lecture18 - Agenda Globalization and the U.S. Economy...

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1 18-1 Saving and Investment in the Open Economy, Part 2 18-2 Agenda • Globalization and the U.S. Economy • Saving and Investment in Large Open Economies (LOE) • The U.S. Current Account Deficit • Fiscal Policy and the Current Account ¾ The Twin Deficits 18-3 Globalization and the U.S. economy • World’s economies have become increasingly interdependent, with more international trade, finance and investment. 18-4 Globalization and the U.S. economy • Exports and imports have grown significantly as a percent of GDP over the past 50 years and particularly over the last 20 years.
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2 18-5 Exports and imports 18-6 Globalization and the U.S. economy • U.S. investments abroad and foreigners’ investments in U.S. have also grown significantly as a percent of U.S. GDP over past 20 years. ¾ The U.S. is now the world’s largest international debtor. 18-7 International ownership of assets 18-8 Globalization and the U.S. economy • Costs of globalization for the U.S.: ¾ U.S. imports increase. • This displaces some domestic production and jobs. • This increases competitive pressures and reduces profit margins in import-competing sectors. ¾ U.S. foreign direct investment might displace domestic investment. • If so, this reduces domestic production and jobs.
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3 18-9 Globalization and the U.S. economy • Benefits of globalization for the U.S.: ¾ U.S. imports increase. • This may mean are wider variety of goods and services. • Prices of imported goods and services and prices of goods and services in import-competing sectors decline. • Generates production and jobs in import- complementary sectors. 18-10 Globalization and the U.S. economy • Benefits of globalization for the U.S.: ¾ U.S. exports increase. • Domestic production and employment expand in the export and export-complementary sectors. • This increases pricing power and profit margins in these sectors. ¾
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lecture18 - Agenda Globalization and the U.S. Economy...

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