ECON 190.

1 NOTES
November 13, 2012 INTRODUCTION

"TRADE, PAYMENT AND DEVELOPMENT"

Main Reference: Dominick Salvatore, International Economics, 9th edition. FROM "FRIENDS WITHOUT BORDERS" TO "GOODS WITHOUT BORDERS" "SERVICES WITHOUT BORDERS" International Relations: Thoughts from the Past No great improvement in the lots of mankind happens until a great change takes place in the fundamental constitution of their modes of thought. John Stuart Mill A free market- series of transactions that would eventually benefit the people involved. Social networking expands exponentially!

There is a difference between social and economic networking Actors are totally different even if some belong to both (businessmen in FB and twitter) Economic transactions involve financial outlays and product movement (social networking grants GAINS to hosts) Enablers in social networking easily cross borders (through communication) Similarities Exchange of ideas, technology, economic conditions that were the content of early thinking on international relations Linkages among networks wider in social than economic networking with same purpose -- expand activities Mechanisms for networking the same - Information technology, internet, web sites Products unique even in social networking (+ economic networking)

Differences Between Barriers to Networking and Barriers to Trade More physical barriers to trade than social networking Are there electronic barriers? Many more institutions involved in trade than in networking -> more regulatory agencies present (but can be avoided) Wide range of individuals have stakes in trade than in networking (individual users are unique but minimal vested interests) Constituency for trade is heterogeneous with conflicting goals and visions than networking sites

Global Social Networking: Enablers Expanding democratic states; breakdown of communism Lesser government; deregulation Technology advances- cellular, satellite, photography Internet Price of connectivity and access Changing social mores -> more tolerant of other people's views

Transforming Network Into Trade

More intervention points (i.e. government intervention) often resulting in manual process Product diversity is wider in trade than products of networking sites (i.e. pictures, documents file storage) Trade portals necessary to provide links for users

Facilitating the Transformation Classical thinkers -- (open) border relationships a critical factor in promoting international trade transactions Interest in OPEN ECONOMY Strong constituency in border relationships can be a strong foundation for concrete policy for openness Nature of social networking illustrates a direction for removing barriers to trade NETWORKING = "Power to the people"

We have given up state intervention and planning- economic management is more liberalized and deregulated Loss of government ownership on strategic firms. Even Filipinos tend to differentiate themselves from fellow Filipinos We are poor because we are not moral We are poor because we have no sense of history, therefore no sense of nation (esp elites from before) We are poor because our economy remained stagnant. Structural problems We are poor because a backwardlooking landed oligarchy managed to capture the postcolonial State, and placed it entirely in the service of their conservative interests. We are poor because we surrendered to global capitalism

What can the Philippines Do? Revolution? "Change lies in the hands of those who will benefit from it the most." Revolution cannot be done by the peasants, it must be led by intellectuals. - University's role in the revolution "Sa ikauunlad ng bayan, disiplina ang kailangan." (MARCOS) There should be values in our capacity to feed ourselves "SELF RELIANCE" Self Reliant vs. Self Sufficient - we can still trade, but must learn to depend on ourselves mainly (vs. solely) We must have an automated government (no intervention from foreign countries; govern itself).

November 15, 2012 "REVOLUTION AND THE UNIVERSITY OF THE PHILIPPINES" F. Sionil Jose Why Are We Poor? loss of ethical moorings -> the non corrupt and honest officials are "outliers" -> honesty outside of normal behavior -> normal behavior is dominant! no sense of nationalism Betrayal of leaders of the people's interests

Influence behavior with enough instruments to enforce Economy cannot be controlled!

November 20, 2012 Outward Looking and Development Introduction Todaro and Smith, Ch. 12 and 13 Introduction GLOBALIZATION - process of increased openness - Downside: dependence and vulnerability Basic questions about trade and development - How does trade affect Less Developed Countries (LDC) economic growth? - How does trade alter distribution of income and wealth within and across countries? - Under what conditions can trade help LDC achieve development? - Can LDC by themselves determine how much they trade? - Should LDC adopt outward looking or inward looking strategy? ISSUES (Economic and Political issues) - How open must a country be? (i.e. sectoral, or the whole country) - Why focus on trade on one part?

When do you want to open your country to trade? (i.e. today, tomorrow, next year, never?) - Question of agreeability among members regarding the decision of trade - It has to be operationalized! (you can't just "open" it) -> becomes more complicated Free trade like perfect competition exists more in theory than in practice

Results of Free Trade Why is demand for products from LDC weak when incomes rise? Secular fall in prices of LDC exports lead to long-terms transfer of income from poor to rich countries and a way to combat is import- substitution. LDC products inferior products?! demand for developed products increases and yet they are processed! - LDC raw materials are the ones not in demand (e.g. raw tomatoes) When an economy opens up -> more foreign investors -> multinational companies benefit, not the individuals! - Extra income spent on outsiders' industrial products Stimulates other economies which prompts the individual to transfer or migrate (which explains OFWs) Assumptions in theory and problems - full employment - Fixed technology - Perfect mobility of resources within country; immobile between countries

- government plays no role - trade balanced - gains accrued benefit nationals Outward Looking and Seeing Barriers Primary commodity export expansion (limited demand, shrinking markets) -> Satisfaction of consumer needs and wants Manufactures exports expansion (many barriers) -> Quality infrastructure How do we erect barriers? -> procedures, etc. Why barriers? What are you giving up/gaining from these barriers? Import Substitution: Looking Inward but still Paying Outward Industrialization Strategy Approach to Export Policy South-South trade and Economic integration: Looking outward and inward Trade policies of developed countries: need for reforms

A lot written, few who matter read Economy in the last 40 years as "wobbling" while the rest of the region were surging and creating the Asian "miracle" Aggregate output increases have been cyclical around a low level "equilibrium trap." instead of cumulatively rising to higher growth orbit Public (and private) investments insufficient relative to burgeoning numbers of population RESULT: poverty rates have not diminished rapidly Larger workforce -> larger unemployment rates : GREATER CHALLENGE Environments neglected and feeble programs elsewhere

November 22, 2012 PHILIPPINE ECONOMY: A TRADE PERSPECTIVE Order of Presentation Profile of the Philippines Philippine Trade Comparative Performance Some Explanations Trade Policy and Development Goals Opportunities for the Philippines Profile of the Philippines "Overstudied" many books, monographs, paper by multi disciplnary scholars

Philippine Trade Country's exports of goods remain concentrated on few products (which composition changed little) Imports less concentrated but tied closely to exports Destination and sources of trade more diversified Trade Openness = Exports + Imports GDP Comparative Performance Historical context: Philippines fared better than its neighboring countries ** TIGER COUNTRIES Taiwan, South Korea, Singapore ** EMERGING COUNTRIES - Indonesia, Malaysia, Thailand

Biggest investment in trade => infrastructure (e.g. moving infrastructure (i.e. good roads); ability to communicate with sellers [i.e. telecommunication skills] (for importers) and buyers (exporters) Road density (# of roads in a land area) and paved road ratios

Is lack of social conscience a cultural trait? "Filipinos are not to be blamed for their choices between capitalism and socialism. The problem is cultural, that targets nationalism among the nation."

November 27, 2012 MODELS OF DEVELOPMENT Simplistic Models -> to find out why the countries grow Religion and Development Culture and Development Size and Developmen Religion and Development The Protestant Ethic and the Rise of Capitalism Calvinism Other religion What is in religion that relates to economic development? If there was ethic, you will not only develop as a country, but in the afterlife: you are rewarded! Faith then changes economic behavior Has anyone ever reported from death about the relationship between religion and economic development? (Near Death Experiences NDE) Culture and Development What is damaged culture? Is it inhibiting development?

Size and Development Sea as most efficient way for trading Problems of landlocked countries (eg Switzerland) Double landlocked - dalawang bansa nakaharang Rostow Stages of Growth the work of Amercan Walt W. Rostow Traditional Society Subsistence economy - output not traded or recorded Barter High levels of agriculture and labor intensive agriculture Preconditions Development of mining industries Increase in capital use of agriculture Necessity of external funding Some growth in savings and investment Take Off Increasing industrialization Growth in savings and investment Regional growth Number employed in agriculture declines Drive to Maturity Growth becomes self sustaining - wealth enables further investment industry more diversified

increase in levels of technology High Mass Consumption High output levels Mass consumption of consumer durables High proportion of employment in service sector

PRODUCTIVITY DIFFERENTIAL > WAGE DIFFERENTIAL [A company can compete in trade and export the good] A country can pay very high wages to its labor but if its labor productivity is also very high in comparison with another country, it can still produce and export the good. January 15, 2013 Offer Curves combinations of a country's

Criticisms too simplistic necessity of a financial infrastructure to channel any savings that are made into investment will such investment yield growth? Not necessarily. Need for other infrastructure- human resources (education) roads, rail, communication networks Efficiency of use of investment Market Based Model Development is determined by the extent to which the market is able to allocate resources Price signal acts to allocate scarce resources Governments limit interference in the working of the economy International Dependence International division of labor - rich in high value actiity, poor in low value can be traced back to colonial and imperial dominance Dominance of political decision making in the hands of a few wealthy and powerful groups who aim to maintain the status quo Such interest groups also exercise power over international institutions