International economics World economy: concept and ... · Chapter 1 The World Economy discusses some key economic ... Africa Middle East & North Africa Austral Asia North America

World Economy: introduction; Jan J. Michalek

International economics

World economy: concept and economic

dimensions

Globalization

Gravity model of international trade

Introduction

International Trade & the World Economy; Charles van Marrewijk

International economics distinguishes between:

• International monetary analysis

• International real analysis

International Trade & the World Economy focuses on real analysis.

Chapter 1 The World Economy discusses some key economic

concepts, focusing on ‘important’ countries.

Development of world per capita income over the last 2000 years

World GDP per capita (1990 international $), logarithmic scale

5,709

435444667

1820

100

1,000

10,000

0 500 1000 1500 2000

Land area and population


Table 1.2 Top 15 population (millions), 1999

country size % of world sum %

1 China 1,254 21.0 21

2 India 998 16.7 38

3 USA 278 4.7 42

4 Indonesia 207 3.5 46

5 Brazil 168 2.8 49

6 Russia 146 2.4 51

7 Pakistan 135 2.3 53

8 Bangladesh 128 2.1 55

9 Japan 127 2.1 58

10 Nigeria 124 2.1 60

Income


To measure the value of all goods and services we distinguish:

• GDP = Gross Domestic Product (located in a country)

• GNP = Gross National Product (residents of a country)

GDP + net receipts of factor income = GNP

To correct for the large differences in prices between countries

(especially for non-traded goods and services) the United Nations

International Comparison Project calculates:

• Purchasing Power Parity exchange rates

Income


0

500

1000

1500

2000

2500

0 500 1000 1500 2000 2500

GDP

GN

P

Germany

UK, France

Italy

China

GNP and GDP

Gross domestic and gross national product, 2008 ($ billion).

The dotted line is a 45º line, the axes use a logarithmic scale, and the circles are proportional to the size of GNI. GDP and GNI, 2008 (billion current $)

10

100

1,000

10,000

100,000

10 100 1,000 10,000 100,000

Gross Domestic Product, GDP

Gro

ss N

ational In

com

e,

GN

I

USA

China

Germany

Japan

Gross domestic product, 2008; top 15, ranked according to ppp

GDP, 2008; top fifteen countries, ranked according to PPP

992

1,302

1,344

1,443

1,549

1,872

1,978

2,122

2,178

2,260

2,905

3,359

4,358

7,909

14,093

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Turkey

Canada

S. Korea

Spain

Mexico

Italy

Brazil

France

UK

Russia

Germany

India

Japan

China

USA

GDP; PPP

GDP; current $

GDP per capita in EU (2005)

Exports and imports of goods and services, 2008 ($ billion)

The dotted line is a 45º line, the axes use a logarithmic scale, and the circles are proportional to the size of exports. Exports and imports of goods and services, 2008 ($ bn)

1

10

100

1,000

10,000

1 10 100 1,000 10,000

export value

import

valu

e

USA

GermanyChina

Russia

Saudi Arabia

Ethiopia

Brunei

Zmiany w handlu światowym 1947-2008

Rank Expor ter s Value Shar e

Annual

per centage

change Rank Impor ter s Value Shar e

Annual

per centage

change

1 China 2209 11,7 8 1 United States 2329 12,3 0

2 United States 1580 8,4 2 2 China 1950 10,3 7

3 Germany 1453 7,7 3 3 Germany 1189 6,3 2

4 Japan 715 3,8 -10 4 Japan 833 4,4 -6

5 Netherlands 672 3,6 3 5 France 681 3,6 1

6 France 580 3,1 2 6 United Kingdom 655 3,5 -5

7 Korea, Republic of 560 3,0 2 7 Hong Kong, China 622 3,3 12

8 United Kingdom 542 2,9 15 retained imports 141 0,7 4

9 Hong Kong, China 536 2,8 9 8 Netherlands 590 3,1 0

domestic ex ports 20 0,1 -11 9 Korea, Republic of 516 2,7 -1

re-ex ports 516 2,7 10

10 Russian Federation 523 2,8 -1 10 Italy 477 2,5 -2

11 Italy 518 2,8 3 11 Canada a 474 2,5 0

12 Belgium 469 2,5 5 12 India 466 2,5 -5

13 Canada 458 2,4 1 13 Belgium 451 2,4 3

14 Singapore 410 2,2 0 14 Mex ico 391 2,1 3

domestic ex ports 219 1,2 -4 15 Singapore 373 2,0 -2

re-ex ports 191 1,0 6 retained imports 182 1,0 -9

15 Mex ico 380 2,0 3

Leading marchandise exporters and

importers in 2013

Rank Expor ter s Value Shar e

Annual

per centage

change Rank Impor ter s Value Shar e

Annual

per centage

change

16 United Arab Emirates b379 2,0 9 16 Russian Federation a343 1,8 2

17 Saudi Arabia, Kingdom of 376 2,0 -3 17 Spain 339 1,8 0

18 Spain 317 1,7 7 18 Chinese Taipei 270 1,4 0

19 India 313 1,7 6 19 Turkey 252 1,3 6

20 Chinese Taipei 305 1,6 1 20 United Arab Emirates b251 1,3 11

21 Australia 253 1,3 -1 21 Thailand 251 1,3 0

22 Brazil 242 1,3 0 22 Brazil 250 1,3 7

23 Switzerland 229 1,2 1 23 Australia 242 1,3 -7

24 Thailand 229 1,2 0 24 Malaysia 206 1,1 5

25 Malaysia 228 1,2 0 25 Poland 205 1,1 3

26 Poland 202 1,1 9 26 Switzerland 201 1,1 2

27 Indonesia 183 1,0 -3 27 Indonesia 187 1,0 -2

28 Austria 175 0,9 5 28 Austria 182 1,0 2

29 Sweden 168 0,9 -3 29 Saudi Arabia, Kingdom of 168 0,9 8

30 Czech Republic 162 0,9 3 30 Sweden 160 0,8 -3

Leading exporters and importers of other

commercial services, 2013

2013 2005 2013 2005-13 2011 2012 2013

Ex porters

European Union (28) 1200,8 50,3 47,1 9 14 -1 7

Ex tra-EU (28) ex ports 568,6 ... 22,3 ... 14 1 7

United States 403,0 16,5 15,8 9 10 4 4

China 115,5 2,4 4,5 19 13 11 14

India 113,6 3,1 4,5 14 15 10 7

Japan 90,7 4,8 3,6 5 8 -6 3

Switzerland 70,5 2,8 2,8 9 14 -4 6

Hong Kong, China 63,4 2,7 2,5 8 9 4 5

Korea, Republic of 60,8 1,5 2,4 16 20 24 10

Singapore a 58,9 ... 2,3 ... 19 12 8

Canada 48,0 2,5 1,9 6 11 -3 -1

Russian Federation 32,2 0,8 1,3 16 24 10 13

Chinese Taipei 28,6 1,2 1,1 9 15 9 6

Brazil 25,3 0,6 1,0 16 24 8 -3

Israel 20,9 0,7 0,8 11 16 16 7

Norway 19,3 0,8 0,8 8 2 4 -5

Above 15 2350,0 93,2 92,2 - - - -

Importers

European Union (28) 908,1 50,2 43,5 7 11 -1 6

Ex tra-EU (28) imports 370,3 ... 17,8 ... 12 -1 5

United States 239,9 11,4 11,5 9 7 3 2

China 106,5 3,2 5,1 16 13 10 15

Japan 93,4 5,2 4,5 7 10 3 2

Singapore 67,0 ... 3,2 ... 15 8 4

Korea, Republic of 55,6 2,2 2,7 11 9 7 3

Russian Federation 52,1 1,5 2,5 17 19 15 16

India 49,2 1,9 2,4 12 5 7 -2

Canada 47,3 3,1 2,3 5 7 -2 -1

Brazil 43,0 1,2 2,1 17 18 10 4

Switzerland 32,9 1,1 1,6 15 28 5 16

Norway 22,1 0,9 1,1 12 28 2 1

Hong Kong, China 21,5 1,0 1,0 10 7 5 2

Thailand 19,9 0,8 1,0 11 17 -9 12

Australia 19,6 0,8 0,9 12 21 5 6

Above 15 1780,0 86,7 85,3 - - - -

Annual per centage changeValue Shar e

Intra- and Inter-regional merchandise trade flows (% of world total)

Merchandise trade export by region, 2008 (% of total)

0.3

0.9

1.0

0.8

6.5

13.9

29.9

3.5

3.8

4.5

6.5

13.0

27.7

41.0

0 10 20 30 40

AFR

SCA

CIS

mEAST

NAM

ASIA

EUR

total

intra-region

Exports and Imports as Percentages of

National Income in 1994

Trade openness in major countries

Relative exports of goods and services, 2008 (% of GDP)

Relative exports of goods and services, 2008 (% of GDP)

88

90

91

92

97

110

131

179

212

234

0 50 100 150 200 250

Malta

Macao

United Arab Emirates

Belgium

Bahrain

Malaysia

Seychelles

Luxembourg

Hong Kong

Singapore

Taxes on international trade, 2008 (% of government revenue)

Taxes on international trade, 2008 (% of revenue)

25

26

27

32

32

35

35

44

52

57

0 10 20 30 40 50 60

Russian Federation

Niger

Bangladesh

St. Kitts and Nevis

Maldives

Madagascar

Cote d'Ivoire

Namibia

Bahamas, The

Lesotho

Dynamics and globalization


0 balanceaccountcapitalbalanceaccountcurrent

outflowcapitalnetaccountcurrentsurplus

-8

0

8

1970 1980 1990 2000

Australia Netherlands

Current account surplus

(% of GDP)

indicator of accumulation

of financial claims on the

Rest Of the World (ROW).

Global imbalances; current account balance (US $ bn), 1970-2009

Current account balance; selected countries / regions (US $ bn), 1970-2009

-161

-803

436

-900

-750

-600

-450

-300

-150

0

150

300

450

1970 1975 1980 1985 1990 1995 2000 2005 2010

USA

China

Japan

Arab world

EU



0

100

200

300

400

500

1960 1970 1980 1990 2000

ind

ex

(196

0 =

10

0)

population

GDP

World GDP increases faster than world population



0

5

10

15

20

25

30

1960 1970 1980 1990 2000

wo

rld

exp

ort

s (

% G

DP

)

World exports increase faster than world GDP

Figure 1.8 Two waves of globalization in trade

Merchandise exports, % of GDP in 1990 prices

4.6

17.2

2.5

10.1

0.2

13.4

0

5

10

15

1870 1900 1930 1960 1990

world USA Japan

Foreign capital stocks; assets / world GDP

0.6

0.4

0.2

0

1860 1880 1900 19601920 1940 1980 2000

Foreign capital stocks; assets / world GDP0.6

0.4

0.2

0

1860 1880 1900 19601920 1940 1980 2000

Foreign capital stocks; assets / world GDP

Trade

connections

in the

world

economy


Exports in direction closed arrow(Exports in direction open arrow)

South

Asia

Latin

America

Sub-Sahara

Africa

Middle

East &

North

Africa

Austral

Asia

North

America

East Asia

& Pacific

West

Europe

East Europe

& C. Asia

28

6

1

1

1

4

1 (2) 1 (2)

4 (5)

2 (3)

3 (3)3 (4)

1 (1)

1

1 (1)

1 (1)

3 (4)

3 (3)

(1)

Intra-regional exports

Size Matters: The Gravity Model (cont.)

The Gravity Model

Other things besides size matter for trade:

1. Distance between markets influences transportation costs and therefore the cost of imports and exports.

– Distance may also influence personal contact and communication, which may influence trade.

2. Cultural affinity: if two countries have cultural ties, it is likely that they also have strong economic ties.

3. Geography: ocean harbors and a lack of mountain barriers make transportation and trade easier.

The Gravity Model (cont.)

• In its basic form, the gravity model assumes that only size and distance are important for trade in the following way:

Tij = A x Yi x Yj /Dij

• where

Tij is the value of trade between country i and country j

A is a constant

Yi the GDP of country i

Yj is the GDP of country j

Dij is the distance between country i and country j

The Gravity Model (cont.)

• In a slightly more general form, the gravity model that is

commonly estimated is

Tij = A x Yia x Yj

b /Dijc

where a, b, and c are allowed to differ from 1.

• Perhaps surprisingly, the gravity model works fairly well in

predicting actual trade flows, as the figure above representing

US–EU trade flows suggested.

Distance and Borders (cont.)

Global Economic Crisis: real world trade flows (index), 1970-2011

Real world trade flows; constant 2000 US dollar, index (2000 = 100)

0

40

80

120

160

1970 1975 1980 1985 1990 1995 2000 2005 2010

annual

data

monthly

data

21 3 4

Global Economic Crisis

2.8%

decline

0.3%

decline

7.4%

decline

20.0%

decline

Trade volumes and the Global Economic Crisis; selected areas, 2004-2011

a. Import volume advanced economies 5-month moving av. (ind indices; pre-2009 peak=100)

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011

2007-2

USA

Euro area

2008-3

2008-1

0

Japan

b. Import volume emerging markets

5-month moving av. (ind indices; pre-2009 peak=100)

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011

Asia

Africa +

Middle East

Latin America

Central

+ East

Europe

2008-3

2008-8

Trade volumes and the Global Economic Crisis; selected areas, 2004-2011

c. Export volume advanced economies 5-month moving av. (ind indices; pre-2009 peak=100)

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011

USA

Euro area

2008-3

2008-6

Japan

d. Export volume emerging markets

5-month moving av. (ind indices; pre-2009 peak=100)

60

80

100

120

2004 2005 2006 2007 2008 2009 2010 2011

Asia

Africa +

Middle

East

Latin

America

Central

+ East

Europe

2008-2

2008-9

Extent, duration, and speed of trade volume decline during GEC

b. Extent, duration, and speed of exort volume decline during GEC

0

5

10

15

20

25

30

35

40

USA Japan Euro area Asia C&E

Europe

Latin

America

Africa & M

Eastextent duration speed

Documents

International economics World economy: concept and ... · Chapter 1 The World Economy discusses some key economic ... Africa Middle East & North Africa Austral Asia North America