Windows on the World Economy

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Windows on the World Economy

• CHAPTER 1

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Introduction

• Task we take up in this bookdiscovering the
  nuances of globalization
• Will try to explore the world economy and
  globalization in as balanced a manner as possible
• Will help us develop informed views and opinions

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International Economics

• Typically divided into two parts
• International trade
• International finance
• This book approaches things a bit differently
• Will explore four different windows on the modern
  world economy
• International trade
• International production
• International finance
• International development

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International Trade

• Refers to the exchange of merchandise and
  services among the countries of the world
• Typically imagined as trade in merchandise
• Significant portion of world trade is composed of
  trade in services
• Financial services, architectural services,
  engineering services
• Trade in services is about 1/4 the magnitude of
  trade in merchandise

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Figure 1.1 Industrial Production and Exports in
the World Economy
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International Production

• Production of a product in multiple countries
• Can take place through
• Contracts
• International licensing and franchising
• Foreign direct investment (FDI) undertaken by
  multinational enterprises (MNEs)
• Involves firms based in one country owning at
  least a controlling interest in firms producing
  in another country

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MNEs

• Account for approximately ¼ of world gross
  domestic product (GDP)
• The sales of foreign affiliates of MNEs now
  exceed the volume of world trade
• Are involved in approximately ¾ of all world
  trade
• Approximately 1/3 of world trade takes place
  within MNEs
• Account for approximately ¾ of worldwide civilian
  research and development

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International Finance

• Refers to the exchange of assets among countries
• Individuals and firms around the world conduct
  international transactions in
• Currencies
• Equities
• Government bonds
• Corporate bonds (commercial paper)
• Real estate
• Plays increasingly important role in the world
  economy

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Figure 1.2 Annual Exports and Daily Foreign
Exchange Market Turnover
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International Development

• Hoped that the processes of international trade,
  production and finance will contribute to
  improved levels of welfare and standards of
  living throughout the world
• Major issues involved
• How we conceptualize levels of welfare or
  standards of living
• How the processes help to determine international
  development

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International Development

• Measure of these differences in living standards
  is the human development index (HDI)
• Per capita income
• Average life expectancy
• Average levels of education

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Table 1.1 Measures of Living Standards, 2000
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Connecting Windows

• Each offers a view, but each has a frame
• Each offers some insight into the world economy
• An insight that needs to be supplemented by one
  or more of the other windows

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Figure 1.3 Connecting Windows