Topic 2: Key players in the world economy

What will be the likely impact of the growing

economic power of China and India on
individual, national and multinational firms in
the 21st century?

to be able to explain the process of

economic growth
to be able to explain the process of economic growth

Economic Growth (GDP)

• Gross Domestic Product:
= the value of output of goods and services
produced in the UK during one year

GDP per capita (GDP per head)

= GDP
population

to be able to explain the process of

economic growth
Economic growth and Aggregate Supply
Inflation
AS1 AS2
Increases in
capacity can
occur as a result
of a shift in AS

Yf1 Yf2 Real GDP

to be able to explain the process of
economic growth
to be able to explain the process of
economic growth
 Population (Dec. 2006 est.) 22.9 million.
Work force (2006):10.6 million.

Education: Literacy (2005)--97.3 %.

 Health: Infant mortality rate (2006 est.)--0.63%.

 Life expectancy (2006) male 74.57 yrs.; female 80.81 yrs.

to be able to explain the process of
economic growth
 Case Study : Taiwan
1.Summarise the recent economic
history of Taiwan
2.What are the positive
consequences?
3.What about negative
consequences?
to be able to explain the process of
economic growth
to be able to explain the process of
economic growth
 What is good about growth?
List all the costs and benefits you can think
of which a country experiencing growth
might enjoy.

to be able to explain the process of

economic growth
 Benefits
• Increases in economic growth should
enable more of everything to be
produced
• More consumer goods, an increase in
living standards
• Wealth generated may eventually
‘trickle down’ to those who are poor by
means of taxes and benefits

to be able to explain the process of

economic growth
 Benefits
• Improved standards of living
associated with increase in the
availability of luxury goods:
– TVs
– Fridges and freezers
– Swimming pools, etc .
• In addition:
– Infrastructure – roads, rail, energy,
water, communication networks
– Health and education provision
• All associated with a ‘decent’ standard
of living.

to be able to explain the process of

economic growth
 Improvement in Welfare
• Welfare is improved by the
provision of support for those
not necessarily able to help
themselves. Welfare includes:
– Pensions
– Benefits – sickness, disability,
etc.
– Support – maternity, holidays,
– Housing
– Infrastructure – homes for the
elderly

Only wealthy countries can afford this

to be able to explain the process of

economic growth
 Is there a downside?
List all the disadvantages you can think of
which a country experiencing growth
might suffer from.

to be able to explain the process of

economic growth
Case Study : Taiwan

to be able to explain the process of

economic growth
 Costs
• Environmental problems
– Expansion and growth brings
with it the problems of
pollution – often developing
countries do not have the
infrastructure to cope with the
waste generated

to be able to explain the process of

economic growth
Environmental Impact
• Negative Externalities
• Pollution – dumping of
hazardous waste
• Environmental
degradation – over
farming reduces
productivity of the soil,
deforestation, damage to
eco-systems and
reduction in biodiversity
• Non-renewable resources
– finite resources
to be able to explain the process of
economic growth
 Case Study : Taiwan
Is Taiwan better off as a
result of globalization?

What were the causes of

Taiwan’s growth?
to be able to explain the process of
economic growth
 Economic growth
China 1.3bn pop. India 1.1bn pop
• 1998-2004: average • Growth rates of between
growth rate of 10% pa 6-8% pa
• Low cost manufactured • Call centres, software and
goods pharmaceutical firms
• Improved transport • Transport system less
infrastructure developed
• Highly disciplined • Many graduates but also
workforce high rate of illiteracy
• One new power station • Government bureaucracy
opens every day and red tape high
• High levels of FDI • Lower levels of FDI
to be able to explain the process of
economic growth
 Economic growth
What factors do you think enable a country to
grow rapidly?

List as many as you can

to be able to explain the process of

economic growth
to be able to explain the process of economic growth

Causes of growth

Growth
 to be able to explain the process of economic growth

Causes of growth
[Export-led growth]

Innovation Trade

Investment Growth Mature

economy

Education Government
policy
A mature economy
to be able to explain the process of
economic growth
 Trade & Economic Growth (GDP)
What is the link?

How could more trade lead to more growth?

to be able to explain the process of

economic growth
 Trade & Economic Growth (GDP)
What is the link?

How could more trade lead to more growth?

• Trade leads to specialization.

• Specialization leads to a more efficient use
of resources
• Resources are freed up to produce more goods

to be able to explain the process of

economic growth
 to be able to explain the process of economic growth

R&D

Innovation

Product Process
Innovation Innovation

how? Economic how?

growth
Indicators – what indicators?

to be able to explain the process of

economic growth
 Indicators
• Population • Car ownership
• Population growth • Internet access
• Population structure • Literacy rates
• Birth and death rates [and • Doctors per 1000
imr] • Energy consumption
• GDP growth rates • Road network
• GDP per capita • Rail network
• Exports [what; growth rate] • Pollution levels
• Imports [what; growth rate]
• Inflation
• Wage growth Who would you back in the two-horse race
between China and India?
to be able to explain the process of
economic growth