

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Economic Linkages- Labour is a derived demand, therefore increases in economic growth caused by globalisation will amplify demand for jobs. Also, as TNCs set up subsidiaries, new jobs are created. Distribution of Income Statistics- Gini coefficient 2002 0.596, 2007 0.550 Economic Linkages- Brazil is historically one of the most unequal societies, however globalisation and government policies have reduced this inequality. As globalisation increased employment, the lower classes of Brazil were given jobs, therefore raising their incomes (when supply of labour is low, and demand is high, employees are in the bargaining position when negotiating wages), thus reducing inequality in Brazil. However the most important contributor to reduced inequality has been presidents Lulas policy developments. These were to raise the minimum wage, and social security payments to poor families. This has reduced brazils Gini coefficient. Trade, Investment and Transnational Corporations Statistics- Trade balance surplus of 25 billion, negative during 80s and 90s. FDI 2 billion in 1990, 26 billion in 2009. Economic Linkages- Trade in Brazil has changed significantly due to the globalisation era. In the early period of globalisation, in the 80s, Brazil did not actively engage in word trade. Attempting to protect domestic industries, encouraging them to mature. This resulted in a negative trade balance. Although, to rectify this, Brazil reduced their tariffs from 32% to 11% and abolished all quotas, liberalising their trade to increase economic prosperity. This has resulted in a trade balance surplus of over $25 billion in 2009. Brazil is now a vital trading partner in the Latin America region, a vital part of the MERCOSUR customs union and the WTO (world trade organisation) Investment has been the cornerstone of Brazils economic integration, which started from borrowing funds from overseas. Investment, especially FDI, and TNCs have played a major role in the growth of the Brazilian economy. Investment in the early years of globalisation remained minimal as issues such as stagflation and external debt drove away investors to the higher performing Asian region. However, as these problems were fixed, Brazil became a hotspot for FDI, growing from $2billion in 1990, to $26 billion in 2009. Responsible for this is the many TNCs, especially in the automotive and pharmaceutical industries. Theses companies such as Ford and Mercedes Benz, have increased technology flows, employment and growth and thus are vital to the Brazilian economy.

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International Business Cycle Due to globalisation and economic integration, domestic economies usually follow the pattern of the international business cycle. However, Brazil has shown resilience and has not followed these patterns. During the international boom periods of the 90s and early 00s Brazil only experienced moderate growth of 2-3%. Whilst at the same time economies such as China were growing at over 10%. This was mostly due to their issues surrounding foreign debt; meaning investors were reluctant to pursue Brazil. Conversely, the most meaningful test of Brazils resilience has been its response to the GFC. Many countries have significantly slowed their economic growth, some even recorded negative growth, while Brazil is expected to not only recover, but record 7% growth. This has been caused by the new wave of confidence in the Brazilian economy due to good economic policies, fiscal surplus and the comfort of the Olympics and Fifa World Cup on the horizon. Furthermore, many TNCs in Brazil are Brazilian based, therefore they were not affected by retreating such as that in Ireland. External Stability Statistics- negative trade balance and CAD in 80s 90s. Trade surplus of 25 billion 2009. External debt reduced from 49% of GDP in 1985 to 12% in 2009 Economic Linkages- One of the few negative impacts that globalisation has had on Brazil includes the impact on External Stability. As Brazil borrowed heavily from overseas, foreign debt accumulated to be almost half of GDP in 1985. This coupled with negative trade balanced severely weakened Brazils external stability. Although, fiscal surpluses, the Economic Stabilisation Program (pegging currency against USD) and increasing incomes have aided the paying off of these debts and increasing stability, while liberating trade has helped improve the Current Account Deficit. Environment Statistics- 18% of rainforest area has been cleared since 60s Economic Linkage- Increasing demand for Brazilian exports such as timber, soy beans and coffee have necessitated clearing of rainforest area for farms etc. which has had a significant impact upon the natural environment of Brazil. However, president Lula announced plans reduce deforestation by 70% by 2017. This has had immediate affect, as Brazil has skyrocketed up the Happy Planet Index from 63rd to 9th in just the year from 2009 2010. Furthermore, TNCs have exploited the poor local environment rules prior to Lula, releasing many negative externalities.

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Policy Developments President Lulas plan to decrease income inequality (Zero Hunger, and Family Fund programs) by increasing minimum wage and social security payments Liberalisation of Trade, to help external stability and economic growth Deregulation of financial markets and industries to attract investment President Lulas plan to reduce deforestation Economic Stabilisation Program, pegged currency against USD to control inflation and increase stability Sustained Fiscal surplus (Aimed at 4% of GDP), attract investment, pay of debts Brazilian Central Bank inflation targeting framework, aimed at 4.5% inflation. Need high interest rate to do so PAC (Growth Acceleration Program), increase growth to 5%, main reforms were 250 billion of infrastructure projects, and tax concessions to businesses to promote business. Federal Value Added Tax (similar to GST) raise funds for government and decrease tax evasion. Pension system (similar to superannuation) help people retire on more Progressive Tax System