Dmitry Rudenko

drudenko@inbox.ru

WORLD ECONOMY AND

INTERNATIONAL TRADE
Lecture 3: Indicators of the global economy

SpB, 2019
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LECTURE FOR TODAY:

Main indicators
Economic development
Social development
Competitiveness
All indicators may be grouped into
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Global indicators:
Volume of international production of goods and services (GWP)
and the rate of global economic growth;
World trade or the volume of international trade in goods and
services;
The global volume of foreign investments and their structure,
volume and dynamics of FDI;
The volume and dynamics of international concentration of capital
- the accumulated volume of FDI in the world;
World labor migration;
The scope of international transactions with patents, licenses and
know-how;
The volume of international operations of banks and other credit
institutions;
The volume of operations in international stock markets
(differentially by segment - bonds, stocks, etc.), the capitalization
of these markets;
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GWP:
The gross world product (GWP) is the combined GNI or
GDP (EX=IM) of all the countries in the world.
GDP and GNI:

Gross domestic product (GDP) is a monetary measure of the

market value of all the final goods and services produced in a
period of time, often annually or quarterly.
Gross national income (GNI), previously known as gross
national product (GNP), is the total domestic and foreign
output claimed by residents of a country, consisting of gross
domestic product (GDP), plus factor income earned by foreign
residents, minus income earned in the domestic economy by
nonresidents. Comparing GNI to GDP shows the degree to
which a nation's GDP represents domestic or international
activity.
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Openness and economic development

1. International trade:
Trade volume (export or import of goods and services)
Trade to GDP
Structure of trade
Share in the global production to the share in the global trade
2. Capital flows:
Stock of international investments (FDI and portfolio: inward
or outward)
Flow of international investments (FDI or portfolio: inflow or
outflow)
Stock/flow of FDI (portfolio) to GDP
External debt
External debt to GDP
3. International labor migration
Net migration
International migration stock
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Sachs and Warner (1995) openness index

Trade liberalization under the SW measure occurs when there
is a change in the classification of a country as either open or
closed to international trade. A country is defined as closed if it
meets any one of the following criteria.
• a) Tariffs rates of 40 per cent or more.
• b) Non-Tariff barriers covering 40 per cent of trade or more.
• c) Black market exchange rate premium that is depreciated
by 20 per cent or more relative to the official exchange rate.
• d) A state monopoly on major exports.
• e) Socialist economic system.
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Sachs and Warner (1995) openness index

Trade liberalization under the SW measure occurs when there
is a change in the classification of a country as either open or
closed to international trade. A country is defined as closed if it
meets any one of the following criteria.
• a) Tariffs rates of 40 per cent or more.
• b) Non-Tariff barriers covering 40 per cent of trade or more.
• c) Black market exchange rate premium that is depreciated
by 20 per cent or more relative to the official exchange rate.
• d) A state monopoly on major exports.
• e) Socialist economic system.
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Globalization
“International economic activity grew at increasingly rapid rates
over the period, and the rates of growth were faster in more liquid
markets (foreign exchange > portfolio > FDI > trade > global
production)”
Indexes of globalization:
• The A.T. Kearney/FOREIGN POLICY Globalization Index
• KOF Index of globalization

The A.T. Kearney/FOREIGN POLICY Globalization Index tracks

and assesses changes in four key components of global
integration, incorporating measures such as
trade and investment flows,
movement of people across borders,
volume of international telephone calls, Internet usage,
and participation in international organizations.
https://www.atkearney.com/web/global-business-policy-council/article?/a/from-globalization-to-
islandization
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Globalization
Economic integration combines data on trade and foreign direct
investment (FDI) inflows and outflows.
Personal contact tracks international travel and tourism,
international telephone calls, and cross-border remittances and
personal transfers (including worker remittances, compensation to
employees, and other person-to-person and nongovernmental
transfers).
Technological connectivity counts the number of Internet users,
Internet hosts, and secure servers through which encrypted
transactions are carried out.
Finally, political engagement includes each country’s
memberships in a variety of representative international
organizations, personnel and financial contributions to U.N.
peacekeeping missions, ratification of selected multilateral treaties,
and amounts of governmental transfer payments and receipts.
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Globalization
KOF index:
• economic globalization, characterized as long distance flows of
goods, capital and services as well as information and
perceptions that accompany market exchanges;
• political globalization, characterized by a diffusion of government
policies; and
• social globalization, expressed as the spread of ideas,
information, images and people.
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Globalization
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Social development
Until the 70s of XX century. development was most
often regarded as a purely economic phenomenon. It
was believed that a rapid increase in the absolute
volume of GDP and GDP per person would
automatically bring benefits through the creation of jobs.
Economic development: changes in the structure of
production by increasing the share of manufacturing
industry while reducing the proportion of the agricultural
sector.
Thus, economic development = economic growth.
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Social development
The country's development strategies focused on rapid
industrialization. Serious doubts about the legitimacy of
identifying economic growth and economic
development were generated by the unsuccessful
experience of independent development of the former
colonies.
In the 50-60 years. Many Third World countries
formulated their development goals and achieved high
growth rates, but in the overwhelming majority of cases
they were unable to raise the standard of living of the
population.
Gunnar Myrdal’s Asian Drama: An Inquiry into the
Poverty of Nations (Myrdal 1968).
https://voxeu.org/article/gunnar-myrdal-and-asian-drama-context#
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Social development
In the 1970s, the concept of development was modified, the
GDP indicator as a development criterion was criticized,
because it does not reflect welfare and income distribution. :
1. International Labor Organization (ILO) - the concept of
"basic needs". Shifting the focus from the economic efficiency
of production to meeting the basic needs of the majority of the
population, changing the criteria for assessing economic
development, social indicators have become decisive.
Murdal’s idea.
2. United Nations Institute for Social Development (UNRISD) -
a set of indicators (9 social and 7 economic) for the
comprehensive social development index.
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Social development
3. The physical quality of life index (PQLI), developed for the
Overseas Development Council by David Morris. The value is
the average of three statistics: basic literacy rate, infant
mortality, and life expectancy at age one, all equally weighted
on a 0 to 100 scale.
Steps to Calculate Physical Quality of Life:
1) Find percentage of the population that is literate (literacy
rate).
2) Find the infant mortality rate. (out of 1000 births) INDEXED
Infant Mortality Rate = (166 - infant mortality) × 0.625
3) Find the Life Expectancy. INDEXED Life Expectancy = (Life
expectancy - 42) × 2.7
4) Take the average.
Low correlation between per capita GDP and the quality of life
index (Sri Lanka and Saudi Arabia).
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Social development
4. Population Crisis Committee, Washington, DC (1987)
- The Human Suffering Index.
A compound indicator of distress, compiled by ‘adding
together ten measures of human welfare related to
economics, demography, health, and governance:
income, inflation, demand for new jobs, urban
population pressures, infant mortality, nutrition, access
to clean water, energy use, adult literacy, and personal
freedom’.
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Social development
5. United Nations Development Program (1990) - Human
Development Index.
The index is based on the human development approach,
developed by ul Haq, often framed in terms of whether people
are able to "be" and "do" desirable things in life. Examples
include—Being: well fed, sheltered, healthy; Doings: work,
education, voting, participating in community life. The freedom
of choice is central—someone choosing to be hungry (as
during a religious fast) is quite different from someone who is
hungry because they cannot afford to buy food, or because the
country is in a famine.
Amartya Sen Development as Freedom (1999)
The HDI was created to emphasize that people and their
capabilities should be the ultimate criteria for assessing the
development of a country, not economic growth alone.
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Social development
Key dimensions of human development: a long and healthy life, being
knowledgeable and have a decent standard of living. The HDI is the
geometric mean of normalized indices for each of the three
dimensions.http://hdr.undp.org/en/data
http://hdr.undp.org/en/content/human-development-index-hdi
The health dimension is assessed by life expectancy at birth, the
education dimension is measured by mean of years of schooling for
adults aged 25 years and more and expected years of schooling for
children of school entering age. The standard of living dimension is
measured by gross national income per capita. The HDI uses the
logarithm of income, to reflect the diminishing importance of income
with increasing GNI. The scores for the three HDI dimension indices are
then aggregated into a composite index using geometric mean.
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Sustainable development goals

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Sustainable development goals

The Rome Club (with its famous report “Limits to Growth”), the
International Institute for System Analysis, the UN Environment
Programme (UNEP).
In 1987, in the “Our Common Future” report, the World
Commission on Environment and Development (the Brundtland
Commission) focused on the need for “sustainable development”,
in which “meeting the needs of the present does not undermine the
ability of future generations to meet their own needs”.
In 1992, the UN Conference on Environment and Development
was held in Rio de Janeiro, known as the “Earth Summit”, and a
Commission on Sustainable Development was formed within the
framework of the UN Economic and Social Council.
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https://www.un.org/sustainabledevelopment/sustainable-development-
goals/
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Social development
The main problem of social development is poverty!
Poverty should be defined as a specific state of insecurity of
people with the necessary resources to meet the generally
accepted needs in a given society, due to the existing system of
socio-economic relations, low efficiency of institutions, location and
personal characteristics of the individual.

Poverty can be seen in terms of:

an approach based on unmet basic needs;
monetary (monetary) approach;
approach through human development;
approach through social exclusion;
participatory approach.
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