4.6 & 4.7

4.6

Distinguish between foreign aid and foreign direct investment.

Foreign aid is the international transfer of public and private funds in the form of loans or grants from donor countries to recipient countries that can be given in three main ways: humanitarian, bilateral, or multilateral. Foreign direct investment on the other hand is overseas investment by multinational corporation. (a firm that has productive capacity in a number of countries)

Explain why the earthquake and tsunami in Japan is likely to affect Japan’s capacity to donate foreign aid. 

After being struck by the earthquake and tsunami, Asian countries, such as India, Indonesia, and the Philippines worry that the projects (foreign aid) funded by Japan may be dropped or rescheduled. This is because, the natural disasters have had an effect on Japan’s economy.

As shown in the Figure above, the natural disaster has caused Japan’s aggregate supply, the total amount of domestic goods and services supplied by businesses and the government, including both consumer goods and capital goods has shifted from AS₁ to AS₂, causing the overall economy, as shown by the GDP to decrease from Y₁ to Y₂. Furthermore, in order to make up for the decrease in their GDP as well as to reconstruct the areas that have been damaged, Japan’s ODA, the official development assistance will be reduced. In other words, in order to ameliorate the condition of Japan, they will use the money they would’ve used for the ODA.

Explain how reductions in Japanese foreign aid might affect the economic development of the recipient nations.

Japan, not only being known to be the world’s third greatest economy, is also the fifth largest donor of development aid, meaning that Japan donates a lot of money to foreign developing countries. Additionally, according to OECD, Japan’s aid disbursements totaled $9.47bn in 2009, which was a greater than the amount of Spain, Netherlands, Sweden, Norway, and Canada. Hence, the reductions in Japanese foreign aid will have a great affect on the economic development of the main recipient nations, whereas it may not have a great of an effect on the other recipient nations who do not receive as much aid from Japan.

The countries who receive a lot of aid and depend highly on Japan’s ODA, such as the Philippines will be greatly affected. More specifically, their development projects will slow down due to the decrease in aid. Since the Philippines relied heavily on the aid from Japan, without its support, their development project will not run as smoothly and efficiently as it would’ve. The Philippines will not be able to support the project on its own and hence, they will need to result to a new plan involving a slower process. Furthermore, other concerns such as unemployment may arise due to a decline in demand in the service sector as a result of a slowing industrial activity.

Other countries who do not receive as much aid will not be as affected as they, unlike countries such as the Philippines, who heavily relies on the aid from Japan, will be able to sustain their projects on their own as they will continue to receive support from other countries.

4.7 

Evaluate the arguments for and against foreign aid. 

Foreign aid both benefits and hinders the stakeholders. Stakeholders include the recipient nations as well as the donor nations.

Recipient nations, including industries and its government benefits and is negatively affected from foreign aid. First, considering the pros, the recipient nations will be able to use the aid, more specifically, bilateral aid and/or multilateral aid in order to work on projects in order to help the development of the country. In other words, in the aid will help the recipient nations in the short run. This can cause an increase in supply of the nation, increasing their GDP, which benefits the government and the industries specifically. However, in the long run, this can lead to further debt as depending on cases, the recipient nations will have to pay the donor countries back. Such cases include situations where the aid is provided by donor nations in a form of a loan. Therefore, while the bilateral/multilateral aid benefits the recipient countries in the short run, in the long run, it may lead to an increase in debt.

In cases of humanitarian aid, after a country is struck by a natural disaster, this will benefit the recipient nations but depending on the level of dependence, this may hinder the nations. This is because humanitarian aid is not similar to bilateral and multilateral aid, where the nation is subject to re-pay the donor countries. Therefore, the nations receive help, which will ameliorate the situations in those countries after the catastrophe. For example, the article mentions the Tohoku earthquake and in the photo, we can see South Korean rescue workers helping collecting bodies of Japanese earthquake victims. The South Korean rescue workers in this case are the humanitarian aid as the increase in rescue workers will allow Japan to recover and reconstruct their country more efficiently. However, if Japan relies too heavily on the humanitarian aid, their own workers will not work as hard, and the nation will be too dependent on other countries. In other words, Japan will not be able to sustain itself without the aid from the other countries.

The donor countries will also benefit and hinder from providing other countries with aid. In cases of humanitarian aid, the donor country will benefit as they will be able to have better relations with the countries that receive the aid. For example going back to the same example, by providing humanitarian aid, South Korea’s relationship with Japan will ameliorate as Japan will owe a sense of loyalty to South Korea.

In cases of bilateral aid, the aid may hinder or benefit the donor country. By providing nations with aid, the nations will be able to have a better relationship. However, the donor countries can be hindered when they do not receive the money the recipient countries owe them. This is an opportunity cost, as the donor country could’ve used that money they provided as aid elsewhere, for example, providing subsidies for education, instead of providing aid to a country in a form of a loan.

However, in the end, I believe the arguments for foreign aid overweigh the arguments against them as the relationships between countries are important. This is because this can greatly affect the trade between two countries. Furthermore, people in developing countries will never be able to escape poverty without the aid from other countries. Similarly, when a country is affected by a natural disaster, without humanitarian aid as well as bilateral/multilateral aid, it will take a long time for the country to reconstruct.

Explain the concept of windfall tax.

Windfall tax is tax imposed by the government on certain industries when economic conditions allow those industries to make above-average profits. Most often, these industries are commodity-based businesses. Windfall can also just mean an excess of money.

Identify the reasons why the Zambian government imposed a windfall tax on the mining companies.

The Zambian government has imposed a windfall tax on the mining companies because, according to the Finance and National Planning Minister, Musokotwane, mines are making extra revenue. This is because resources found by mining is demanded a lot as they are essential resources in creating products. The government, by imposing windfall tax is then able to gain more revenue and help carry out the developing projects to help the conditions in their country.

Explain, using evidence from the article, why the Zambian government does not consider its debt situation too problematic. 

The Zambian government does not consider its debt situation too problematic, as shown through the IMF figures for 2011: “Zambia was rated as the third least indebted country.” This figure was calculated by finding the ratio between the nation’s debt and the GDP. This can be explained by the increase in exports.

As shown in the diagram above, the increase in exports, as shown as Dr. Musokotwane states how “Zambia was within the league of countries which were biggest exporters on the world market.” More specifically, “the capcity of Zambia’s exports had grown 10 fold compared to the levels they were in 2000.” This increase in exports can be seen through the shift in the aggregate supply, causing an increase in the real GDP as shown from the shift, Y₁ to Y₂. Assuming that the government is competent, we can come to a conclusion that the increase in GDP can lead an increase in government revenue, which allows the Zambian government to pay back their debt, making them the third least indebted country.

Examine the conditions multilateral agencies, such as the IMF or World Bank, could require the Zambian government to adopt if they were approached for a concessionary loan, and the rationale for doing so. 

A concessionary loan is a loan bearing no interest or a rate of interest that is below the average cost. Multilateral agencies, such IMF or World Bank can require the Zambian government to adopt different conditions.

Agencies, such as the World Bank, who aims to help the fight agains poverty in the world by providing loans, support, advice and information to developing and middle-income countries. Such agencies may require the Zambian government to adopt conditions that helps reduce poverty in Zambian and hence, increase living standards. Such conditions may include an increase in educational subsidies. By implementing such subsidies, a greater population will be able to attend school and receive education. Other subsidies may include health subsidies that will help increase the living standards of the people in Zambia. The rationale for requiring such conditions, more specifically, such subsidies, include

Furthermore, agencies, such as the International Monetary Fund (IMF), an organization established to encourage international co-operation in the monetary field, the stabilization of exchange rates and the removal of foreign exchange restrictions. The IMF may require the Zambian government to have less regulation on their businesses, as this will decrease the level of protectionism, which was initially implemented by the government in order to protect the domestic goods from the imports. However, with the decrease in protectionism, there will be an increase in imports. Moreover, with less protectionism, in a form with lower or no tariffs, there may be an increase in demand for the imports. By requiring less regulation, the increase in imports  will benefit the other countries and their currency. This can help the IMF encourage stabilization of exchange rates and remove the restrictions imposed by foreign exchange.

4.4 & 4.5 DBQs

Explain what is meant by a free trade area, such as EFTA?

A free trade area, such as EFTA is a group of countries that have little or no price control in the form of tariffs of quotas between each other. The nations focus on their competitive advanage and to freely trade for the goods they lack the experience of making. This results in an increase efficiency and profitability of the countries as well as an increase in the overall trade between the countries.

Analyse the benefits and costs of establishing a regional free trade area.

Benefits:

• Comparative advantage: The output of products will be maximized and countries will gain by specializing in the specific products.
• More choices for consumers: Because of comparative advantage, if one country specializes in producing a specific product, they will be able to be innovative and creative through their advancements in resources, providing consumers all around the world with greater choices.
• Lower price for consumers: Through the reduction in tariffs and quotas, the price of the imports will decrease making them cheaper.
• Countries will foster greater political stability and cooperation: By having regional free trade areas, the countries involved will have better relationships between each other.
• Further stimulus for investment: Due to the fact investors can anticipate greater profit being made in the end as a result of comparative advantage, more investments will be made.

Costs:

• Increased competition can force inefficient domestic producers out of the market. Furthermore, the revenue gained by the efficient domestic producers will also be affected as the reduction or elimination of tariffs or quotas will make the imported goods affordable.
• The government revenue will decrease as they will not receive the amount of money they received before the reduction or elimination of tariffs and quotas. This can have an affect on one of the sectors as this may lead to the government cutting back on their spendings in certain sectors.

Therefore, in the end, I believe that the benefits overweigh the costs and hence, while establishing regional free trading areas may have a couple of negative impacts, in the end, it is all worth it.

Drawing upon real world examples, explain why bilateral trade agreements, such as that between EFTA and India, are becoming more popular.

Bilateral trade agreement is an agreement where two countries agree on terms they trade with each other on. In most cases, the bilateral trade agreement will include reduction of tariffs and quotas on the trade of goods and services in order to encourage trade between the two countries.

These agreements are becoming more popular, such as EFTA and India as both countries benefit through the increase in comparative advantage. As the article states: “The trade between Switzerland and India stood at $18 billion in 2010 up from $15 billion last year.”

Bilateral trade agreements are becoming more popular because they are easier to facilitate in comparison to regional free trade agreements and multilateral agreements. For example in 2006, Singapore and Brunei signed an agreement regarding the elimination of double taxation enhancing the bilateral trade.

Moreover, Singapore and Malaysia also have a bilateral trade agreement as the great majority of fresh meat and vegetables in Singapore are imported from Malaysia and furthermore, water. By having a bilateral trade agreement between the two countries, they are able to further depend on each other and increase the activities concerning trade between the two countries.

Explain how improving infrastructure, like establishing mobile phone networks, can help to improve the rate of economic growth.

By improving infrastructure, such as mobile phone networks, the rate of economic growth can be improved because more people will have access to mobile phones, which is also described in the article as a “passport out of poverty.”Furthermore, the article explains how communication has a dramatic impact on GDP and can lead to an increase in foreign direct investment. This is due to the fact that such devices, like telecom, which allows an increase in communication reduces the costs of interaction, leading an expansion of market boundaries and information flows. This means an increase in output, in other words, supply.

As the article explains how improvement in infrastructure can lead to an increase in health as doctors are able to easily get advise from other doctors from bigger hospitals. Therefore, ideally, more lives can be saved, increasing life expectancy. This will affect economic growth as economic growth is greatly affected by the population. The greater the population, the greater the GDP of the country. Hence, with increased health, leading to an increase in population will result in economic growth.

Explain how improved mobile phone networks in developing countries in Africa can contribute to reductions in levels of poverty.

Improved mobile phone networks will help reduce the levels of property in many ways:

First, levels of property can be reduced because ideally, this will decrease unemployment. More specifically, as mobile phone networks improve, a greater population will be able to have access to phones, and this will result in a decrease of the costs of interaction. In other words, businesses will not have to spend money for airplane tickets but only on phone calls. By having an increase in their budget, they can increase their factors of production, one being their employees. Hence, the reduction in levels of poverty.

Second, it can increase the health of the people in Africa. This is because with mobile phones, medical advice can be received by other doctors working in cities. Therefore, the chances of their recovery will increase and their recovery period will decrease. This means that the patient will be able to continue working and making income for him/herself and their family.

Thirdly, mobile phone networks can s

Discuss the advantages and disadvantages of foreign direct investment for developing countries.

Foreign direct investment is overseas investment by multinational corporations (MNCs). An MNC is a firm that has productive capacity in a number of countries. The profit and income flows that they generate are part of the foreign capital flows moving between countries.

In this specific article, the foreign direct investment, of $50bn. There are both advantages and disadvantages to the foreign direct investment.

Advantages include:

• Without the foreign direct investment, many African countries do not have enough resources to build huge fixed-line infrastructure.
• It can help increase the GDP of the countries as market boundaries and information flows are expanded as communication is made easier through the cellular phones. (1/3 of the reason of the increase in output growth between 1970 and 1990 was the spread of modern fixed-line telecoms networks.)

Disadvantages include:

• While communication in the country will improve and be made more efficient, resources are limited. In other words, there is a lack of power and energy infrastructure. Hence, without conscious monitoring, the improved mobile phone networks may lead to a sudden shortage in power.
• In the end, to a great extent, the profit gained as a cause of the foreign direct investment will not remain in the country, but will
• The people in Africa may be exploited by the multinational company, Telecom by  low incomes and unfair treatment.

Definitions

http://quizlet.com/_5rro3

DBQ Response

4.2

Identify the indicators of development the article identifies as a priorities for the Cuban government.

The article identifies how the Cuban government prioritizes health: “exactly half of all the currency earned in [Cuba] goes toward the health-care system.” This is because the Cuban government find that it is most important that its people are healthy.

 

Examine the evidence in the article that suggests the inhabitants of Cuba experience low living standards.

The article suggests how the inhabitants of Cuba experience low living standards as first, as mentioned above, the government spends half of its revenue gained from its country is allocated to the health-care system, meaning that less is spent in other sectors. More specifically, the article explains how there is a lack of gasoline and meat in the country, meaning that though the Cubans may be healthy, they are unable to drive to work or consume the products they want. 

 

Analyze the advantages and disadvantages to the Cuban economy as a result of allocating resources to the health sector. 

The Cuban economy is both positively and negatively affected as a result of allocating resources to the health sector:

 

Positively:

• As mentioned in the article, due to the outstanding health care system, there is an increase in tourism, especially from Russia and Ukraine. This means that there is an increase in the revenue made from the treatments. Furthermore, hotels and restaurants, can be considered a complimentary goods as patients would need a place to rest and eat during their stay in Cuba, increasing the profit made in those industries. 
  • This would also imply an increase in Cuba’s GDP. 

 

Negatively: 

• Since the government is allocating half of its revenue made in the country on health-care, not a lot of money is spent in other sectors such as education, which is as equally important as it greatly contributes to a country’s economic growth and development. (However, since Cuba is a communist country, education may not be as beneficial in the very end as though it may increase employment, they are not given the reward they deserve: private property is decreased and therefore, people will lose incentive.)

 

4.3

The article considers how Maasai women in Kenya are becoming more empowered. Explain what is meant by the term empowerment.

Empowerment in this context refers to how the Maasai women are given more opportunities that results in: an increase in education, credit scheme to help raise women’s incomes, livestock program to promote property ownership, increase in food security, increase in awareness of politics, and knowledge in order to secure indigenous rights to natural resources. 

 

Explain why the lack of empowerment of women in traditional Maasai communities contributes to the lack of economic development in these communities. 

Each opportunity that empowers the women in traditional Maasai communities contributes to the lack of economic development in their communities, which also means that without the empowerment of women, these communities lack economic development: without having the opportunities that are given to others, such as the ones mentioned in the first question, the women are unable to address their basic livelihood needs. 

For example, by being uneducated, or being provided with insufficient amount of education, the women of the Maasai communities contribute to the lack of economic development in these communities. By not having enough access to education, their the standard of living is lower than an educated community. More specifically, we can further assume that this further limits job opportunities for women as they, most likely, do not have the background knowledge in order to become certain professions. This is because education provides one with more knowledge, which is considered to be a great part of human capital. An increase in human capital can have a massive positive impact on a country’s economic development as there will be a decrease in the unemployment rate. Furthermore, there will be a decrease in the percentage of illiterate women. Additionally, due to the lack of empowerment, even if a portion of the women are employed, they do not receive sufficient amount of income they deserve. 

 

Examine the advantages of, and the problems of associated with, the introduction of policies and activities designed to empower women in Maasai communities. 

The introduction of policies and activities designed to empower women in Maasai communities has its advantages and problems:

 

Advantages:

This will increase the living standards of the women in Maasai communities as they are given more opportunities. Furthermore, ideally, this will lead to economic development and growth in Tanzania as the increase in education, leading to job opportunities will result in an increase in the country’s GDP as well as a better living standard for the people. 

 

Problems: 

This will be costly and the government must reallocate their resources in order to provide the women with the opportunities mentioned in the article.  This means that less expense will be spent in these other sectors. Such sectors may include, education, health-care system, company subsidies, e.t.c. 

Furthermore, even by increasing the access of education, it is in the end, the women’s decision to either apply the knowledge obtained to get a good job. Therefore, this does not ensure the fact that the unemployment rate is going decrease as in the end, it is up to the individual and her motivation.

 

Evaluate the policies governments of developing countries can use to promote greater empowerment of women. 

Governments of developing countries can use different policies to promote greater empowerment of women. However, there will be pros and cons to the policies affecting a range of different stakeholders. 

The government can provide subsidize education for women, increasing their access to education. By doing so, they are simultaneously  increasing their work opportunities, assuming that education is the biggest factor for obtaining a job. While this is a pro for the women being given the education and the multiple opportunities that arise from education, the government must have the expense in order to make these subsidies. This may require the government to reallocate their resources, meaning that less money will be spent on another or other sectors, negatively affected them. Or, the government may chose to increase the tax, which is also a negatively affect on the tax payers. Furthermore, depending on the competition for work opportunities in Tanzania, the men fighting for jobs may be negatively affected. This is because there will be more people qualified for the job (women) fighting for the job as well.

In order to secure the food provided for the women, the government can also provide subsidies in order to stimulate the economy and furthermore in order to make sure that the women are able to purchase their needs. By having more spending money, this will result in a more stimulated economy for the this will mean an overall increase in the demand for food, or other products. In other words, the agriculture industries, food suppliers, and other industries affected will make a greater profit. In addition, the nation’s GDP will increase. However, the increase in GDP may not be a substantial amount, as it depends on the number of women in the Maasai community and whether or not they decide to spend the money. 

However, in the end, I believe that the pros overweigh the cons and therefore, governments should use policies in order to promote greater empowerment of women. By doing so, they can create an equal society. 

 

How can demand and supply side policies help people like W. Jorgensen?

W. Jorgensen, is a car company owner who is currently facing a problem of having a high cost as the price of oil has risen. In order to help him, we must use either a demand side policy or a supply side policy thinking with either Keynes’ or Hayek’s mindset.

First of all:

• Supply side policies aim to increase the aggregate supply. (AS) In other words, the policy aims to shift the AS curve to the right.
• Demand side policies aim to increase in the aggregate demand. (AS) Similarly to the supply side policy, they also aim to shift the AD curve to the right.  [AD=C+I+G+(X-M)]

My thought on this is, by decreasing the business tax for the company, the company be able to use a larger portion of their budget on producing their products. (car) This solution is a fiscal policy, that will affect the AS curve. (The AS curve will shift to the left)

Commanding Heights Video Reaction

I thought this video, Commanding Heights was very insightful as it discussed the two different economic ideas: Keynesian and Hayek’s. Keynesian was all about a free market whereas Hayek’s idea was a controlled market.

Therefore the government can intervene in a controlled market through subsidies and taxes. Furthermore, they can regulate certain companies. For example, an airline company, in a free market may raise a lot of money and make profit in the first two years, but afterwards, the airline may go unstable. With regulation, as everything is fixed, 

China Moves to World’s No. 2 Economy as Japan’s GDP Decreases (via Hannah’s Blog)

After 42 years of being in the number two spot following behind the US, China overtook Japan's spot.  China's GDP has increases a great deal, while Japan's GDP has been decreasing due to several reasons.  Prime Minister of Japan, Naoto Kan is trying The Japanese economy's fall from its 42-year reign in the number two spot behind the US comes as pressure is mounting on Prime Minister Naoto Kan to halt further decline. But merely achieving moderate … Read More

via Hannah's Blog

China surpasses Japan’s economy due to its great population

This article explains how China’s ranking as the world’s second largest economy is merely built on it’s massive population.

China has recently surpassed Japan’s economy and has stolen the second rank for the largest economy but when you compare the population of Japan and China, you will see that the ratio is 1:11. Hence, this massive difference is what enables China to have a greater GDP.

However, even though China has surpassed Japan’s GDP, it’s per capita income is still 1/10 of Japan. Therefore, China has a larger economy, but it is not a rich economy. In other words, the country as a whole is rich, but the people aren’t.

It is said that if China keeps going at this rate, it will be able to surpass the United State’s economy by 2030. (The rate of China’s economy expanding is greater than the rate of the U.S.)

With another GDP measure called, purchasing power parity, (PPP) it proves how products in China are worth less and therefore are cheaper. Furthermore the PPP “[tries] to reflect the differences in costs of living and tend to boost the economic rankings of poorer nations.” An example of this is that in China, a haircut may only cost $1 but the same haircut in the United States may cost $10.

Possible Theory of the Firm Questions (via Tyler’s Economics Blog)

Monday 8 May 2006 Paper 2: "Using appropriate diagrams, discuss whether monopoly is more efficient or less efficient than perfect competition." Tuesday 7 November 2006 "Explain the necessary conditions for price discrimination to take place. "Discuss the advantages and disadvantages of price discrimination for consumers and producers." Tuesday 7 November 2006 Paper 2: "A monopoly firm decides to maximize revenue rather than profit. Use a diagram … Read More

via Tyler's Economics Blog

Demonstration of CRAMPSS

In this blog post, I will be evaluating this article about the increase in transportation during Thanksgiving in the United States. I will use CRAMPSS effectively in order to point out the pros and the cons of this increase in demand and supply of transportation:

PROS

-There will be an increase in demand of the transportation, causing an increase in profit for the transportation businesses such as airlines, bus terminals, etc.

-Since this is accounts for every single year, the businesses know what to expect and they can make the decision – lowering/increasing the price beforehand.

CONS

-The environment will be negatively affected from all the traveling going on.

-Due to the really high demand, some people will not be able to travel because of the great demand.

Conclusion:

In this situation, the pros will outweigh the cons as the demand for transportation increases, so will the profit of the many transportation businesses. This will cause a rise in country’s economy. Furthermore, businesses will have more control since Thanksgiving is an annual celebration, they will know what to expect every year during the same season: high demand. And they will know how to combat it in order to make the consumers happy and to make themselves happy by making an abnormally large profit.

Even though there are some cons, the pros are more important and as it says in the article, for the bus company, Greyhound Buses. One bus can take up to 50 to 55 people and during the season, the bus schedule is not run on a fixed schedule. The company has chosen to run at capacity flexible schedule in order to meet the consumer’s high demands. By running at a capacity flexible schedule, the company is able to add more buses to a certain location when there are about 150 people trying to get to a single destination. Instead of taking a single bus and making 100 people wait for hours for the next one, they are able to get two more buses. However, for the environment, there is really nothing we can do about it. The Greyhound Buses can purchase hybrid buses but even then, we will never be able to stop negatively affecting the environment.

Therefore, the pros > cons.