Transcript Document

The Balance of Payments
and International
Economic Linkages
Chapter 4
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CHAPTER OVERVIEW
I.
BALANCE-OF-PAYMENT
CATEGORIES
II. THE INTERNATIONAL
FLOW OF GOODS,
SERVICES, AND CAPITAL
III. COPING WITH CURRENT
ACCOUNT DEFICITS
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PART I.
BALANCE-OF-PAYMENT
CATEGORIES
A.
THE BALANCE OF PAYMENTS (B-O-P)
1.
PURPOSE:
Measures all financial and
economic transactions over
a specified period of time.
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BALANCE-OF-PAYMENT
CATEGORIES
2. Double-entry bookkeeping
a. Currency inflows = credits
(earn foreign exchange)
b. Currency outflows = debits
(expend foreign exchange)
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BALANCE-OF-PAYMENT
CATEGORIES
3.
4.
Three Major Accounts:
a.
Current
b.
Capital
c.
Official Reserves
Current Account
records net flow of goods,
services, and unilateral
transfers.
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BALANCE-OF-PAYMENT
CATEGORIES
5.
Capital Account
a. Function: records public and
private investment and lending.
b. Inflows = credits
c. Outflows = debits
d. Transactions classified as
1.) portfolio
2.) direct
3.) short term
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BALANCE-OF-PAYMENT
CATEGORIES
6. Official Reserves Account
a. Function:
1.) measures changes in
international reserves
owned by central banks.
2.) reflects surplus/deficit of
a.) current account
b.) capital account
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BALANCE-OF-PAYMENT
CATEGORIES
b. Reserves consist of
1.) gold
2.) convertible securities
7. Net Effects:
a. Sum of all transactions must
be zero:
1.) current account
2.) capital account
3.) official reserves
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BALANCE-OF-PAYMENT
CATEGORIES
8. Balance-of-payment Measures
a. Definitions:
1.) Basic Balance
a.) consists of current
account and long-term
capital flows.
b.) emphasizes long-term
trends.
c.) excludes short-term
capital flows that heavily
depend on temporary
factors.
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BALANCE-OF-PAYMENT
CATEGORIES
2.)
Official Reserve Transactions
Balance
- measures adjustments needed
by official reserves.
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T.C. BOP
ODEMELER DENGESI (milyon ABD dolari)
Ocak-Temmuz
2004
Carl Ilemler Dengesi
Dis Ticaret Dengesi
Ihracat
Ithalat
Sermaye ve Finans Hesaplari
Finans Hesabi (Resmi Rezerv hariç)
Resmi Rezervlerdeki Degisim
-10025
-19419
34406
-53825
8695
8235
460
Kaynak: TCMB.
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PART II.
THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
II.
LINKS FROM INTERNATIONAL TO
DOMESTIC FLOWS
A. Introduction: Global Linkages
set of basic macroeconomic identities
links:
domestic spending and production
to
current and capital accounts
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
B. Domestic Savings and Investment
and the Capital Account
1.
National Income Accounting
a. National Income (NI) is either
spent (C) or saved (S)
NI = C + S
(4.1)
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
b.
c.
National spending (NS) is
divided into personal spending (C)
and investment (I)
NS = C + I
(4.2)
Subtracting (4.2) - (4.1)
NI - NS = S - I
(4.3)
If NI >NS, S > I which implies
that surplus capital spent overseas.
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
d.
e.
In a freely-floating system,
excess saving = the capital
account balance
Implications:
1.
A nation which produces more
than it spends has a net capital
outflow producing a capital
account deficit.
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
2.
3.
A nation which spends more
than it produces has a net
capital inflow producing a
capital account surplus.
A healthy economy will tend to
run a current account deficit.
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
C.
THE LINK BETWEEN THE
CURRENT AND CAPITAL
ACCOUNTS
1.
Beginning identity
NI - NS = X - M
(4.4)
where X = exports
M = imports
X-M=current account
balance (CA)
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
2.
3.
Combining (4.3) + (4.4)
S - I = X - M
(4.5)
If S - I = Net Foreign
Investment (NFI)
NFI = X - M
(4.6)
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
4. Implications:
a.
If CA is in surplus, the nation
must be a net exporter of
capital.
b.
If CA is a deficit, the nation is a
major capital importer.
c.
When NS > NI, the excess must
be acquired through foreign
trade.
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
d. Solutions for Improving CA deficits:
1.) Raise national income (output)
relative to domestic investment
(I).
2.) Increase (S) relative to
domestic investment (I).
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
D. GOVERNMENT BUDGETS AND
CURRENT ACCOUNT DEFICITS
1. CURRENT ACCOUNT BALANCE
CA = Saving Surplus - Gov’t budget
deficit
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THE INTERNATIONAL FLOW OF
GOODS, SERVICES, AND CAPITAL
2. CA Deficit means
the nation is not saving enough
to finance (I) and the deficit.
3. CA Surplus means
the nation is saving more than
needed to finance its (I) and
deficit.
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PART III.
COPING WITH THE CURRENT
ACCOUNT DEFICIT
I.
II.
POSSIBLE SOLUTIONS UNLIKELY TO
WORK:
A. Currency Depreciation
B. Protectionism
CURRENCY DEPRECIATION
A. U.S. Experience: Does not
improve the trade deficit.
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COPING WITH THE CURRENT
ACCOUNT DEFICIT
B. Depreciations ineffective because
1.
It takes time to affect trade.
2.
J-Curve Effect
states that a decline in currency
value will initially worsen the
deficit before improvement.
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COPING WITH THE CURRENT
ACCOUNT DEFICIT
III. PROTECTIONISM
A.
Trade Barriers used:
1.
Tariffs
2.
Quotas
B.
Results:
Most likely will reduce both
X and M.
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COPING WITH THE CURRENT
ACCOUNT DEFICIT
C. FOREIGN OWNERSHIP
one protectionist solution would
place limits on or eliminate foreign
ownership leading to capital inflows.
D. STIMULATE NATIONAL SAVING
change the tax regulations and
rates.
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COPING WITH THE CURRENT
ACCOUNT DEFICIT
III.
SUMMARY: CURRENT-ACCOUNT
DEFICITS
- neither bad nor good inherently
1.
Since one country’s exports are
another’s imports, it is not possible
for all to run a surplus
2.
Deficits may be a solution to the
problem of different national
propensities to save and invest.
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US BOP Data
http://www.bea.doc.gov/
briefrm/tables/ebr10.htm
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