Contemporary Issues in Global Economics WIUT Date: September 11, 2017 Presenter: Dr. Bilol Buzurukov LECTURE 1

Outline: Introduction to the module Globalization: winners and 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 Globalization: winners and losers

Module Team Module leader: Murodullo Bazarov Office hours: Monday 15: , Tuesday (ATB 308) Seminar Leaders: Bilol Buzurukov Office hours: Wednesday 15:00-17:00 (ATB 216) Akhror Burkhanov Office hours: Thursday (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

Textbooks and Reading Resources Essentials of Economics, 6 th edition, N. Gregory Mankiw, South-Western Cengage Learning; International Economics, Hendrik Van den Berg, Mc Graw-Hill; International Economics, 6 th edition, Robert J. Carbaugh, South-Western College Publishing; The Economist magazine; Shared-Prosperity Shared-Prosperity

Assessment 30% - In Class Test 70% - Final Exam Full details in module handbook

Lecture 1 Contemporary Issues in Global Economics GLOBALIZATION WINNERSLOSERS

Gross Domestic Product What is GDP? Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. GDP is the market value … GDP adds together many different kinds of products into a single measure (market price) of the value of economic activity. 1kg = 5,000 sum1kg = 10,000 sum

Gross Domestic Product What is GDP? Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. … of all … GDP includes all items produced in the economy and sold legally in markets.

Gross Domestic Product What is GDP? Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. … final … GDP includes only the value of final goods 1kg = 30,000 sum1kg = 50,000 sum

Gross Domestic Product What is GDP? Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. … goods and services… GDP includes both tangible goods (food, clothing, cars) and intangible services (haircuts, housecleaning, doctor visits). … produced… GDP includes goods and services currently produced.

Gross Domestic Product What is GDP? Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. … within a country… GDP measures the value of production within the geographic confines of a country. … in a given period of time. GDP measures the value of production that takes place within a specific interval of time (a year or a 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 YearPrice of1 kg applesQuantity of applesPrice of1 kg grapesQuantity of grapes 20153,000 sum10 kg6,000 sum5 kg 20164,000 sum15 kg8,000 sum10 kg 20175,000 sum20 kg10,000 sum15 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 JapanUnited States GDP per capita$18$16 Japanese are richer in terms of earning. Big Mac$6$2 PPP for Japan in terms the US 1/3 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 Uzbekistan p = 100,000 UzS. United States p = 100 $ So, 100 $ = 100,000 UzS. => 1 $ = 1000 UzS. PPP exchange rate is 1000 UzS. per 1 $ To calculate GDP PPP: GDP (in UzS) / PPP exchange rate for UzS = 500,000 / 1000 = 500 $ Uzbekistans GDP PPP = 500 $ Nominal GDP Uzbekistans GDP => 500,000 UzS. Official exchange rate => 1$ = 2,000 UzS. To calculate Nominal GDP: Uzbekistans GDP / Official exchange rate = 500,000 / 2,000 = 250 $ Uzbekistans Nominal GDP = 250 $

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 Globalization International TradeInternational MigrationInternational Investment

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 CottonWheat Uzbekistan2,000 kg4,000 kg Kazakhstan1,000 kg6,000 kg 2 tons 4 tons Cotton Wheat Cotton Wheat 1 ton 6 tons

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

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 Globalization Trade Migration Investment

The Winners and Losers of Globalization Upper & Lower middle class of rich countries Lowest class Worlds Top 1% Global Middle Class Winners Losers ALL LOSERS ALL 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?