Econ 161 - Lecture 9

Econ 161 - Lecture 9 - May 3 2011 Lecture 9 c Marc-Andreas...

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Global Integration of Latin America Lecture 9 c Marc-Andreas Muendler University of California, San Diego May 3, 2011
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9. International Lending and Investment in Latin America Econ 161, c M. Muendler The International Capital Market International capital market: Group of markets where residents of dif- ferent countries write loan contracts and trade securities (currencies, stocks, bonds and other assets) How do international capital markets enhance a country’s welfare? How integrated are international capital markets? How can policy makers mitigate problems without reducing the ben- efits of capital mobility?
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9. International Lending and Investment in Latin America Econ 161, c M. Muendler The International Capital Market Capital markets allow to reap two further types of gains from trade, beyond gains from trade in commodity markets: Gains from intertemporal trade : trade between periods Gains from insurance opportunities : trade between possible states of nature in the future Trade models in the first part of class stressed international exchange when trade is balanced . Models in the latter parts of class stress capital flows when trade is unbalanced (temporary trade surpluses are capital outflows).
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9. International Lending and Investment in Latin America Econ 161, c M. Muendler Macroeconomic Accounting National Income Gross National Product (GNI) Value of all goods and services produced by a country’s factors of production Examples . Expatriats’ incomes are counted in home country, foreign invest- ment returns are counted in home country Gross Domestic Product (GDP) Value of all goods and services produced within a country’s borders Balance of Payments (only international transactions) Current Account ( CA ) (also Financial Account and Capital Account)
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9. International Lending and Investment in Latin America Econ 161, c M. Muendler Domestic Production and National Income GNI: Y C + I + G + EX - IM Y : Gross National Product is roughly equal to Gross National Income C : (Private) Consumption I : (Private) Investment G : Government Expenditures (consumption and investment) EX : Exports, IM : Imports GNI is (more closely) related to National Income (NI) Adjustments: Depreciation (NNP), Unilateral transfers, Tax wedge in prices
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9. International Lending and Investment in Latin America Econ 161, c M. Muendler The Current Account Approximate definition of Current Account: CA EX - IM Domestic Income less Domestic Purchases equals Net Exports: Y - ( C + I + G ) = EX - IM = CA. A positive CA means that US residents give up domestic consumption (or investment) for exports. What do they gain?
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