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Group 7 Sherel Barcenas Garret Brooks Jamie Duke Katy King Amanda Knapp Sarah Olson Ryan Patterson Luke Ryan
Background of Global Economic Development 5 Paradoxes: Trade, Democracy, and Open and Free Markets Culture and Change
Economic development is critical to globalization Controversy Split paradoxes into 2 categories: Trade, democracy, and open and free markets Culture and change
David Ricardo 19 th century the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost Economic development from: ▪ Land ▪ Labor ▪ Capital Theory in question: ▪ Multinational corporations moving home countries ▪ Doing more business and hiring more people outside their home country
Before Ricardo, was mercantilism Supported by colonialism Strict government regulation of economy Accumulation of wealth from resources Development of manufacturing and agriculture Establish foreign trading monopolies Wealth went to home country, not colony ▪ Lead to independence movements, wars, and creation of self-sufficient countries in the New World
Economic model for development: Early stages Explosive growth Maturity Decline (not always) Rate of development increasing rapidly
Natural resources Climate Good geographical position Religious-based culture Strong institutions- banks, police, courts Clusters of industries Mix of characteristics for success varies
Trading partners at disadvantage Population size vs. rate of economic development Level playing field? To grow requires more resources, thus increasing the world price National budget deficits Decrease in skilled labor
Phenomenon stating that “a national economy can suffer dramatically even while growing through accumulating capital or improving productivity” Producing more could saturate market Decrease demand Decrease price Weaken exporting nation’s profits
Diversification of products produced However, not always the case Competition can lower price as well
European Union Provides funds to newly admitted nations Taxes lend money for next admitted nation World Bank and International Monetary Fund (IMF) Some funds not successful Corruption Mismanagement Rivalries between people
Ranking of economic development potential: Degree of corruption as perceived by international executives Degree of trust between citizens and public institutions ▪ Police, courts, etc
Many organizations state poverty reduction as their mission However, much of world funds go to nations without will or ability to reduce poverty George Lodge and Craig Wilson suggest MultiNational Corporations (MNCs) create an organization where they would invest in developing nations and use the profits to invest in other developing nations
According to World Bank: Nearly half world population- $2 a day or less 1/6 world population- less than $1 a day Poverty fallen from 2/3 of developing nations to ½ of population between 1981 and 2001
149 of 220 nations in the world are members Tariffs lowered Many global issues to be addressed Provides framework to dissolve disputes
Are democracy and free markets antithetical to each other?
Amy Chua Communism to Capitalism Ethnically similar majority Lack of business and economic experience Dependence on minority group
Indonesia Russia Malaysia
Open markets with low tariffs Inequalities increase No policy suggestions
Does trust increase trade among nations? Does increased trade lead to conflict and war among nations?
Nations prefer trading with similar cultures Canada’s largest trading partner is US. Being Geographically close lowers transaction cost and risk
Researched surveys in the EU focusing on trusting nationalities Germans most trusted Italians rank lower Germans trust British more than French
Cultural Trust Religion History of war Genetic differences Increase in trust for any variable between two nations associated with a 30% rise in trade
U.S. trade with China, India and other developing nations Historical record is mixed United States and Great Britain Great Britain and Germany Dr. Katherine Barbieri found increased trade is associated with higher incidence of war
“Change” usually consist of moving from a traditional way of life to modernized way Individuals accept change if they can see the benefits from it
Are institutions more important than culture for explaining economic development?
Institution: an established corporation or corporation (www.merriem-webster.com)www.merriem-webster.com Court of law, police system, government, etc. Culture: the act of developing the intellectual and moral faculties (www.merriam-webster.com)www.merriam-webster.com Beliefs, behavior, knowledge, etc.
Provide the structure for life at work and outside of work Need to be trustworthy or people will try to go around the systems Join groups that also avoid systems (legal, police, tax) ▪ Mafia created in Italy ▪ Douglas North wins Nobel Prize, shows trustworthy institutions critical for economic development
Mancer Olson (1982) Work showed that when amounts of interest groups increase in a country, national prosperity decreases This occurrence is not only in the United States
Interest groups Helpful because their existence helps accomplish essential functions (creating diverse views and distribution of their activities, points of view) Harmful because they can hurt economic growth by drawing the attention of a nation away from good solutions ▪ Citizens of the country will see all institutions as dishonest
Written by Hernando de Soto (2000) Capital: in Medieval Latin means “cattle”; symbolizes sources of wealth beyond the meat that can/will become food It’s difficult, even impossible to create capital without initial capital
Powerful interest groups declare property rights on settlers living on public land Create capital by using little cities or “shantytowns” created by residents San Francisco Solano test Chinese government enforcing ownership of countryside to create factories, modern cities
Studied three groups of entrepreneurs Native Chinese working in China Chinese Americans White, Anglo-Saxon Americans Hypothesis: If culture were more important than institutions, the Chinese in mainland China and Chinese Americans would tend to be significantly different in attitudes from their Anglo-Saxon counterparts.
Findings: similarities were actually between the Anglo-Saxon and Chinese Americans. The native Chinese and Chinese Americans were not that similar Conclusion: Institutions are more important than culture, supporting Douglas North’s original idea
President Ataturk wanted to separate culture and institutions Changed Turkey from a theocratic, Muslim nation to secular nation Separated by: Closed religious schools and lodges Used the Roman alphabet and Western calendar Used European codes of law instead of Islamic
Both are important and relevant, each case depends on which is more important China’s development leans towards giving culture more importance Turkey appears to make institutions more relevant
Do economic development and globalization lead to individualism?
Individualism Considers one self separate from group Collectivism Decisions are made in GROUPS best interest
Power Distance Level of societal acceptance of equality/inequality Individualism Degree of interdependence within society Uncertainty Avoidance Extent to which members of society feel threatened by unknown/ambiguous situations Masculinity/ Femininity Masculinity- Importance on “being the best” Femininity-importance on “liking what you do”
Long Term Orientation Countries are considered short term oriented or future oriented Emphasizes ▪ Persistence ▪ Ordering relationship status ▪ Behaving in accordance to order ▪ Stressing thrift ▪ Having sense of shame
Values of economic growth differ by nation Different religions have “Confucian” values Nations are Individualistic and Collectivistic at different time periods Hofstede’s model proved in the short run Individualism occurs as economies grow What matters is a society that encourages individualism and emphasizes contributions to society
Why do citizens vote for and accept stationary bandits as political leaders? Stationary bandit-Political leader that resides in the community he eventually weakens or sometimes destroys.
Argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it
Roving bandit during the 13 th century Founder and emperor of Mongol Empire Conquered most of Central Asia and China
Political leader of communist China Influence lasted 40 years Guerrilla warfare Long March 50 million Chinese died due to collectivization and thoughtless government policies
German politician and leader of the Nazi Party Treaty of Versailles WWII Franklin D. Roosevelt April 30, 1945 Hitler committed suicide
Leader of Russia Introduced taxation system The 5 year plan Actions during and after WWII