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Jack Carr (32)

Trade with developing countries, International Debt Crisis

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Jack Carr

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March 4 , 2009 Current news -Industrial production is down 31% in Japan, export level decreased 46% in the last 12 months -IMF projects that the GDP will fall in Japan in 2009 by 2.6% -South Korea, exports fell by 33%, China- last 12 months, export fell by 44%, US export went down by 8%, US will decline by 1.6% Zoellick-President of the world bank: about the world crisis, what started as a financial crisis, transformed into an economic crisis, now becoming unemployment crisis, could be not far away from becoming human and social crisis -in 2008, the higher food crisis, pushed 150 million people back into poverty -in 2009, slower economic growth rate in developing countries are expected to push another 50 Million people back into poverty Will a major country collapse In 2007 US, 929 billion inflow went to corporation involved in foreign direct investment 2008, 165 billion capital inflow 2009, capital outflow -why is US dollar so high, less risk in the US perceived, china has huge foreign exchange reserve in US -the IMF has 200 Billion available for financial assistance to any country, asked to increase it to 500 billion, Japan offered to give 100 Billion -One economist says IMF will need 2 trillion to offer foreign assistance Mexico-petroleum revenue is down, price of petroleum is down, if Mexico goes down, will increase risks around the world Reading 10.4 -Does Trade with low wage countries hurt American Workers? -Want to expand sales to mexico, do we build in Mexico or in Ontario to export to Mexico -Suppose the textile industry, take US and a low income country, avg wage rate of US 20$, 2$ ratio in Low income country, want to expand sales -losing jobs because of industries going to low income country, taking advantage of low wage rate, opp. Cost of going to a low income country is jobs in the industrial country -countries with high wages have high productivity, countries with low wages have low labor productivity, have to decide the unit cost of labor, Price of laboroutput -assume that in 1 hr, US worker can produce 40 units in textiles, Thailand, can only produce 4 units -therefore in US, wage is $20 per hour, US unit cost of labor= 0.50, in Thailand, wage rate is $2 per hour, Thailand unit cost of labor=0.5 -When you include labor productivity, the unit cost of labor close between developing and industrial country Kreuger-]LZ[ZL[ZZo]]Lo}]L2 }L]Z7 }L2L }o achieved in those countries by endogenous economic strategy without any trade -beggar thy neighbor experience, trade went down Industrialisation first strategy-Stop-go procedure, Brazil or Argentina should establish import substitution strategy, more growth, demand for K}]K}Z7}ZL[]L2}K}7oL
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