International Economics

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- Oil prices are inputs to production as well as cost

o Volatile

o Commodity

• All commodity prices are volatile

• When prices change Qdemand is very steep

• A large change in price does not change Qsupply

• Change in supply will show more in price and less in quantity

• Small change in supply curve has exaggerated effects on prices

• Doesn’t take much of supply change to change price

o Nigeria

o World GDP will be slower because of oil prices

• Demand for oil in OECD is low

• Booming demand in China, India, Brazil

o GDP

• US 25%

• Conservative number 10%- world bank

- International trade

o Low income used to export agriculture products

o Now export commodities

o Many countries that are poor “aren’t in the world economy”

• Korea used to be poor but then they became a part of the world economy

o Consumer intermediate

o World trade and services

• Business

• Transportation (goods and people moved around the world)

• Consulting, royalty fees, licensing fees, insurance

o Lloyds- partnership

o Most stuff bought on a world economy is because they do it better or its cheaper

• Personal

• Education

• High income countries own the trade and services

• Low – middle income countries do tourism

• Goods and services

• Capital flow

o FDI (green field &/ or M &A)

• Foreign direct investment

• Money that crosses borders in order to purchase assets for production

• World economy - $1 trillion

• Portfolio capital

o Difficult to track

• Middle income countries (25%)

• High income gets majority

• Ex China gets $80 billion in FDI

o Not that much to us

o Trends in the world economy

• Slow pace right now

• Problems?

• Internal stability

o Then you can manage economic growth

• Low income- 8-10%

• Middle income – 6-8%

• High income 4-5%

o This is not what the world is doing table 1.5

o Economic problems with no solution to pull the poor out

• International trade helps but still need good manage

- History matters...