Ghana: Developing Nations

Ghana is known for being one of the leading nations in Africa, although there has been questioning over the nature and extent of a “developing” economy in sub-saharan Africa. Economic development is defined as the increase in the standard of living in a nation’s population with sustained growth from a simple, low-income economy to a modern, and high-income economy. The difference between development and growth is that development is measured by HDI (Human development Index) and growth is measured by GDP (Gross Domestic product = output). The nation has potential in Economic development because of its natural resources. Perhaps the perfect climate and geography has allowed crops and minerals to culture in the environment. Ghana has exported cacao to the world, being the third most strong producer. Cacao plants, which grow in tropical rain-forests, have been replaced with trees from forests because the rainforests’ nutritious soil. Even when cacao plants’ supply decreased, they were still able to obtain revenue by exporting timber (which is also grown in the rain forest).

However, Ghana’s strengths in agriculture-production outweighs multiple problems Ghana have.

Still, Ghana has been climbing up the “HDI-ladder ”  in 2009 from 0.473 to 0.556, which suggests that we could expect a day when the world would be depending on Ghana some day. Virtually, educational standards in Ghana has been poor, due to poor funding of libraries and other facilities. Hence the Ghanaian government has proposed that they will encourage scientific and technological development and education to enhance productivity. Furthermore, Ghana created a “National Broadband Strategy” that seeks socio-economic benefits of broadband accessibility. This includes a 50% Broadband penetration for Ghanaians by 2015, reducing Broadband Costs by 80%, and reducing CPE (Customer Premise equipment) and PC costs by 90%. By implementing these strategies, there will possibly have an impact on health, education and standard of living; the three main indicators in the UNDP Human Development Index.

Reflecting back on Semester 1

To be honest, I feel this semester has been enriching but at the same time, I felt unorganized in terms of planning ahead. For almost every assignment we have received, I had a terrible  habit of studying the morning before the actual test. In other words, I was cramming. On the first time I did this, I received a full score on a test so I would repeat this habit each time. Frankly, this study method is the most efficient way of getting an A (temporarily) but  I feel like I haven’t learned anything. As cliche and ‘nerdy’ this sounds, reviewing each night may help than cramming the night before of a test. Of course, this is what I have been told since the day 1 of high-school, and being a senior, I feel quite embarrassed for not being able to do this! Nevertheless, it is merely easy to say but hard to do.

I say this semester was enriching because I was able to reveal a side of me that I did not see. Right before quarter 1 was ending, I received a test score that was surprisingly high that did not match the amount of time I studied for that test. I figured that my teacher miscalculated my score to a higher score than it should be. As I experienced a moment of ethical dilemma, I decided to honestly confess that I did not deserve the grade I received. As expected, I was marked lower because I spoke up to tell the truth. Considering the fact that grades are biased to begin with, and that we have fewer summative assignments this year, I started to question whether the action I took was right or not. Of course, I morally did the right thing, yet I was scared that I would perhaps lose the net gain. At the moment of all this, I regretted of my actions because life doesn’t work like fairy tales, where the ‘good’ character always have a happy-ending. Looking back, I feel I did the right thing, even if I could have had a higher grade in this class. My emotions have driven me to see things from a new perspective. Although this has almost nothing to do with the understanding of economics, I felt it was necessary to mention this; this was the highlight of my semester 1.

Exam Review Blog Post

From NOV.2009 Paper 1 IB Exam: Explain 2 factors that might negatively affect a country’s current account in its balance of payments.

Demands of Question

• Define: Balance of Payment, Current account
• State the 2 factors that might negatively affect a country’s current account and elaborate

The balance of payments are a nation’s balance of payment. It is the sum of all transactions that take place between its residents and the residents of all foreign nations. These transactions include merchandise exports and imports, tourist expenditures, and the sale and purchase of financial and real assets abroad, including stocks, real estate, government bonds, etc. The current account is the subdivisions of the Balance of Payments account. Current account summarizes a country’s trade in currently produced goods and services. Basically, it is found by adding all transactions (expenditures on imports plus income from exports) in the current account. If a country spends more on imports than it earns from exports, it is said to have a current account defiict; if a country earns more from its exports than it spends on imports, it is said to have a “current account surplus” or a “trade surplus”.

• The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy vis-à-vis those in the importing economy;
• The cost and availability of raw materials, intermediate goods and other inputs;
• Exchange rate movements;
• Multilateral, bilateral and unilateral taxes or restrictions on trade;
• Non-tariff barriers such as environmental, health or safety standards;
• The availability of adequate foreign exchange with which to pay for imports; and
• Prices of goods manufactured at home (influenced by the responsiveness of supply

In addition, the trade balance is likely to differ across the business cycle. In export-led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion. However, with domestic demand led growth (as in the United States and Australia) the trade balance will worsen at the same stage in the business cycle.

Since the mid 1980s, the United States has had a growing deficit in tradeable goods, especially with Asian nations (China and Japan) which now hold large sums of U.S debt that has funded the consumption.^[4][5] The U.S. has a trade surplus with nations such as Australia. The issue of trade deficits can be complex. Trade deficits generated in tradeable goods such as manufactured goods or software may impact domestic employment to different degrees than trade deficits in raw materials.

Economies such as Canada, Japan, and Germany which have savings surpluses, typically run trade surpluses. China, a high growth economy, has tended to run trade surpluses. A higher savings rate generally corresponds to a trade surplus. Correspondingly, the U.S. with its lower savings rate has tended to run high trade deficits, especially with Asian nations.

Read more: http://www.answers.com/topic/balance-of-trade#ixzz1BR4YXlZG

Related PPT Slides:

China Manipulating the Yuan

Evaluate the US claim that China is manipulating its currency

Some U.S economists view that China is manipulating its exchange rate currency to gain an advantage in trade. This would therefore prevent the export-led country, China from being floating on the market and gain an positive outcome. A floating exchange rate means that the the currency is allowed to fluctuate freely and be determined without intervention in the exchange market by the government or central bank. An exchange rate is the value of one currency for the purpose of conversion to another.What China has been doing, is to set the price of Yuan lower at a lower value to trade with the US dollar. “Some, like Rep. Sander M. Levin (D-Mich.), even blame the unemployment problem in the U.S, perhaps the leading issue in the midterm elections, on China’s currency policy” (Hostetler, 2010).

The Japanese has been reacting to China with its manipulation of the Yuan. As the yen appreciated against the US dollar (appreciating means that the price and value of the Yen has increased against the US dollar), the US and the British were in fear that Japan “might intervene to curb the currency’s advance. The yen touched its strongest level against the euro since March 2002 on Wednesday” (Mutikani, 2010). For the US especially, the Japanese may change the trade of balance, which is the difference between exports and imports of the economy.

Debates on this topic has been heating up for several months now. What is ironic about international world economy is that if one country is in trade surplus, then there will be at least another in trade deficit (current account). According to a Nobel-prize winning economist, Paul Krugman, if China stopped straining the value of the yuan, then  the economic growth of the world would be 1.5 % higher than it is currently. Yet China’s authorities have neglected the ideas of stopping what they are doing at the moment. Some even say that the country with the most power in the currency market is the US, but also the one having the most debts from the Chinese. As US is attempting to get their own message across through media, this may exasperate China and lead to severe consequences.

Retrieved from here and here

Definitions and Diagrams: International Economics

Balance of Payments: Record of the value of all the transactions between the residents of a country with residents of all other countries in a given time period

Balance of trade: Measure of revenue received from exports minus the expenditure on imports, over a given time period.

Current account: Measure of the flows of fund from trade in goods and services, net investment income flows, and net transfers of money

Capital account: Measure of the buying and selling of assets between countries. The assets are often separated to show assets that represent ownership and assets that represent lending

Current Account Surplus: Revenue from the exports and income flow is greater than the expenditure on the imports of goods/services and income flows over a given time period. More investment funds flowing into the country than out due to the fund on current account of BOP (balance of payments)

Current Account Deficit: Revenue of trade is less than the expenditure on the imports of goods/services and income flows over a given time period. Net outflow of investment.

Expenditure switching Policies: Governmental policies that attempt to switch the expenditure of domestic consumers away from imports.

Appreciation: When a currency increases its value on the exchange market.

Depreciation: When a currency decreases its value on the exchange market.

Expenditure-switching policies – these are policies that are aimed at encouraging people to switch their spending from imported goods to domestic goods. These policies might include tariffs and protectionism in general, manipulation of exchange rates to change the relative prices of imports and supply-side policies aimed at improving the competitiveness of national firms. If these policies are successful, spending will switch from imports to domestic spending and the current account will improve.

Expenditure-reducing policies – these are policies that aim to reduce domestic expenditure and therefore reduce the level of imports. The main expenditure-reducing policies are deflationary monetary and fiscal policies. These may include increasing tax, cutting government expenditure or increasing interest rates. The impact of these policies would be to reduce the level of aggregate demand and therefore the demand for imports. Lower income levels mean lower spending on imports and a consequent improvement in the current account. The extent of this improvement will depend on the income elasticity of demand for imports. The higher the income elasticity, the greater the improvement there will be in the current account

 

125. A Country in Deficit: Brazil (via Jessica’s Econ Blog)

History of Brazil's Economy Article Net debt should drop to 30 percent of gross domestic product by 2014, and the country will likely narrow the nominal budget deficit to zero in the next administration, Budget and Planning Mminister, Mr. Bernardo told a reporter for O Globo newspaper. Brazil's net debt, or total debt minus international reserves and other government cash, reached 42.2% of GDP in April of 2010, while the nominal deficit in the ye … Read More

via Jessica's Econ Blog

Trading Economics: Japan

Japan’s GDP has been fluctuating since the 1980s

Exports have been driving Japan towards economic growth in the past 6 years.

In the past 20 years, there were various economic events that lead up to this day. In the 1980s, quotas decreased. A quota is a type of protectionism that is imposed by the government to set a limited or fixed number of imports to save domestic firms. Those products still under the quota called in complaints by exporting countries. In 1991, Japan agreed with the United States to end quotas on beef and citrus fruits. Another product that is often debated even today, is protectionism on rice. Rice is a prominent food source for the Japanese and domestic farms also played a significant role in cultural importanceーthis is the main reason why rice is under protectionism. Moreover, the level of manufactured imports in Japan were low in the 1980s, specified in the gross national product (GNP) numbers. In 1985, the yen appreciates, which made imports more attractive for Japanese consumers. This started a domestic debate over non-tariff barriers and other structural features of the economy  impeding imports. The increasing trade surplus over two years were the result of appreciation of yen and lower crude oil prices at the end o the Gulf War that pushed down import prices.  However, imports decreases because of Japan’s heavy protectionism on import volume. The import prices brought about by falling primary goods and the Asian currency crisis, resulting in the 1998 trade surplus expansion. Further, Japan invested in Eastern Asia and its expansion of local production activitiesーso Japan could increase the shares of capital equipment and machinery. Many Japanese companies have shifted their production towards East Asia, which has increased exports to east Asia while increasing imports from Asia.

When the current account balance is interpreted as the disparity between savings and investment over the estimation period, the savings-investment balance (against GDP) for the household sector indicates that excess savings held stable. Japan’s current account surplus created a capital and financial account deficit.

“Japan October Export Growth Slows” Published: 11/25/2010 8:35:37 AM    By: TradingEconomics.com, AFP

In october, Japan has recorded the slowest pace of its exports in history. There seems to be a shifting demand towards foreign goods. This also brings up the problem of the strong yen at the moment, which encourages Japanese consumers to choose imports over domestic products.  Only China has shown its robust appetite in Japanese products. “A strong yen not only makes Japan’s growth-driving exports more expensive but erodes companies’ overseas profits when repatriated, with many firms considering sending more production overseas as a result”. Japan has shown an increase in trade surplus by 2.7%.

Reflection: Data Response

I feel that I did not do really bad on this data-response, however, there is still room for improvement. The score I received is something I was not satisfied with, and it merely had to with point reductions on basic areas in Economicsーsuch as supply and demand. I regret that I did not look over my work before handing it in, and by doing this, I could have easily gotten a higher mark. Two things I would like to do to improve on my score is to first, attempt  on practicing ‘simulation’ problems before the test, and second, refer to CRAMPS.

Another note, is to remind myself the scores should not be a burden. These days, I am very score-driven especially because I care about what only goes in the transcript. This has limited me to only put an effort on summative assessments than the formative, because formative assessments do not count towards the grade.  This was a huge mistake I made because an improvement on formative assessments would lead to a stronger response on the summative, and in the end, the final IB exam in May. I figured my senioritis has gotten me and feel lazy than I was last year, yet I have to force myself to put an effort on all assignments to accelerate in this class.

Should Trade Protectionism be allowed?

That’s right, it is certainly a hard question to solve with a simple yes and no. Many countries lean toward free-trade, while others impose protectionism such as tariffs, quotas, and subsidies to protect domestic industries. Understanding there exists pros and cons to this argument, I must say that I agree to have free-trade with these reasons:

1. Protectionism increases price and decreases options. Protectionism limits availability of imported goods that force consumers to purchase domestic goods at a higher price. This is because the consumers have to cover the cost for protectionism with expensive prices for foreign goods.  On the other hand, prices are kept low and have more goods to choose from when there is free trade because competition levels increase amongst producers world-wide.
2. Trade Wars may breakout. If a country restricts the amount of imported goods into one country, the countries may have tension in between them. For example, Japan and the USA were fighting over resources during WWII. USA was trying to avoid the war until Japan attacked Pearl Harbor and provoked USA to have war. The ultimate reason to this had to do with Japan blocking goods and trade between the two countries.

Real World Examples of Protectionism

Type of Protectionism	Definition	Real World Example + Link
Tariff	Tax imposed when a good/service is imported in the country	“Congress is considering slapping a tariff on Chinese imports as retaliation for China’s stubbornness over currency policy,and such a move could have implications for green-energy stocks.”   Tariff Example
Quota	Limitation on the quantity that must not be exceeded, such as an import quota	“Private English-medium schools on Thursday hinted at a fee hike to make up for the mandatory 25 per cent reservation of seats for underprivileged students.   The Right to Free and Compulsory Education Act, a piece of central legislation the state government has announced it would implement, makes it mandatory for all schools to set aside a quarter of their seats for poor students who won’t be charged fees.” Quota Example
Subsidy	A grant provided for the government to benefit the public	“The government is weighing the feasibility of subsidizing in-vitro fertilization (IVF) treatment in an effort to slow the continuing decline in the birth rate, a Department of Health (DOH) official said Saturday.   If the subsidy program is adopted and offered to infertile couples, the official said, the numb” Quota Example