World Economy

World Economy

1. Colombian Economy

   • Trade, investment, finance and the organization of production on a global scale have been of great importance for the functioning of the Colombian economy.
     • How can Colombia benefit?
       • Colombia, having comparatively low technological levels, can benefit from interacting with the rest of the world
       • through
         • comparative advantage theory
           • according to David Ricardo (1776-1850)
             • each country achieves a higher level of well-being by specializing in the goods it produces at relatively lower cost
               • using
                 • intensively the productive factors that it possesses with relative abundance
             • if a country is inefficient in the production of goods and services
               • there will be some that could produce at a lower relative cost than the rest of the world
           • intra-industry trade
             • occurs between similar countries that export and import varieties of the same class of goods
               • example
                 • Germany and the United States (automotive exchange)
           • inter-industry trade
             • originates from different sectors or industries in each country
           • intertemporal comparative advantage
             • consists in
               • countries that have accumulated little capital can increase their production much more if they invest, for this reason their advantage is in future production
                 • example
                   • countries with great investment opportunities
         • foreign direct investment
           • can increase economic growth through 3 channels
             • the approval of the national planning department is required
             • replace less productive investment with more productive
             • increases productivity in domestic capital
           • the approval of the national planning department is required
     • fundamental pillar of the Colombian economy
       • Trade Policy
         • What is it ?
           • It is a set of policy instruments that the government implements
             • what is its end?
               • regulate and intervene in foreign trade
         • In Colombia, trade policy is divided into
           • Duty
             • their characteristics are;
               • stimulates local production of the good that is protected
               • are an attractive source of income for the public sector
             • definition
               • are taxes on both imports and exports
                 • Within the tariffs there are two classes of protection which are
                   • Nominal Protection
                     • refers to the tariff rate charged to a good or service
                   • Effective Protection
                     • effective protection takes into account national production
           • Dues
             • What is it ?
               • are restrictions on import volumes
           • Export Subsidies
             • what purpose do they have?
               • promote certain productive sectors so that they can enter international markets
             • examples
               • subsidiary credits
               • tax exemptions
               • direct payments from the government budget to exports
           • substitution by importers
             • its origin was
               • because year after year it was necessary to produce more raw materials to import the same manufactures
                 • What did the import substitution achieve?
                   • transform the manufacturing sector in colombia, some achieved comparative advantages
           • free import lists
             • definition
               • They are goods whose importation is prohibited depending on the external situation of the moment
           • vallejo plan
             • This exempts from the payment of tariffs on imports destined for the production of goods for export
           • Andean price band system
             • ensures certain stability in the prices of these products considered volatile in the agricultural sectors
         • with economic opening in 1991
           • there was a decrease in tariffs
   • within the Colombian economy there are two important pillars
     • price and exchange rate
       • price and exchange rate
         • fifth concept
           • balance of trade
             • What is it ?
               • is the balance of exports minus imports of goods
                 • what does it depend on
                   • it depends positively on the real exchange rate and in the presence of a real depreciation or devaluation
                     • example
                       • when there is a real revaluation, exports decrease and imports increase, deteriorating the trade balance
         • real exchange rate
           • What is it ?
             • is the relationship between the price of a basket of goods in country x and the price of the same basket of goods in country j
               • expressed in terms of a common currency
           • multilateral real exchange rate
             • What is it ?
               • is the comparison of local prices with a weighted average of the prices of several countries
         • second concept
           • the general price level
             • which consists of
               • measure the average price level in an economy
         • first concept
           • the law of the single price
             • establishes that once converted to a common currency the prices of goods are equal
         • fourth concept
           • When the cost of local goods increases in terms of foreign goods, we speak of a real revaluation or appreciation
     • Capital Movements in Colombia
       • it is linked to the incentives that face, ofcapital resourcesfer and demand resources demand for
         • one of them is external indebtedness
           • which can be divided into
             • official loans
               • through which they borrow from international organizations
                 • for example
                   • Andean Development Corporation
                   • inter-american bank
                   • world Bank
             • bank credit
             • debt bond financing
               • issued by the public sector

2. a big step for the world economy was

   • the globalization
     • It is the result of reduced transportation costs and artificial barriers to trade across borders.
       • thanks to this
         • world GDP has grown considerably since 1960
         • expands the possibilities of efficiency and exchange
         • efficiency and discipline are generated
         • increases investment levels
       • turn the world
         • in a unique market where technological working capital, merchandise and information move freely from one country to another
           • however there are problems such as
             • migration barriers
             • very wide technology gaps
             • countries impose tariffs
             • gravitational model of trade
             • Open economies become more dependent on the rest of the world, consequently external events can significantly affect
   • balance of payments
     • What is it ?
       • are all the transactions that the citizens of a country carry out with the rest of the world, they are recorded in the balance of payments
         • they use the accounting principle called double entry
         • There are two types
           • Capital
             • These originate obligations or rights that later have repercussions
               • for example
                 • the indebtedness of a country
               • it records financial or capital transactions between nationals and foreigners
                 • This capital account is divided into three types of transactions
                   • foreign investment
                   • loan capital
                     • in this case the investor periodically receives interest and amortizations as debt service
                   • purchase of bonds, stocks and other instruments
           • current
             • are those related to the exchange of goods and services abroad to the extent that it has no future implications
               • in case there is a deficit in the current account that does not reach to be financed with the inflow of capital
                 • the central bank needs to decrease its holdings of international reserves
           • the sum of these two accounts must be identical to the variation of the country's international reserves
   • net external assets
     • is the set of assets abroad of the citizens of a country minus the assets owned by foreigners in that country