EC1111 - International Economic Policy RHUL Vinay P. Nundlall Seminar 1 - Suggested Solutions Prepare and be ready to discuss the questions below. Question 1 a) What are some criteria that can be used to compare countries globally and judge their influence on the international stage? We can look at land size, population size, or GDP. Ultimately, in the study of economics, we end up comparing GDP per capita, which is GDP divided by population. Further, a country's share of global international trade can give an indication of its influence. However, more importantly, we need to know how this GDP per capita is distributed, and how unequal wealth is in the country. The Gini coefficient/Index captures that. Further, important socio-economic indicators such as Literacy Rate (or, Enrolment in Education) and Life expectancy in years (a measure of health) are crucial. In fact, these two indicators combined with GDP per capita gives us the Human Development Index (HDI), which is a better measure of how well a country is doing. b) What are some of the wealthiest countries as measured by GDP per capita? What common characteristics do some of these countries share, and what explains their wealth? From the Course Reader, Table 1.5, we have Qatar, Macao, Luxembourg, Singapore, and Kuwait that stand out. We note that these are small nations, with small populations. Their GDP per capita are very high - Above $143,000 for Qatar and above $100,000 for both Macao and Luxembourg. Qatar and Kuwait have huge reserves of gas and oil, which are essential commodities in the world we live. The economy of Macau relies on tourism and gambling, but also exports textiles and garments. Further, Macao is a free port and a tax haven. Luxembourg and Singapore rely heavily on their financial systems, with Singapore in addition being a big re-exporter, and having developed its hi-tech industries. 2. After World War II, the volume of trade has increased dramatically between developed and developing countries. What are some
factors that explain this surge in trade between countries at different stages of development? Fixing the exchange rate of currencies at the Bretton Woods Agreement eliminated volatility in rates and thus, risk in trading with foreign countries. Further, the end of the war itself allowed countries to concentrate on manufacturing and trading consumer goods instead of weapons. The biggest cause of increased trade was the GATT (General Agreement on Tariffs and Trade) which actively sought to eliminate barriers to trade. The GATT was later replaced by the World Trade Organisation (WTO) Do you feel that this type of trade is beneficial for developing countries? Why? This is a big debate. It seems the answer is YES as it allows smaller nations to specialise in production of a few goods that they can export and become wealthier. Anti-trade activists claim that expansion in trade is bad for the environment and allows big corporations from rich countries to exploit poor nations (eg destruction of the environment, child labour, low wages ...