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International Business Environment Strategy 571 Dennis Quinn & James Vreeland Final Exam – 6 6:30.

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Presentation on theme: "International Business Environment Strategy 571 Dennis Quinn & James Vreeland Final Exam – 6 6:30."— Presentation transcript:

1 International Business Environment Strategy 571 Dennis Quinn & James Vreeland Final Exam – 6 6:30

2 Chinese Leader Firmly Defends Currency and Trade Policies Premier Wen Jiabao sharply defended Chinas currency and trade policies on Sunday against what he called foreign finger-pointing, charging instead that the developed world seeks to force unfair changes in those policies just for the purposes of increasing their own exports.Wen JiabaoChina In a more than two hour news conference at the close of Chinas annual legislative session, Mr. Wen repeated that China will keep its currency, the renminbi, basically stable despite calls by the United States and other developed nations to let its value increase.the renminbi He also repeated the concerns he voiced a year ago, at Chinas last legislative session, that the United States is failing to rebuild its own economy and maintain the value of the dollar. Protecting the dollar, which dropped sharply since the global crisis began in late 2008, is a matter of national credibility for the United States, he said.

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9 Capital mobility (open flows to FDI, e.g.) Exchange RatesDomestic Fixed/Floating Monetary & Fiscal Policy Management Post-Bretton Woods (1973 (±) to present)

10 Background notes – open economy macroeconomics If a country chooses to forgo capital controls, that country can predictably only achieve EITHER a stable exchange rate or domestic monetary and fiscal autonomy BUT NOT BOTH. A) A country that wants to have open capital markets and monetary policy autonomy has to be willing to let its exchange rate float. B) A country that wants to have open capital markets and stable exchange rates has to be willing to let its interest rates and its fiscal deficit used to defend the exchange rate (as with the Gold Standard) C) A country that wants to have a stable exchange rate AND independent fiscal and monetary policies will have to impose some capital controls (see figure on capital controls) For example, the U.S. has maintained open capital accounts with few controls since the 1940s, the U.S. has a strong independent bank that sets monetary policies, and a strong legislature that likes to spend more than it taxes. Hence, the U.S. sacrifices a stable exchange rate and allows the dollar to float Smaller EU countries, Hong Kong, Singapore, and Panama (e.g.) want the benefits of open capital markets (low cost of capital, high FDI, being a financial center, e.g.) AND a stable exchange rate (pricing of imports and exports). These countries give up fiscal and monetary policy autonomy. Countries in the Gold Standard era did this. Thailand (1990s), Indonesia (1990s), and Argentina (1990s to 2001) are famous failures of countries seeking to maintain fiscal and monetary policy autonomy, manage or fix an exchange rate, and maintain open capital accounts Many emerging market countries maintain fiscal and monetary autonomy and practice either fixed or dirty float exchange rate policies. They impose capital controls to a greater or less extent. China, India, Argentina, Brazil, Malaysia, Ukraine, and Russia are contemporary examples of such countries.

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13 13 from Prof. Nollen

14 Investment projects – page text 3000~ words -only 6 weekends to do the work Nollen questions: what, why, where, how, when; choose a firm and look abroad for FDI ninvest/http://www.library.georgetown.edu/guides/foreig ninvest/ age.phtml?page_id=52http://resources.library.georgetown.edu/libdata/p age.phtml?page_id=52 (you have to register as a student)http://www.export.gov/mrktresearch/index.asp IMFs Annual Report on Exchange Arrangements and Exchange Restrictions (capital rules – copy relevant country section)

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17 Policy Forecasting rationally ignorant voters in contestable markets Goals Strategies Institutions Public policy available and actors outcomes voters party elites

18 Year Voting-age population Voter registrationVoter turnout Turnout of voting-age population (percent) 2008*231,229,580NA132,618,580*56.8% ,600,000135,889,60080,588, % ,256,931174,800,000122,294, ,473,000150,990,59879,830, ,815,000156,421,311105,586, ,929,000141,850,55873,117, ,511,000146,211,96096,456, ,650,000130,292,82275,105, ,529,000133,821,178104,405, Voting turn out – sources: Federal Election Commission;

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20 D R R D R D D R

21 Keynes in one slide Y = I + G+ C + (ex/im) Role of expectations If consumers have poor expectations, wont consume (save instead) If businesses/banks have poor expectations, wont invest or lend (manage to cash) Whats left? ($800 billion stimulus (+/-))

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26 Investment projects Nollen questions: what, why, where, how, when; choose a firm and look abroad ninvest/http://www.library.georgetown.edu/guides/foreig ninvest/ age.phtml?page_id=52http://resources.library.georgetown.edu/libdata/p age.phtml?page_id=52 (you have to register as a student)http://www.export.gov/mrktresearch/index.asp IMFs Annual Report on Exchange Arrangements and Exchange Restrictions (capital rules – copy relevant country section)

27 Vietnam 1) How attractive is Vietnam as an investment opportunity? 2) we have three companies we will consider. what recommendations do you have for them whether to enter, how to enter, and when to enter. 3) what are the factors leading to successful investment in Vietnam?

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29 Vietnam & US trade Free trade increases the domestic price of the goods that are exported AND increases the return to the abundant factor (Vietnam – Labor; US – K; tech; NRes; HSkilled L)

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35 Why trade? What determines the exports and imports of a nation or a firm? Why does India export software?

36 Ricardo, Comparative Advantage (England-Portugal)

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39 Exhibit 7b – HBS India on the Move

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45 45 Export Intensity in Manufacturing

46 Source: Dean, Lovely, and Mora, 2009, Journal of Asian Economics, 20:

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52 BSE=India, FXI=China, GSPC=S&P500

53 BSE=India, EWZ=Brazil, GSPC=S&P500

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57 1999 General Election results

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59 2004 General Elections (4% or more of votes)

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61 Indian General Elections – May 2009

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63 China? China's software export hit $14.2 bln in 2008 BEIJING, Feb. 11 (Xinhua) -- China's software export soared 39 percent last year to 14.2 billion U.S. dollars from 2007, despite the international financial crisis, according to the Ministry of Industry and Information Technology (MIIT) Wednesday. The export included 1.59 billion dollars from outsourcing services, up 54.3 percent year on year. Reuters India, March 2009 India's software and services exports should rise percent to about $47 billion in the year to March 2009, slower than percent forecast earlier, as the global downturn crimps outsourcing, an industry body said. The National Association of Software and Service Companies (Nasscom) said on Wednesday it expects software and back-office outsourcing services export revenues to rise to $60-$62 billion in the fiscal year 2010/11.

64 Questions Nokia Why does Finland emerge as a leading produce of mobile telecom products? Why did Nokia because a world leader? What are the sustainable advantages of Finland and Nokia?

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67 Euro: Whos in, whos out, Why? Eurozone countries EU states aiming to join Eurozone on 1 January January2008 EU states aiming to join Eurozone on 1 January 2009 EU states bound by the Maastricht Treaty to ultimately join the Eurozone1 January2009 Maastricht Treaty EU states with a derogation on Eurozone participationderogation

68 Corporatism - Katzenstein Managing change (probably dominant model in EU) What are peak associations? Comparisons to state planning? Advantages? Disadvantages? Olson and collective action?

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70 Post WW II & corporatism Austria (partitioned –56), Finland (defeat & reparations), and Germany (partitioned) Belgium, Denmark, Netherlands, Norway occupied Social and political fragmentation as root of catastrophe Sweden and Switzerland (prior coordination – Sweden and great depression case) EU social policies – version of corporatism

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72 2008 ADR volumes and values 4 Chinese 8 Brazilian Plus Nokia

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