Economics

Unit 4 by Turner
GLOBALISATION
 Increased Economic
b a lisa tio n is th e p ro ce ss b yIntegration
w h ich w o rld m a rke ts a re b e co m in g in cre a sin g ly
g ra te d .

s im p lie s:
Causes
Benefits
Costs
Normative Effects
 Globalisation Effects
Summary
• Increased dependency of economies
on the output of other economies
• Greater consumer choice
• Lower prices, through specialisation
according to comparative
advantage
• Increasing environmental destruction
and other negative externalities
• ‘Footloose’ companies (which can cause
unemployment as they move from
place to place)
• Possible loss of culture/national
identities.
Globalisation – Nothing New
• 1600s international sea trade
– 19,000 kgs of gold and 3m kgs of silver
• 1914 world was possibly more globalised
than now
– Abolition of corn laws encouraging imports
of food
– Britain imported food, cotton and raw
materials and exported manufactures
– London was (still is?) the centre of global
finance
– Steamboats, railways and telegrams
– Migration to America by 60 million
Europeans
PATTERNS OF TRADE
 Patterns of Trade
• Law of Comparative Advantage
• Trading Blocs
– Free Trade Areas
• Free trade area is a type of trade bloc, a
designated group of countries that have
agreed to eliminate tariffs, quotas and
preferences on most (if not all) goods
and services traded between them.
• A customs union is a type of trade bloc
which is composed of a free trade area
with a common external tariff.
• WTO
– an organization that intends to supervise
and liberalize international trade
 Comparative Advantage
Comparative Advantage
• Specialisation and trade can Potentials Wool Wine
prove beneficial to both UK 100 150
nations as long as an appropriate
price for exchange can be agreed. Spain 50 100
• W oo
• This price is known as the l
terms of trade and must lie between
the domestic opportunity cost 1
ratios for trade to be mutually
beneficial.
•
• Doesn’t take account of Spai
UK n
benefits from economies of scale 
• W in
• Doesn’t take account of e
transport costs (can be up to 20% 1 .5 2
of Cost)  Problems with Specialisation:
• •Vulnerability to shocks
•Long Term Price falls as
•Non Homogenous Hoods productivity increases
• •Limited potential of agriculture
•Protectionism as a source of economic growth
distorts P omparative •Diminishing Marginal Returns
P dvantages •Soil-Degradation due to over-
cultivation
•Unfair Competition due to
Subsidies
 Gains From Free Trade
• Mutual gains from trade – increased welfare
• Increased exports boost domestic employment
• Economies of Scale due to specialisation
– Leading to lower LRAC and therefore Prices
• Increased Competition
– Further incentive to be efficient, decreases
monopoly power
• Economic Growth
– World trade has increased by 7% a year on
average since 1945 it is a big factor behind
increased economic growth
• Make use of surplus resources
– Marginal benefit is low when resource pools are
high and other economies can gain more than
domestic ones ie Quatar is oil rich, Japan is
resource poor.
 Losses From Free Trade
• Infant Industry
– Domestic industries may be able to compete in the long
run but not now due to economies of scale and a lack of
experience in emerging industries
• Senile Industry
– Declining and inefficient industries may need
reinvestment, protectionism may increase investment
• Over-specialised economy
– Volatile prices
– Prebisch-Singer
• Lost Revenue for the Government
– Insignificant as a proportion of total G.ment Revenue
• Cultural Identity
– Americanisation, homogeneity
• Dumping
– E.g EU food surplus sold at low prices depressing world
prices
• Environmental
 Protectionism
• Tariffs - import taxes.
• Quotas - quantitative limits on the level of imports
allowed.
• Voluntary Export Restraint Arrangements –
where two countries make an agreement to limit
the volume of their exports to one another over an
agreed period of time.
• Embargoes - a total ban on imported goods.
• Intellectual property laws (patents and copyrights).
• Export subsidies - a payment to encourage domestic
production by lowering their costs.
• Import licensing - governments grants importers the
license to import goods.
• Exchange controls - limiting the amount of foreign
exchange that can move between countries.
•
 Protectionism
•R e a so n s Fo r •Reasons Against
y •Higher prices
–Impose costs that would not exist if free trade were allowed
ia l co m p a ra tive a d va n ta g e•Reduction
w ith e coinn omarket
m ie saccess
o f scafor
le foreign producers
–EU CAP hurts Brazilian, Thai & South African farmers sugar export

o ry p ricin g •Loss of economic welfare

–Loss of efficiency
u n t E xte rn a litie s –Higher prices, less choice
s o f o ve r-sp e cia lisa tio n •Regressive effect
–Widens inequality
tu ra lch a n g e o ccu rs h ig h •uFirms
n e m protected
p lo ym e nfrom
t co competition
u ld b e co stly
have less incentive to reduce co
strie s •Inefficient way of protecting jobs
A g ricu ltu re –EU textile tariffs cost hundreds of thousands of Euros per job
•Retaliation “Trade Wars”
•Negative multiplier effects
 Trade Creation and Trade
Diversion
• Trade Creation occurs when liberalization
results in imports displacing less
efficient local production, expanding
consumption that was previously thwarted
by artificially high prices due to
protection.
•
• Trade diversion is an economic term related
to international economics in which trade
is diverted from a more efficient
exporter towards a less efficient one
by the formation of a free trade
agreement.
 Trading Blocs
Tra d e C re a tio n Trade Diversion
•Free Trade •Tariffs for countries
•Based on the law of Comparative
Advantage
outside the bloc
•Significant due to increase in number •Fall in exports for non-
and size of Trading Blocs blocs
•Greater choice for consumers
•Loss of economic welfare
•Increase in competition makes domestic
firms more efficient in trading bloc countries
•Lower prices for consumers
•Benign Deflation P •
•Low inflationary Economic Growth

•
BALANCE OF PAYMENTS
 Balance of Payments
Automatically Balances
with
a Floating Exchange
Rate
 Imbalances on the Balance of
Payments
• UK has led a large Current Account Deficit since 1992
• Net importer of manufactured goods since 1983
• Imbalances matter if they put a strain on the domestic
economy
• Doesn’t Matter due to:
– Partial Auto-Correction over the economic cycle
– Investment and supply-side, imports of capital and
technology will have a beneficial effect on productivity
and competitiveness in the long-run
– Capital inflows despite low interest rates (high compared to
the Eurozone)
• Matters due to:
– Symptom of uncompetitive UK industry
– Unbalanced economy, with too high consumption
increasing household debt
– Leakage from the circular flow decreasing output and
employment
– Problems in financing a current account deficit. Higher
interest rates needed.
Measures to “Correct” Balance
of Payments composition
• Expenditure Reducing Policies
– These are policies that aim to reduce
the real spending power of
consumers
• Fiscal and Monetary
• Expenditure-Switching Policies
– Lower inflation
– Tariffs
– Depreciation
• Are any measures needed due to
Floating ER?
EXCHANGE RATES
 Floating Exchange Rates
• A floating Price
exchange of G B P
in
rate is a type te rm s
of exchange of U SD

rate regime P
wherein a
currency's
value is
allowed to
fluctuate
according to Q Q u a n ti
ty
the foreign
exchange
 Impact of Appreciation and
Depreciation
• Impact on X and M components of
AD
– SR J-Curve
– LR change in incentives to import
• Impact on Exporters
• Impact on Importers i.e Consumers
who import and price of oil
• Reduces value of external debt
 Marshal-Lerner Condition
a te to in cre a se a co u n trie s cu rre n t a cco u n t su rp lu s / re d u ce d e ficit th e su
m e , th is a ssu m p tio n fe e d s in to th e J-cu rve
The J-Curve and Inverted J
curve
J-C u rve fo r
d e p re cia tio n , a s in lo n g
ru n in cre a se in C u rre n t
A cco u n t S u rp lu s

In ve rse J-C u rve fo r

a p p re cia tio n a s in lo n g
ru n , d e cre a se in
C u rre n t a cco u n t S u rp lu s
 European Monetary Union
• Reasons for
– Productivity gains
• Increased investment and competition
– Increased price transparency
• Increases level of knowledge of markets, increased allocative efficiency
– Reduced uncertainty and transaction costs
• 60% of trade in goods and services is with EU
• Increase trade that results in mutual gains, increase economic welfare due to less
risk aversion
– Britain's flexible markets would be more effective, and encourage further
investment
– Continued high level of FDI in UK
– Lower prices
– Maintain political and economic influence
• Reasons against
– Past history of monetary unions and deflationary monetary bias
– Eurozone is not an optimal currency area due to immobility of labour and low wage
flexibility
– Member states have not converged structurally therefore a risk of high interest
rates if inflation soars in one country
– Loss of domestic monetary freedom
– Loss of fiscal freedom due to fiscal stability pact (borrowing < 3% of GDP)
– British are more exposed to interest rates (due to high owner occupation and debt
to finance investment rather than selling of shares)
• Lack of monetary flexibility requires increased flexibility in product and housing
markets but the UK has a poor rented housing sector
Optimal Currency Areas
Criteria For Joining The Euro
• 1. The government’s budget deficit
must be below 3% of GDP.
• 2. The public debt must be below
60% of GDP.
• 3. The rate of inflation in a country
must be within 1.5% of the
average of the best three
performing EU member states.
• 4. Long term interest rates must be
within 2% of the average interest
rate in the three economies with
the lowest inflation.
• 5. The exchange rate must be within
COMPETITIVENESS
 Competitiveness
U K is ra n ke d 2 2 n d
• Price competition
– Supply Side Policies
• Less crowding out
• Lower taxes so a higher incentive to work
– Cut the replacement ratio
• Reducing trade union power
• Cutting benefits so there is a higher incentive to work
– Cut the replacement ratio
• Deregulating and privatising to increase competition
• Reducing “Red-Tape” so it easy to set up and run new firms
• Encouraging and entrepreneur culture
– Exchange rate
– Wages
– Raw Material Prices
– Economies of Scale (Dynamic Gains)
– Inflation
• Non-Price competition (Brands)
– Reliability
– After-Sales service
– Strength of Design
– Innovation
POVERTY AND
INEQUALITY
 Poverty
• Absolute poverty:
• A level of income below what is
required to have a decent standard
of living, sometimes measured at
less than $1 per day.
• Relative poverty:
• A circumstance where an individual
earns less than half of the median
income in their country

•
Lorenz Curves and Gini
Coefficients
G in iIn d e x = A / A + B
 Causes of Unequal Income
Distribution
• Receipt of different wages
– Different abilities/skills – level of
productivity
– Discrimination
– Compensating differentials – rewarding
word is more attractive and so pay is
lower
– Regional pay differences
• Unemployment
• Ownership of financial assets
– Those on higher income can afford these,
which generate more income. Virtuous
e cycle
U n eGqlou ba al lwisa – Matthew
atilothn d e cre a se s g lo b a l effect
e q u a lity b u t in cre a se s in e q u a lity in in d iv
d istrib u tio n :
•U n e q u a l In co m e
ECONOMIC GROWTH AND
DEVELOPMENT
 Economic Growth and
Development
Economic Growth
• •Development
• An increase in real • An increase in living
GDP standards — this
could relate to
• An increase in the income per head
productive potential
of a country • Levels of education,
healthcare, access
• Measured by to housing etc.
To d a ro ’ s T h re eassessing
O b je ctive s o f D e ve growth
lo p m e n t in
B A S IC ( life su sta in in g ) G O O D S • Measured by the HDI
To iGDP ( eora va iGDP
la b ility a npc)
n cre a se th d d istrib u tio n o f
n e ce ssitie s su ch a s: Fo o d , d rin k , w a rm th , which provides a
sh e lte r, clo th in g , g o o d h e a lth , e d u ca tio n
S TA N D A R D S O F LIV IN G
score between 0
In cre a se d co n su m p tio n a b o ve th e le ve lo f and 1 based on GDP
b a sic n e e d , in co m e is a fa cto r a s a re se lf-
e ste e m , se n se o f o w n w o rth , b e lo n g in g per capita, literacy
C H O IC E
E xp a n d th e ra n g e o f e co n o m ic a n d so cia l
rates and life
ch o ice s. R e la te d to se n se o f o w n w o rth expectancy.
( above ). Choice of what to consume , free
sp e e ch , fre e d o m o f w o rsh ip .
 Global Economies
Developed
• Developing
•

Countries/First Countries/Third
World/MDCs World/LDCs
• De-industrialisation • Africa, South America and Asia
• NICs
– Emergence of a – Tiger economies
strong service • South Korea, Taiwan
sector (Finance and – Industrialise
IT) d, good
education
• High GDP per Head ,
transport
ation and
• High Education and other
Healthcare infrastruc
ture

• Reliable & safe: • Low Income

– Less than $1000 per head
– transport, • Middle Income (Emerging)
infrastructure and – Less than $10,000 per head
institutions • Corrupt non-democratically elected
• Non-corrupt government
democratically- • May have recent civil war
elected government • Agriculture or subsistence (not NICs)
• Poor financial infrastructure
• High productivity and
 Reasons for Different Levels of
Development
Reason Explanation / Example
Availability of Can improve growth and development but often leads
Natural
Geography to civil war. Oil,
Mountainous Minerals/Precious
– transport Metals. Low
(primary/secondary value
is hard).
Resources
Climate added.
CoastalLow
Droughts – and Income.
exports
floodingLow
makeS. Low I
it difficult to attract
Political industry and I– less able to raise taxes and spend
More corrupt
Instability
Education efficiently
Tigers and China take v seriously – Raises human
Low capital,
Due shiftsofPPF
to lack confidence, Harrod-Domar, Lack of F
Investment
Population Institutions,
High Br & Dr, Poor
lowtransport reduces
value added, lowaccess to banking,
marginal product,
Finance Corruption
Internationallowers
underemployment,debt, Public
CapitalI Flight,and
urbanisation slums,savings
reduces Lewis’sand2-
sector I
therefore
 Indicators
• No single figure can capture al the different aspects of
development and their complexity
Index Longevity Knowledge Decent Standard Participation
•

of Living or exclusion
HDI Life expectancy Adult Literacy rate GDP pc N/A
at birth Combined (USD@PPP)
enrolment ratio
HPI-1 Probability at Adult illiteracy ratePercentage of N/A
birth of not people not using
surviving until improved water
age 40 sources
Percentage of
HPI-2 Probability at Percentage of children
Percentage under
of 5 Long-term
birth of now adults lacking who
peopleareliving unemploym
surviving until functional literacy underweight
below the poverty ent rate (12
age 60 skills line (50% median months or
THE ROLE OF THE STATE
 Role of Markets
• Price mechanism directs FoP where needed to increase allocative
efficiency
• Government Failure
– Information, political priorities, corruption
• Government production has X-inefficiency – lacks motive to cut
costs, lowers output from given input
• Investment is higher due to profit incentive (FDI and
entrepreneurship)
• Problems with markets:
– Infrastructure: roads, airports, shipping ports, free rider
– Financial institutions
– Property rights
– Entrepreneurship culture – traditional ways make it difficult producing
to sell to others vs. subsistence
– Stability: inflation, currency as a “store of value” to encourage S
therefore I
– Transition to markets: mistakes, may not work as in developed
countries
– Market failure due to externalities
– Merit goods, public goods, missing markets (insurance)
 Fiscal Policy
• Inflationary in SR due to effect on AD
• Can be anti-inflationary in LR due to effect on LRAS
• Budget deficit:
– Government spending exceeds tax revenue
• Caused by:
– Economic recession or slump
– Increase in supply side policy
– Economic shock requiring government response
– Funded by rise in current borrowing, to be repaid by
increasing future taxes, or issue of gilts
• Consequences can include:
– Rise in productive potential of country if spending
improves education
– Increased dependency on benefits
– Inflation (and resulting loss in international
competitiveness and rise in inequality)
– This may be wiped out if the supply side improves and
LRAS increases
– Reduced attractiveness for FDI if government seen as
incompetent
– Could raise FDI if the deficit has led to an improvement
in the supply-side etc
 Key Terms
• Automatic stabilisers/automatic fiscal policy —
government spending/taxation vary automatically over
the course of the economic cycle
• Discretionary fiscal policy — deliberate alteration of G
and T
•

• Progressive taxation — as income rises, a larger % of

income is paid in tax (eg UK income tax).
• Regressive taxation — as income rises, a smaller % of
income is paid in tax (eg VAT).
• Proportional taxation — the same % of income is paid in
tax, no matter what the level of income.
•

• Direct tax — a tax taken directly from a person’s or

business’ income (eg income tax and corporation tax).
• Indirect tax — a tax paid as a result of the purchase of
goods or services (eg VAT, excise duties).
 Taxation
Adam Smith’s Criteria
•

Reasons For
• for Tax
• Reduce 1. The cost of collection
consumption/producti should be low
on of goods with relative to the yield
negative externalities of the tax.
• Raise funds to provide 2. The timing of collection
public goods eg and the amount to
defence, roads be paid should be
• Redistribute income, clear.
reducing inequality. 3. The timing of collection
• Fund government and the means of
payment should be
• Provide goods with convenient to the
positive externalities taxpayer.
such as education and
healthcare 4. Taxes should be
imposed according to
the ability of the
 Monetary Policy
• Any policy concerned with manipulation of
interest rates, the money supply or
exchange rates.
• Inflation is difficult to influence due to
globalization
• Domestic Causes:
– Government Spending
– Confidence
– House/ Asset Prices
• International Causes:
– International demand for raw materials
– Imported Inflation/Deflation
 Monetary Policy
Strengths
• Weaknesses
•

• Stable inflation increases • Can take years for full effect to

confidence, allowing feed into CPI – not helpful if
economic growth to be there are external shocks
more easily achieved • Bank of England rates may not
feed through the
• Implications of changes in transmission mechanism
interest rates are easy • Affects the exchange rate and
to understand therefore competitiveness
• Effects on AD and AS, SR & (Could be a strength?)
LR • If inflation is cost-push then
increase in interest rates
• No Political Bias could make inflation worse
• Initial effects can be rapid by increasing interest
repayments and therefore
if MPC is credible costs
• Empirical Evidence – since • Effect on distribution of income
1997 • Cannot calculate exact effect
• Effective in UK due to high • Low inflation not necessarily
levels of Debt (home due to MPC
ownership)
 Supply Side Policy
es • Any policy concerned with
increasing the quantity or
quality of a country’s factors
of production, in order to
increase the productive
t b e co m e s opotential
u td a te d ca n of
co nthe
trib ucountry
te to stru ctu
andra l u n e m p lo ym e n t
increase LRAS
Education
n o t d •e sira – Appropriate
b le fo r w o rke rs to the
vu ln e ra b le acomp
n d a llo wadv
p e o p le to b e co m e frictio n a lly u n e m p lo ye d to se a rch fo r jo b s
• Red-Tape – Reduce it to improve
competition
• Healthcare – Less time spent ill
• Entrepreneurship – Encourage a
culture of it
• Reducing access to benefits – Cut
replacement ratio
• Encouraging increased labour force
MODELS AND THEORIES
OF GROWTH AND
DEVELOPMENT
 Harrod-Domar
• Mathematics of the Harrod -
Domar Model IMPLICATIONS
• •Higher savings needed to boost investment
•Increase in productivity, decreases the capital output
Saving (S) is a given proportion (s)
•
ratio.
of NI (Y): S=sY
•Technological advance is important.
• •Injections of external finance may offset a fall in
domestic saving
•
Investment (I) is the change in
PROBLEMS
•

capital stock:
I = ∆K
•
Desired level of saving may be difficult to stimulate, absolute poverty
is priority e.g MPC very high, MPS very low
• If £5 worth of capital Savings may be deposited abroad (capital flight)
produces £1 of output, k = 5.
Lower is better. Problems matching supply of funds to demand from investors
S=I
•
Offsetting by external finance may be tied and serve donor nation
sY= ∆K
•

Diminishing marginal returns to capital equipment, each successive unit

Y= ∆K/s
•
will be less productive and capital output ratio will rise

Productivity of investments depends on complementary investments

•
Lack of financial institutions under which savings and investment are
possible
The capital to output ratio (k) is
•

the ratio of the change in

capital stock to the change
in output (∆Y):
Rostow’s Stages of Growth
Model More on next slide...
 More on Rostow
• Harrod-Domar model included
– Economic Growth Requires Savings & Investment
• Savings to fund improvements in technology and increase in
the capital stock. Decrease Capital-Output ratio.
• Stages 2 + 3
• Criticisms
– High savings ratio may not be sufficient to enable
investment
• Funds need to be channelled from savers to people borrowing
to invest (Financial Institutions)
• Conditions that allow investment to be productive (Balanced
and Unbalanced Growth Theories) Complementary
investments
– African and Asian countries remain at Stage 1 “Traditional
Society” despite large injections of external finance.
Those which have moved on are held back by debt-
repayments. This suggests investments were not
productive enough to cover the interest
– Rostow suggested that the time taken to pass through
stages should diminish with time as Nations learn from
one another. This is not the case, however East Asian
countries have grown very rapidly (Singapore, Taiwan)
 Dependency Theory
ticular conditions facing nations.
ents not productive enough to cover interest repayments. Debt crisis limits growth of developing nations.

Colonies were forced to concentrate on the production of primary produce. Term

Bank, MNCs for keeping wages and raw material prices low and discouraging diversification into areas developed co

If true – wagwan with

India?
 Market-Liberalisation / Neo-
Classical Theory
• Inward – focusing on a nations domestic economy
• Outward – seeking to foster development through
Inward:international linkages Outward:
•International competition leaves •Access new sources of investment
domestic firms unable to compete •Access to a large global market
effectively & economies of scale that can be
•Increasing international mobility gained
of labour may lead to a “brain •Developed nations gaining higher
drain” as talented individuals incomes, increasing the size of
migrate to benefit foreign export markets over time
nations (More African scientists •International competition forces
and engineers in USA than Africa) domestic firms to become more
•However employment opportunities efficient
are higher and worker remittances •Growth but not development?
(money sent home) has become a Inequality
high source
nsensus of income
- forces for to be outward
countries • looking.
developing countries
individual cultures and encourage “ownership” of a development strategy. Possible
.
OTHER ASPECTS OF
GROWTH
 Tourism
Advantages
• Disadvantages
• Revenues from natural
beauty and culture –
comparative advantage
• Cheap to promote due to
the internet
• Income elastic
• Increased demand due to
low cost air travel
• Labour intensive –
comparative advantage
• Injection into circular flow
• Infrastructure can be built
for tourists
• Lessens dependency on
agriculture
•
• Africa has not benefitted
much, mainly middle
income countries
• Congestion, litter &
pollution
• Scarce water supplies
and effect on
agriculture
• Undermines culture
• Congestion (productivity)
• Global warming – air
travel
 Microfinance
• Given a lack of Financial Institutions
microfinance may be a way to allow
Investment to increase
• Groups of families agree to share
responsibility for repayment. All
denied further loans if not repaid.
• Mobile-banking
– Useful in remote areas
• Encourages entrepreneurship
• Interest levels can be extortionate – low
education
 Debt Relief
• 1980s and 1990s debt crisis
– High interest rates
– Appreciating dollar (debt in terms of dollars)
• Unable to invest in infrastructure and human
capital due to repayments OR if defaulted,
cannot gain funding for investment
• IMF structural adjustment programmes (lend
money with conditions)
• Debt-Forgiveness – unpopular with lenders
• Debt-Rescheduling – repayment terms are
altered
• Jubilee 2000 is a pressure group campaigning
for debt cancellation
 Foreign Aid
 Increasingly Multilateral not Bilateral
– Reduces restrictions on aid to benefit
lender
• Humanitarian aid (shelter & food)
• Grants (money not to be repaid)
• Loans (money to be repaid)
 Little profit incentive, money can be
wasted
 Projects duplicated by non-
communicating agencies
 Corruption and aid fungibility lessen its
use
 Fair Trade
• WTO tries to reduce protectionism
• Developing nations need protectionism
as they cannot compete with heavy
subsidies offered to farmers in
developed countries as part of
schemes like CAP in the EU
• Guarantees farmers an income so they
are not subject to monopsony power
on developed nations
• Can encourage overproduction?
Depress world prices
• Membership costs
 Expectations Augmented
Phillips Curve
• Workers have a target real-
wage
– Influenced by
unemployment rate
• If unemployment falls below
NAIRU
– Employees demand
increases in wages – cost
push inflation
• Therefore government cannot
permanently drive
unemployment below the
NAIRU or there will be high
inflation
• But, monetary policies to
control inflation lower
inflationary expectations,
so lower wages are
accepted
• Supply side policies shift the
NAIRU inwards
 Brazil
• Long section of coastline, shares borders with all but 2 south
American countries, mountainous in SE but population is
concentrated there
• 9th largest economy by GDP@ PPP
• Extensive natural resources
• Colonised by the Portuguese and made to export sugar and gold
• Process towards stable democratically elected government since
1974 achieved by 1990s
• Export-led growth
– Aircraft, Electrical Equipment, Automobiles – capital intensive
manufactures
– Textiles, Footwear – basic labour intensive manufactures
– Iron ore, Steel, Coffee, Orange Juice – primary products
• Boom in commodity prices
– Expanding financial and commodity markets
• Central bank sets short term interest rates
• IMF rescue of 30.4bn in 2002 (unprecedented) paid back a year
early
• Large oil discoveries