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LECTURE 1

Contemporary Issues in
Global Economics
WIUT
Date: September 11, 2017

Presenter: Dr. Bilol Buzurukov


Outline: Introduction to the module
Globalization:
Globalization: winners
winners and
and losers
losers
Poverty and Global Inequality
International Trade Issues
Economic Integration
International Labor Migration
Climate Change
Foreign Direct Investment
Global Value Chains
Global Financial Crisis
Rise of State Capitalism: China, Russia and Brazil
Module Team
Module leader: Murodullo Bazarov
Email: mbazarov@wiut.uz
Office hours: Monday 15:00-16.00, Tuesday 13.00-14.00 (ATB 308)

Seminar Leaders:
Bilol Buzurukov
Email: bbuzurukov@wiut.uz
Office hours: Wednesday 15:00-17:00 (ATB 216)
Akhror Burkhanov
Email: aburkhanov@wiut.uz
Office hours: Thursday 15.00-16.00 (ATB 308)
Akhliddin Malikov
Module Delivery

Extend students understanding of economic analysis


and its application to global economic issues.

Lecture
Workshops
Seminars
- Articles/Case studies
- Group Discussions & Presentations
Learning Platform

Moodle and University Intranet


Lecture slides posted weekly
Articles
- for classroom analysis
- for classroom discussions
- for coursework
www.scoop.it/t/wbs-tribe
Textbooks and Reading Resources
Essentials of Economics, 6th edition, N. Gregory Mankiw, South-Western Cengage
Learning;
International Economics, Hendrik Van den Berg, Mc Graw-Hill;
International Economics, 6th edition, Robert J. Carbaugh, South-Western College
Publishing;
The Economist magazine;
http://www.globalization101.org/what-is-globalization/
http://www.investopedia.com/articles/03/112503.asp
http://www.investopedia.com/terms/s/specialization.asp
http://www.globalization101.org/category/issues-in-depth/trade/
http://www.worldbank.org/en/news/feature/2013/10/25/The-Winners-and-Losers-of-Globalization-Finding-a-Path-to-
Shared-Prosperity
https://www.cbsnews.com/news/why-gdp-fails-as-a-measure-of-well-being/
Assessment

30% - In Class Test


70% - Final Exam

Full details in module handbook


Lecture 1

Contemporary Issues in Global Economics

GLOBALIZATION

WINNERS LOSERS
Gross Domestic Product
What is GDP? GDP is the market value
GDP adds together many different
kinds of products into a single
measure (market price) of the value
Gross domestic product of economic activity.
(GDP) is the market value
of all final goods and
services produced within a
country in a given period
of time. 1kg = 5,000 sum 1kg = 10,000 sum
Gross Domestic Product
What is GDP? of all
GDP includes all items produced in
the economy and sold legally in
markets.
Gross domestic product
(GDP) is the market value
of all final goods and
services produced within a
country in a given period
of time.
Gross Domestic Product
What is GDP? final
GDP includes only the value of final
goods
Gross domestic product
(GDP) is the market value
of all final goods and
services produced within a
country in a given period
1kg = 30,000 sum 1kg = 50,000 sum
of time.
Gross Domestic Product
What is GDP?
goods and services
GDP includes both tangible goods
(food, clothing, cars) and intangible
Gross domestic product services (haircuts, housecleaning,
(GDP) is the market value doctor visits).
of all final goods and
services produced within a produced
country in a given period GDP includes goods and services
currently produced.
of time.
Gross Domestic Product
What is GDP?
within a country
GDP measures the value of
production within the geographic
Gross domestic product confines of a country.
(GDP) is the market value
of all final goods and in a given period of time.
services produced within a GDP measures the value of
country in a given period production that takes place within a
specific interval of time (a year or a
of time. quarter).
Quiz

Does GDP include the market value of the housing


services provided by the economies stock of housing?

Sardor rents a two room


apartment in Tashkent city
(1,000,000 sums per month).

Anvar has a two room


apartment in Tashkent city.
Nominal GDP versus Real GDP

Nominal GDP is the production of goods and


services valued at current prices.

Real GDP is the production of goods and services


valued at constant prices.
Nominal GDP versus Real GDP
Prices and Quantities
Year Price of1 kg apples Quantity of apples Price of1 kg grapes Quantity of grapes
2015 3,000 sum 10 kg 6,000 sum 5 kg
2016 4,000 sum 15 kg 8,000 sum 10 kg
2017 5,000 sum 20 kg 10,000 sum 15 kg
Calculating Nominal GDP
2015 (3,000 sum (apples) * 10 kg) + (6,000 sum (grapes) * 5 kg) = 60,000 sum
2016 (4,000 sum (apples) * 15 kg) + (8,000 sum (grapes) * 10 kg) = 140,000 sum
2017 (5,000 sum (apples) * 20 kg) + (10,000 sum (grapes) * 15 kg) = 250,000 sum
Calculating Real GDP (base year 2015)
2015 (3,000 sum (apples) * 10 kg) + (6,000 sum (grapes) * 5 kg) = 60,000 sum
2016 (3,000 sum (apples) * 15 kg) + (6,000 sum (grapes) * 10 kg) = 105,000 sum
2017 (3,000 sum (apples) * 20 kg) + (6,000 sum (grapes) * 15 kg) = 150,000 sum
GDP per capita
Why is GDP per capita a flawed measure of
economic well-being?
GDP counts bads as well as goods.
GDP makes no adjustment for leisure time.
GDP only counts goods that pass through official,
organized markets, so it misses home production and
black market activity.
GDP doesn't adjust for the distribution of goods.
GDP isn't adjusted for pollution costs.
Economists Big Mac Index and GDP PPP

Purchasing Power Parity (PPP) is


measured by finding the values (in
USD) of a basket of consumer goods
that are present in each country.

Ex: If that basket costs $10 in the US


and $20 in the UK, then the purchasing
power parity exchange rate is 1:2.
Economists Big Mac Index and GDP PPP

Japan United States


GDP per capita $18 $16
Japanese are richer in terms of earning.
Big Mac $6 $2
PPP for Japan in
1/3
terms the US
GDP PPP $6 $16
Americans are richer in terms of basket of goods (Big Mac).
GDP PPP versus Nominal GDP
Take a basket of commodities, such as 1 kg sugar, wheat and rice etc..

GDP PPP Nominal GDP


Uzbekistan p = 100,000 UzS. Uzbekistans GDP => 500,000 UzS.
United States p = 100 $ Official exchange rate => 1$ = 2,000 UzS.
So, 100 $ = 100,000 UzS. => 1 $ = 1000 UzS.
PPP exchange rate is 1000 UzS. per 1 $ To calculate Nominal GDP:
Uzbekistans GDP / Official exchange rate
To calculate GDP PPP: = 500,000 / 2,000 = 250 $
GDP (in UzS) / PPP exchange rate for UzS
= 500,000 / 1000 = 500 $ Uzbekistans Nominal GDP = 250 $

Uzbekistans GDP PPP = 500 $


Globalization

Globalization is a process of interaction and integration among


the people, companies, and governments of different nations, a
process driven by international trade, investment, migration and
aided by information technology.

This process has effects on the environment, on culture, on


political systems, on economic development and prosperity, and
on human physical well-being in societies around the world.
Main Components of Globalization

International Trade

Globalization

International Investment International Migration


International Trade

International trade is the exchange of goods and services


between countries.
Trading globally gives consumers and countries the
opportunity to be exposed to goods and services not
available in their own countries.
International trade allows countries to use their resources
more efficiently.
Specialization
Amount produced per hectare

Cotton Wheat
Uzbekistan 2,000 kg 4,000 kg
Kazakhstan 1,000 kg 6,000 kg

Cotton Cotton

2 tons
1 ton

1 0.5

2 4 tons Wheat 3 6 tons Wheat


Opportunity Cost

The opportunity cost is whatever must


be given up to obtain some item.
International Investment
International investment is the acquisition of assets located in
one country by citizens, firms, or governments of another
country;
One of the biggest categories of international investment is
foreign direct investment (FDI), which involve establishing new
businesses and production facilities;
The tremendous growth in levels of foreign direct investment is
a recent phenomenon and is one of the most powerful effects -
and causes - of globalization.
Reactions to International Investment

2
0
0
1

2
0
0
2
International Migration
Globalization has introduced a set of motivations for migration,
which include free flow of information, improved global
communication and faster and lower cost transportation.

0.5 $ per hour 10 $ per hour


Types of global migration
Interconnectedness of Components

Trade

Globalization

Investment Migration
The Winners and Losers of Globalization

Losers
ALL
Upper & Lower
Worlds middle class of LOSERS
Top 1% rich countries

Lowest
Global Middle
Class class
ALL
WINNERS
Winners
Parting thoughts

Is globalization new/recent?
What are the drivers of globalization?
Transportation;
Technological innovation;
Social and political reforms;
Is there currently a backlash against globalization?