Category: Economics for Business: Ch 32

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The IMF remains blind to global imbalances

The article linked to below from the Guardian by Larry Elliott argues that there are significant global imbalances in the world economy and that the IMF has to an extent ignored these imbalances. He argues that the sub-prime mortgage crisis, exchange rate movements and the rapid rise in oil prices are creating significant problems for the world economy.

Questions

1. Explain the main global imbalances identified by Larry Elliott in the article.
2. Analyse the likely impact of these imbalances on the global level of economic growth.
3. Explain the statement in the article: “Like many other countries in the region, the lesson China learned from the Asian financial crisis of 1997 was that it needed to build up a war chest of foreign exchange reserves that could be deployed in the event of a speculative attack.”
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A little money goes a long way – microfinance

The article below from the BBC website looks at the issue of microfinance – the provision of very small loans as a form of development assistance to help people in developing countries to support themselves and develop their businesses.

Small loans to women make big changes BBC News Online (21/8/07)

Questions

1. Explain what is meant by microfinancing.
2. Examine the reasons why microfinancing is considered more effective at promoting economic development (as opposed to economic growth).
3. Assess the extent to which microfinancing could help in other developing countries to promote economic development.
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Talk is cheap

The article linked to below is an extract (printed in the Guardian) from a new book by Dan Atkinson and Larry Elliott (economics editor for the Guardian). The introduction to the article summarises its theme quite effectively:
“We don’t manufacture anything any more. Most of the world won’t buy our records or watch our films. Only our gift of the gab is keeping Britain’s economy ticking over. But how long can the hot air last, ask Larry Elliott and Dan Atkinson “

Talk is cheap Guardian (18/5/07)


Questions
1. Explain the underlying trade performance of the UK in recent years for (a) trade in goods and (b) trade in services.
2. “Labour believes Britain is at the cutting edge of the knowledge economy and that Britain’s well-educated (sic), highly skilled (sic) and entrepreneurial (sic) workers are ready to kick German, American, Japanese and Chinese butt all round the global village.” Discuss the extent to which this is true.
3. Assess the extent to which the theory of comparative advantage can help explain the differences in trade performance outlined in the article.
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The World Bank has the perfect standard bearer

The World Bank and the IMF are no strangers to criticism. Both organisations have pursued controversial policies in their attempts to improve the lot of people in developing countries. Recent events at the World Bank have heightened criticism of the organisation and in the first article below Naomi Klein (author of No Logo – nologo.org) argues that the behaviour of Paul Wolfowitz is symptomatic of a wider hypocrisy in the behaviour of the World Bank around the world. In the second article George Monbiot writes a criticism of the behaviour of the IMF and its approach.

Questions

1. Use the web sites of the IMF and the World Bank to write a summary of their roles.
2. Assess the validity of the arguments of (a) George Monbiot with respect to the IMF and (b) Naomi Klein with respect to the World Bank.
3. Discuss possible changes in World Bank policies that would help address Naomi Klein’s criticisms.
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Oxfam slams bilateral trade deals

Many new regional trade agreements (RTAs) and bilateral trade agreements have been signed in recent years. In a report – Signing away the future – Oxfam has argued that these trade agreements may often significantly disadvantage the poorer developing countries. The links below give access to the briefing paper and some FAQs about these agreements.

Oxfam slams bilateral trade deals BBC News Online(20/3/07)
The state of world trade – Oxfam Oxfam website
Signing away the future – Oxfam Briefing Paper Oxfam website
Signing away the future – Q&A Oxfam website

Questions

1. Explain the difference between a regional trade agreement and a bilateral trade agreement.
2. Discuss the advantages and disadvantages for developing countries of signing (a) bilateral trade agreements and (b) regional trade agreements.
3. Choose a specific recent regional trade agreement and assess the impact it has had on the member countries.