Tag: global interdependence

Each January, world political and business leaders gather at the ski resort of Davos in Switzerland for the World Economic Forum. They discuss a range of economic and political issues with the hope of guiding policy.

This year, leaders meet at a time when the global political context has and is changing rapidly. This year the focus is on ‘Creating a Shared Future in a Fractured World’. As the Forum’s website states:

The global context has changed dramatically: geostrategic fissures have re-emerged on multiple fronts with wide-ranging political, economic and social consequences. Realpolitik is no longer just a relic of the Cold War. Economic prosperity and social cohesion are not one and the same. The global commons cannot protect or heal itself.

One of the main ‘fissures’ which threatens social cohesion is the widening gap between the very rich and the rest of the world. Indeed, inequality and poverty is one of the main agenda items at the Davos meeting and the Forum website includes an article titled, ‘We have built an unequal world. Here’s how we can change it’ (see second link in the Articles below). The article shows how the top 1% captured 27% of GDP growth between 1980 and 2016.

The first Guardian article below identifies seven different policy options to tackle the problem of inequality of income and wealth and asks you to say, using a drop-down menu, which one you think is most important. Perhaps it’s something you would like to do.

Articles

Project Davos: what’s the single best way to close the world’s wealth gap? The Guardian, Aidan Mac Guill (19/1/18)
We have built an unequal world. Here’s how we can change it World Economic Forum, Winnie Byanyima (22/1/18)
Oxfam highlights sharp inequality as Davos elite gathers ABC news, Pan Pylas (21/1/18)
Inequality gap widens as 42 people hold same wealth as 3.7bn poorest The Guardian, Larry Elliott (22/1/18)
There’s a huge gender component to income inequality that we’re ignoring Business Insider, Pedro Nicolaci da Costa (22/1/18)
Ahead of Davos, even the 1 percent worry about inequality Washington Post, Heather Long (22/1/18)
“Fractures, Fears and Failures:” World’s Ruling Elites Stare into the Abyss GlobalResearch, Bill Van Auken (18/1/18)
Why the world isn’t getting a pay raise CNN Money, Patrick Gillespie and Ivana Kottasová (1/11/17)

WEF archive
Articles on Inequality World Economic Forum

Questions

  1. Distinguish between income and wealth. In global terms, which is distributed more unequally?
  2. Why has global inequality of both income and wealth grown?
  3. Explain which of the seven policy options identified by the Guardian you would choose/did choose?
  4. Go through each one of the seven policy options and identify what costs would be associated with pursuing it.
  5. Identify any other policy options for tackling the problem.

World markets were taken by surprise by a large rise in Turkish interest rates on 28/1/14. In an attempt to combat a falling lira and rising inflation, the Turkish central bank raised its overnight lending rate from 7.75% to 12%. Following the decision, the lira appreciated by over 3%.

Since the start of this year, the Turkish lira had depreciated by 7.1% and since the start of 2013 by 22.8%. Along with the currencies of several other emerging economies, such as India and Brazil, speculators had been selling the Turkish currency. This has been triggered by worries that the Fed’s tapering off its quantitative easing programme would lead to a fall, and perhaps reversal, of the inflow of finance into these countries; in the worst-case scenario it could lead to substantial capital flight.

Consumer price inflation in Turkey is currently 7.4%, up from 6.2% a year ago. The central bank, in a statement issued alongside the interest rate rise, said that it would continue with a tight monetary policy until the inflation outlook showed a clear improvement.

The Turkish Prime Minister, Tayyip Erdogan, has been opposed to rises in interest rates, fearing that the dampening effect on aggregate demand would reduce economic growth, which, as the chart shows, has been recovering recently (click here for a PowerPoint of the chart). A slowing of growth could damage his prospects in forthcoming elections.

World stock markets, however, rallied on the news, seeing the rise in interest rates as a symbolic step in emerging countries stemming outflows of capital.

Articles

Turkey raises interest from 7.75pc to 12pc The Telegraph (28/1/14)
Emerging markets forced to tighten by US and Chinese monetary superpowers The Telegraph, Ambrose Evans-Pritchard (28/1/14)
Turkey Gets Aggressive on Rates The Wall Street Journal, Joe Parkinson (28/1/14)
Turkish central bank raises lending rate to 12% BBC News (28/1/14)
Asian stock markets stage relief rally after Turkey rate rise BBC news (29/1/14)
Turkey raises rates to halt lira’s slide Financial Times, Daniel Dombey (29/1/14)
Turkey Rate Increase Stems Lira Drop as Basci Defies Erdogan Bloomberg Businessweek, Onur Ant and Taylan Bilgic (29/1/14)
Fragile economies under pressure as recovery prompts capital flight The Observer, Angela Monaghan (2/2/14)

Data

Main Economic Indicators (including Turkish data) OECD
Data on Turkey, World Economic Outlook database IMF
Turkey price indices Central Bank of the Republic of Turkey

Questions

  1. Why did the Turkish central bank decide to raise interest rates by such a large amount?
  2. Why has the Turkish lira been depreciating so much over the past few months? How has this been linked to changes in Turkey’s balance of payments and what parts of the balance of payments account have been affected?
  3. Why did global stock markets rally on the news from Turkey?
  4. What will be the impact of the central bank’s actions on (a) inflation; (b) economic growth?
  5. How has the USA’s quantitative easing programme affected developing countries?

Are we heading for ‘perfect storm’ in commodity production and prices? Certainly the prices of many commodities have soared in recent months. These include the prices of foodstuffs such as dairy products, cooking oils and cereals, crude oil, cotton, metals and many other raw materials. The overall world commodity price index has risen by 28% in the past 12 months. The following are some examples of specific commodities:

Price rises in the 12 months to February 2011

• Wheat 62%
• Maize 59%
• Coffee 70%
• Beef 39%
• Sugar 46%
• Palm kernal oil 142%
• Soybean oil 50%
• All food price index 32%
• Crude oil 20%
• Cotton 132%
• Fine wool 55%
• Softwood timber 25%
• Iron ore 78%
• Copper 29%
• Tin 55%
• All metals index 58%
• Rubber 79%.

The problems are both short term and long term, and on both the demand and supply sides; and the effects will be at micro, macro and global levels. Some hard choices lie ahead.

The following webcast, articles and reports explore both the current position and look into the future to ask whether rising commodity prices are likely to continue or even accelerate.

The first link is to a BBC World Debate which considers the following issues: “Is scarcity of natural resources a serious challenge for developing and advanced economies? How great is the risk that scarcity might lead to conflict, both within and between nations? Might a scramble for resources lead to a retreat from globalisation and to greater protectionism?”

Webcast
World Debate: Resources BBC World Debate, Louise Arbour, President and CEO, International Crisis Group; James Cameron, Global Agenda Council on Climate Change; He Yafei, Ambassador and Permanent Representative of China to the UN; Malini Mehra, Founder and CEO, Centre for Social Markets; Kevin Rudd, Minister of Foreign Affairs, Australia (19/1/11)

Articles
Global Food Prices Continue to Rise Reuters, Steve Savage (7/3/11)
The 2011 oil shock The Economist (3/3/11)
Global Food Prices Will Probably Be Sustained at Record This Year, UN Says Bloomberg, Supunnabul Suwannaki (9/3/11)
Food prices to stay high as oil costs, weather weigh livemint.com, Apornrath Phoonphongphiphat (9/3/11)
‘Perfect storm’ threatens agriculture in developing nations Manila Bulletin, Lilybeth G. Ison (9/3/11)
IMF sees no immediate respite from high food prices Commodity Online (7/3/11)
Drought, supply, speculation drive world food prices to record high NZ Catholic (8/3/11)
The Factors Affecting Global Food Prices Seeking Alpha, David Hunkar (7/3/11)
World food prices climb to record as UN sounds alarm on further shortages FnBnews (India), Rudy Ruitenberg (9/3/11)
Food crisis: It’s a moral issue for all of us New Straits Times (Malaysia), Rueben Dudley (8/3/11)
Oil prices: Green light from the black stuff Guardian (5/3/11)
Cotton hits $2 a pound Guardian, Terry Macalister (17/2/11)
Supermarkets are raising prices faster than inflation, says UBS The Telegraph, Philip Aldrick (1/3/11)
What next for commodity prices? BBC News, Jamie Robertson (5/5/11)

Reports
FAO Cereal Supply and Demand BriefFood & Agriculture Organization, United Nations (March 2011)
Rising Prices on the Menu Finance & Development (IMF), Thomas Helbling and Shaun Roache (March 2011)

Data
Commodity prices Index Mundi
Commodities Financial Times, market data

Questions

  1. Identify the various factors that are causing rises in commodity prices. In each case state whether they are supply-side or demand-side factors.
  2. How can the price elasticity of demand and supply, the income elasticity of demand and the cross-price elasticity of demand be used to analyse the magnitude of the price rises?
  3. To what extent are rising food prices the result of (a) short-term (i.e. reversible) factors; (b) long-term trends?
  4. Why are food prices in the shops rising faster in the UK than in many other countries?
  5. To what extent is the future of food security and prices and moral issues?
  6. Why may current oil price rises become an opportunity for the future?
  7. What might be the respective roles be of government, business and consumers in responding to natural resource constraints?

Periodically, the BBC hosts debates on major global topics. The following links are to the January 2011 debate on the state of the world economy and on what policies governments and central banks should pursue.

Should governments be boosting aggregate demand by raising government expenditure and cutting taxes in order to stimulate growth and plan to bring down deficits over the long term once growth is established? Or should they embark on tough fiscal consolidation now by cutting government expenditure and/or raising taxes in order to stimulate confidence by international financiers, thereby keeping long-term interest rates down and creating the foundations for sustainable economic growth? The debate considers these two very different policy approaches.

The participants in the debate are Joseph Stiglitz (Professor of Economics, Columbia University), Christina Romer (Professor of Economics, University of California, Berkeley and Adviser to Barack Obama (2009–10)), George Papaconstantinou (Finance Minister of Greece), Dominique Strauss-Khan (Managing Director, IMF) and Zhou Xiaochuan (Governor, Chinese Central Bank). The debate is in five separate webcasts.

Webcasts

World debate on the global economy BBC World Service (20/1/11)
Part 1
Part 2
Part 3
Part 4
Part 5

Questions

  1. What are the arguments for maintaining economic stimulus, at least for the time being? What are the relative merits of fiscal and monetary stimulus? Explain whether such policies are consistent with Keynesian polcies.
  2. What are the arguments for tough fiscal consolidation? Explain whether such policies are consistent with new classical policies.
  3. How successful have US policies been in stimulating the US economy?
  4. What role can China play in the recovery and long-term growth of the global economy and are there any imbalances that need correcting?
  5. Why might countries’ domestic policies result in currency wars? Is currency realignment necessary for sustained global growth?
  6. How important are consumer and business confidence to short-term recovery and long-term growth and to what extent do government policies respond to swings in confidence?