I. Endogenous Growth and International Transmission II. The Asian Crisis and ResolutionThe Dramatic Demographics of the Developing WorldAsia Will Have the Largest Absolute Real GDP Gain Through 2010The New Economic Order: Open Borders for Goods, Technology and FinanceSlide 5Returns to Education Have RisenInternational TransmissionSlide 10The Most Rapid Growth in Developing Nations Has Occurred for those Having.....High Investment Shares of GDP,Slide 12Slide 13Markets Outside the United States Still Offer the Greatest Long-Run Growth PotentialThe Market Growth Advantage Exceeds the GDP Growth Advantage Korean Durable Goods vs. GDPA Positive Trend of Currency Appreciation as Development Proceeds, But with Periodic Major CrisesThe Relationship Between a Country’s Level of Development and an Appreciating Exchange Rate is Confirmed in Cross-Country ComparisonsBrazil and Argentina were clearly overvalued until recentlyThe Cycles Of Crisis Devaluations (Around A Rising Trend?)The Competitive Pressure From China: The Chinese Exchange Rate Was Cut Sharply as China Engaged in More Trade With the WestDeveloping Nations Compete Fiercely: The Chinese Devaluation in 1994 Was a Prime Force in the Asian CrisisThe Chinese Devaluation in 1994 Was a Prime Force in the Asian CrisisThe Competitive Pressure From China: Costs At Only 20% Of Industrial Nations, And 40% Of Large Developing NationsTectonic Shifts Beyond 2000 : The Global Economic PressuresThe Ingredients of the Crisis in AsiaPursuing high growth adds risk, but mediocrity is the only other optionSlide 30The Specific Ingredients of the Crisis in Thailand, the First Asian Victim in this CycleWill Asia Recover Without Great Delay?The Resolution of the Emerging Nation CrisisSlide 35Slide 36Asian Devaluations Have Dramatically Reduced Asia’s Cost of Manufacturing LaborCost of Manufacturing Labor Relative to USBRINNER1902mit18.pptI. Endogenous Growth and International TransmissionII. The Asian Crisis and ResolutionLecture 18BRINNER2902mit18.pptThe Dramatic Demographics of the Developing World 0%20%40%60%80%100%2000 20100 100 200 300US & CanadaAsia HighWestern EuropeLatin AmericaMiddle East & AfricaAsia Low IncomeChinaAsia Mid Income-Less than 15% of the World’s Population is in Europe, Japan and North America-Asia dominates the growthPopulation by RegionPopulation Growth,2000-2010, Millions of PeoplePercent of TotalNote: Asia High Income includes Singapore, Hong Kong, New Zealand, and Australia; Asia Mid Income includes Korea, Thailand, Indonesia, Malaysia, and the Philippines; Asia Low Income includes India and PakistanJapanAsia HighWestern EuropeNorth AmericaLatin AmericaMiddle East & AfricaAsia MidAsia LowChinaBRINNER3902mit18.ppt0%2%4%6%8%10%US & CanadaAsia: High IncomeEuropeLatin AmericaMiddle East andAfricaAsia Low IncomeChinaAsia: Mid Income1985-19992000-2010$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000North AmericaAsia: HighIncomeWesternEuropeLatin AmericaMid. East &AfricaAsia: LowIncomeChinaAsia: MidIncomeReal GDP Average Annual GrowthAbsolute Increase in Market Size (Real GDP)US$ billions increase, 2000-2010Growth RateDollars in Billions(Adjusted for Purchasing Power)Note: Asia High Income includes Japan, Singapore, Hong Kong, New Zealand, and Australia; Asia Mid Income includes Korea, Thailand, Indonesia, Malaysia, Taiwan, and the Philippines; Asia Low Income includes India and PakistanAsia Will Have the Largest Absolute Real GDP Gain Through 2010BRINNER4902mit18.pptThe New Economic Order: Open Borders for Goods, Technology and FinanceIncreasingly free trade with the developing world creates tremendous stress in the mature industrial economies: the opportunity to move production and assembly technologies abroad removes a previously captive privilege from the workers of the United States, Japan, and Europe. The NAFTA and EC expansions point to extended trends in this direction.–Semi-skilled labor is now in gross over-supply worldwide. –Managers and entrepreneurs will benefit.BRINNER5902mit18.pptThe New Economic Order: Open Borders for Goods, Technology and FinanceUnprecedented technology and capital transfers plus political transformations signal high growth for selected developing nations. The earliest and most rapid advancement will occur where:–the work-force is the best educated and motivated;–the indigenous entrepreneurial climate is most positive;–equity investment and trade are encouraged;–government fiscal and monetary policies are best balanced to keep inflation and exchange risks minimal; and–the democratic heritage is strongest.BRINNER6902mit18.pptReturns to Education Have Risen00.20.40.60.811.21.4College Graduates High SchoolGraduatesHigh School Drop-outs1979 1988(Multiple of average income)BRINNER9902mit18.pptInternational TransmissionA country can import a higher level of “technology” to accelerate its growth by:Copying, licensing or pirating from successful approaches elsewhereSending students to foreign universities and technical programsSending business managers and engineers on plant toursReverse-engineering productsAll of this tends to create a strong convergence process pulling up nations with below average productivityThis pace of convergence appears to be correlated with the level of investment in equipment.–Given the ability to change technology, the new equipment can be logically expected to yield a high rate of return.BRINNER10902mit18.pptInternational TransmissionA country can import a higher level of “technology” to accelerate its growth–Depending on how the official investment series are deflated to account for quality changes, this could include better “machines” and show up as either endogenous (measured) or exogenous (unmeasured) changes in inputs or TFP–It certainly also includes better work flow and production patterns which will appear to be exogenous–Access to this may require allowing equity investment and partnerships: the best practices are not for sale to non-partnersA country can also play to global comparative advantage by opening up to trade and so boost its standard of livingBRINNER11902mit18.pptThe Most Rapid Growth in Developing NationsHas Occurred for those Having.....High Investment Shares of GDP,BottomGrowthQuartileTopGrowthQuartile00.050.10.150.20.250.3BottomGrowthQuartileTopGrowthQuartileBRINNER12902mit18.ppt,H!,."01v2H3.JTv0ù a0.1ù Z0.2ù S0.3ù K ,H!,."01v2H3.JTv...High Secondary School
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