Global Economy & Financial Architecture

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From the course by University of Pennsylvania

Global Trends for Business and Society

99 оценки

University of Pennsylvania

Global Trends for Business and Society

99 оценки

Course 1 of 4 in the Specialization Business Strategies for A Better World

In this course, you’ll learn to analyze rapidly changing global trends, their effects on consumer and labor markets, financial systems, and geopolitical relationships among countries all over the world. Professor Mauro Guillen of the Wharton School has designed this course to help you understand the magnitude of influence these trends have on the business world and society. Through real-world case studies, both historical and contemporary, you’ll examine how changes within one society affect others. By the end of this course, you’ll have gained the tools to be able to identify, analyze, and adapt to global changes as they affect your business and society.

From the lesson

Module 3: Global Economic and Financial Imbalances

In this module, you’ll examine the growing issue of global economic and financial imbalances. Through relevant examples such as the European Zone crisis, you’ll gain a deeper understanding of the effects of global economic dynamics on both individual countries and their relationships with one another. You’ll explore trade bloc controversies, different types of monetary unions (such as the European Union), and how financial imbalances affect the geopolitical balance and global economy. By the end of this module, you’ll be able to better assess the consequences of economic and financial imbalances on nations, markets, and societies, and be prepared to respond to these phenomena while making decisions for your organization and society.

Global Economy & Financial Architecture7:22

The Changing Geography of Capital Investments: Part 113:36

The Changing Geography of Capital Investments: Part 218:48

Trade Blocs9:36

What are Trade Blocs?15:32

The Origins of the Euro Zone17:12

Why the Euro Zone Got in Trouble28:53

Possible Solutions to the European Crisis14:22

Meet the Instructors

Mauro Guillen
Professor of International Management
Director of the Lauder Institute of Management and International Studies

We're starting now the third week of this class of analyzing global trends for

business and society.

After reviewing population trends and trends in terms of income and

wealth distribution and inequality around the world in the first two weeks.

Now, we're going to examine something that is attracting a lot of attention in

the world, which is the issue of global economic and financial imbalances.

We're going to try to understand how the dynamics in the global economy

are affecting different countries and their relationships with one another.

And we're also going to be taking a very close look at two specific situations

where we see very important implications of these imbalances.

One is the European crisis and the other one is the bilateral

relationship between the United States and China.

Before we get started, I would like to make two basic considerations here.

The first is that remember that if a country exports more than what it imports,

than that county is a surplus county.

However, if a county exports less than what it imports,

then that country is a deficit county.

Now, also keep in mind that if a country runs a surplus, that necessarily

means that at least one other country in the world must be running a deficit.

This, of course, only true in the context of inter-planetary trade

that is exactly zero.

That is to say, all trade takes place within planet earth.

Once again, if a country has a surplus

that means that there must be at least one other country that has a deficit.

Now, let's take a look at the first chart that I have prepared for you.

This chart shows us the magnitude of global imbalances in the world

since the year 1980.

The data are actual recorded data until the year 2015.

And between 2016 and the year 2020,

we have projections or forecasts as to the magnitude and

the distribution of global imbalances by the International Monetary Fund.

What we see is the following, above the zero line we find the countries or

the parts of the world that have a surplus because they export more goods and

services than what they import.

Those countries are China, Germany, Japan.

Some other countries in Europe such as the Netherlands or

Switzerland that also have a surplus.

Or other countries in Asia, such as South Korea or Taiwan.

And then, finally, we have about 20 or 25 oil exporting economies,

that also enjoy surpluses in their trade relationships with the rest of the world.

And below the zero line, we have the countries that have a deficit.

First and foremost, we have the United States and then of course we have a large

number of countries in Europe that also ran deficits.

And the rest of the world category includes about 100 countries,

most of them relatively poor in the world that also have deficits.

Now, one very important point that I want to make is that please take into

account that having a deficit in trade is not necessarily a bad thing.

It really depends on whether you can find enough money to fund your deficit or not.

Now, what's important about this chart is the vertical dimension.

The vertical dimensions comes expressed in percentage points of global GDP,

global gross domestic product.

And one can clearly or more or less clearly see that back in the 1980s and

1990s, the magnitude, the size of both the surpluses and

deficits in the world were basically within plus or

minus 1% in terms of global GDP.

Now, something happened around the year 2000, and the size of both

the deficits and the surpluses became much bigger twice even three times as big.

By the time of the crisis in 2008, the magnitude of the deficits and

the surpluses became a little bit smaller, but it recovered.

And today, and into the foreseeable future, they will continue to be

much bigger than they were back in the 1980s and the 1990s.

So let's take a look now at one particular year.

What we have here is the data for the year 2013.

On the left,

we have the surplus countries and on the right we have the deficit countries.

What we have here is surplus and

deficit countries in terms of their current accounts.

That's a technical term which essentially includes all exports and

imports of goods and services and then certain types of transfers.

What we find on the left, is that in that year, Germany was a country

in the world with the largest trade surplus, current account surplus that is.

Followed by China and then Saudi Arabia, Switzerland, the Netherlands and so on.

And on the right hand side, we find that in that year,

the US was running the largest deficit, followed by the UK,

Brazil, Turkey, Canada, Australia and so on.

Now, here's the key question that I would like to pose.

If the countries on the right hand side,

the deficit countries, year in and year out, they're

buying from the rest of the world more than what they sell to other countries.

That is to say they export less than what they import,

how do they pay their bills, right?

Because every year they're purchasing from aboard more than what they sell

to the rest of the world.

Well, once again given that we had no inter-planetary trade.

The only possibility here is that the surplus countries on the left are the ones

who are giving the money to the deficit countries.

So that they can continue to run a deficit.

The money must necessarily come from the surplus countries.

And the surplus countries, of course, know very well that in order for

them to enjoy a surplus.

They need to provide the deficit countries with enough financing so

that they can continue to purchase their goods and services.

That's how the global economy works.

Now, naturally, the surplus countries

don't give the deficit countries the money without any strings attached.

Typically, what happens is that the deficit countries borrow the money and

therefore year after year they're deeper into debt.

One very common way of making this work is for

the deficit countries to sell government bonds to the surplus countries.

Such as the one that you see here on the screen which is a US Treasury bond.

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