International Economics: IB Economics

The ongoing Israel-Hamas conflict, D&S, and its impact on the health of the Palestinian economy are all laid bare in this article that notes that if Palestinians aren't able to harvest olives this will lose them $70m. And, of course, there's a multiplier effect too. 

This is an interesting little piece, which notes that the level of inward capital flows into China has slowed to the extent that "China recorded a deficit of $11.8bn (£9.6bn) in foreign investment in the three months to the end of September - the first time since records began in 1998".

In short, it's the first time in 25 years that China's investing more overseas, than foreign firms are investing in China, largely as a result of ongoing political uncertainty, slower growth in China and higher interest rates there. It's also notably that none of the businesses cited say that they're 'retreating' from China, it's just that they are reinvesting profits elsewhere. 

Just maybe, given that they've just done their Mock Examinations, my Year 13 pupils might be predisposed to revisiting why Foreign Direct Investment like this is so vital to countries like Mexico.

On the demand-side, it represents an injection into the circular flow of income, and might allow some people to break free of the poverty trap. On the supply-side, not only does it increase the Mexican economy's productive capacity,  but it might also facilitate the transfer of technology in a high-tech sector. Of course, there's an evaluative angle to both these aspects - to what extent will any factor incomes remain in Mexico, and is it the appropriate technology for Mexico, for example. 

But it's just a rich source of a real world example of why FDI is so powerful. 

Something for Economics and Business Management students alike: Apple is planning to make its new iPhone 14 handsets in India, as it looks to diversify away from China.

Lots to think about here - location, multiplier effects, diversification, the implications for Apple's supply chain an organisational structure. But you might also think about whether political pressure has also played a role as the US government looks to discourage its firms in the high tech sector from engaging with China. 

This could go on lots of boards - microeconomics as regards D&S and one of the important function of profit; international economics in terms of looking to expand energy sources other than Russia, and you might even think about the multiplier effects of any increase in investment. 

My Business Management students get to see a 'fascinating' video about Lego choosing not to invest in Asia that dates back to 2018. However, it seems that they've bitten the bullet and decided to invest in Vietnam on the back of double digit growth in the region in the past two years. 

There's lots of interesting economics here: the benefits of FDI to a country such a Vietnam, moving from the multiplier effect to consider technology transfer and the extent to which the project will involve Vietnamese workers.

However, there's also an interesting point about YED: why might we be unsurprised by the fact that Lego have experienced double digit  in Vietnam - you might, if you're an IB student think about how this might relate to the Engel curve.

Pick the multiplier effects of a $1 trillion spending package out of that, then!

However, an infrastructure spending package should affect both aggregate demand and aggregate supply - you should be able to draw this, and understand its implications for the main macroeconomic objectives. 

And other problems face those economies most dependent upon tourism, such as Turkey and South Africa, at a cost of as much as $4 trillion by the end of 2021.

Factor in the multiplied effects of a decline in tourism and the health of the sector is an important determinant of growth in many economies. 

Total's decision to halt its work in Northern Mozambique represents a significant supply-side shock for the southern African economy, and the wider implications of uncertainty deterring further foreign investment would suggest that the future prospects for the economy aren't as optimistic as they might be. 

Reuters provides further commentary on Joe Biden's American Jobs Plan, something he referred to as the largest investment in American infrastructure since the Second World War. 

Joe Biden's massive fiscal stimulus programme has passed through Congress meaning that most Americans are going to receive a one-off payment of $1,400, and that unemployment benefits is going to stay at $300 per week until September.

It represents a massive injection into the economy, and if it can help promote recovery, as you would expect it to, via the multiplier effect, then all will be well. The potential downside is that some fear inflation - although I'm not convinced - and that it's come at high political cost. That said, if it works, it will strengthen his hand substantially given the extent of Republican opposition to the bill.

US President-elect, Joe Biden, has promised a $1.9 billion relief package, calling the rollout of the coronavirus vaccine "a dismal failure" . 

However, it also represents a sizeable fiscal stimulus, which will have a multiplied effect upon the US economy, although Republicans are worried about adding to government debt. To my mind, they might be more worried about the conduct of the President who has spent the past two months creating a fiction around the conduct of the Presidential election, rather than governing the nation. 

Much as we'd like the recovery from to coronavirus to be easy to recover from, one of the biggest issues that exists is the problems associated with formulating a recovery plan.

Perhaps the biggest, and most under-estimated, is simply the opportunity cost of government spending - that is the bureaucracy required to spend such money, reducing the size of the multiplier effect.  

I've 'scooped' this World Bank clip not so much because of the impact of the scope of the Recovery and Reconstruction Project, but because of how you might think of modelling both the original natural disaster, and the subsequent recovery from it. 

How might you use AD-AS analysis to do this? What other important macroeconomic concepts might you bring to bear? Why is the multiplier relevant here? Are there any features of such projects that might limit their effectiveness, and how would you evaluate them?

This Bloomberg clip looks at how, perhaps a decade-late, the US are striving to challenge China's access to Africa's raw materials, and the spread of the Belt and Road Initiative. 

Given the importance of some of these raw materials to new technologies, US firms such as KoBold Metals are starting to invest in the continent, and this requires significant infrastructure investment. 

Good news for Thailand in that tourism revenues are recovering, although still below pre-pandemic levels, because this represents an injection into the circular flow of income and it will trigger a multiplier effect.

However, equally, the government have imposed a tourist tax - 300 baht ($9.20; £7.40) per tourist - and hope that this will raise tax revenues too. It's an interesting idea and set at a level that is unlikely to deter many tourists from coming, which is important because the Thais are hoping to attract 80m tourists annually by 2027.

Taiwanese giant., Foxconn and Indian mining company, Vedanta, has agreed a joint venture to build a semi-conductor plant in India, the third group to announce plans to build such a factory.

Not only might this help the global semi-conductor shortage, but it will also have a multiplied effect and might speed technology transfer to India, further boosting long-run growth. 

This BBC article looks at the state of the Turkish economy, with official inflation at 48.7%, and unofficial inflation even higher. Factor in high levels of unemployment, and even worse youth unemployment, and a current account deficit, and the country's economic fortunes don't look great. 

The article wonders whether tourism could be the saviour: the depreciation of the lira has made Turkey exceptionally cheap - but whether or not people will want to go there is another matter. 

Depending on whether you are an economist or a Business Management students, you'll either see this as FDI, and be thinking about multiplier effects, the impact on the supply-side and so on or thinking about how it might suggest that reshoring might be coming back into fashion. 

Evidence of lots of things - the developmental cost of conflict, the multiplied effect of a loss of trade, the importance of one's neighbours in determining economic outcomes - something not lost on most citizens of the UK right now. However, the IMF are predicting that the Afghan economic slump is going to affect the whole region, not least because of the cost of the ongoing refugee crisis.

It seems that US jobs growth has slowed, and unemployment has risen. However, I'm not convinced by the reasoning: there's an attempt to suggest that this has happened despite a $1.9 trillion stimulus package, whereas to my mind there are inevitably going to be lags between the introduction of a stimulus package and job creation. 

This is something is something that sectoral data seems to imply: job creation in hospitality and services has been offset by declining courier numbers. But, isn't it the case that infrastructure projects take some time to initiate? 

That said, it's made some people wary of the strength of the American recovery. 

Will Hutton writes in the Observer about Joe Biden's American Jobs Plan, arguing that such a sizeable fiscal stimulus represents a return to traditional left-wing values for the Democrats and perhaps an example for other left-leaning parties to follow. 

Joe Biden has announced an ambitious fiscal stimulus package that looks at enhancing US infrastructure, and financed by higher taxes on business.

Given the nature of the Senate, it will be a tough sell but it's designed to improve and replace crumbling infrastructure, and boost some of those communities that have been overlooked by previous governments. Watch this space!

The case for fiscal stimulus is laid out here - in the context of the US - is it a good thing? And is it sufficient?

Or is it too much? And will it lead to inflation? 

Larry Elliott thinks aloud. 

The end of an era: Ford is to close its last three factories in Brazil, with 5,000 workers expected to lose their jobs, as a result of the coronavirus pandemic and low demand.

Expect a negative regional multiplier in those areas where the plants are located.