Trade Blocs

Check this out for a better explanation of the types of trade blocs. At about the 1:05 mark, is where the types are discussed with increasing scale of integration, i.e. from Preferential Trade Agreements to Economic Union to Full Integration.

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Growth, Meritocracy, Apple(s) and Mangoes? – Let’s talk about that…

I wasn’t really sure which article to choose so I put them all in this post…

Growth – 

UK economy records fastest growth since 2007

The UK’s economy grew by 2.6% last year, the fastest pace since 2007 and up from 1.7% in 2013, official figures have shown. That was a slowdown from 0.7% growth recorded in the previous three months. Economists were mixed over whether the loss of momentum in the final quarter might be temporary or prolonged.

“The dominant services sector remains buoyant while the contraction has taken place in industries like construction, mining and energy supply, which can be erratic,” he said. – This is probably due to the implications of globalisation which resulted in the shift towards a more tertiary sector domination and thus de-industrialisation.

The services sector grew by 0.8% in the quarter, but construction contracted by 1.8%. Manufacturing grew by just 0.1%, its worst performance since the start of 2013.

Tuesday figures mean the UK was among the best-performing of the all the major economies in 2014. The IMF forecasts UK growth of 2.7% in 2015. However, Samuel Tombs, of consultancy Capital Economics, has predicted growth of 3%.

“With the recent halving of oil prices providing a timely boost to households’ discretionary spending power, credit still becoming cheaper and pay growth on an improving trend… the best days of the UK’s recovery may still lie ahead,” he said.

How significant do you think is the slowdown in the British economy, given that the dominant service sector is still booming, but construction is shrinking and manufacturing almost back to flat-lining? – Read the article to find out

http://www.bbc.com/news/business-30999206

Meritocracy – 

This article is probably less relevant to the course material, but in line with a discussion we had about inheritance and meritocracy in an earlier lesson, thus quite interesting. It basically offers a different angle to the argument based on statistical evidence.

“…More than ever before, America’s elite is producing children who not only get ahead, but deserve to do so: they meet the standards of meritocracy better than their peers, and are thus worthy of the status they inherit.”

http://www.economist.com/news/briefing/21640316-children-rich-and-powerful-are-increasingly-well-suited-earning-wealth-and-power

Apple – 

US technology giant Apple has reported the biggest quarterly profit ever made by a public company.

Apple reported a net profit of $18bn (£11.8bn) in its fiscal first quarter, which tops the $15.9bn made by ExxonMobil in the second quarter of 2012, according to Standard and Poor’s.

Apple’s impressive results represent a significant shift towards the massive untapped potential of China.

With a strong line-up of devices entering the final quarter, it was able to reap the fruits of its deal with the world’s biggest mobile network, China Mobile.

Currency woes

Apple’s revenue grew to $74.6bn in 2014 – a 30% increase from a year earlier.

However, on a conference call to discuss earnings, Mr Cook complained of “fierce foreign exchange volatility”, which added Apple to a growing list of US firms who have been hurt by the strong dollar abroad.

Apple said that currency fluctuations shaved 4% from its first-quarter revenue.

http://www.buzzfeed.com/tomgara/heres-how-big-apple-is#.ahX9p1zG3

http://www.bbc.com/news/business-31012410

Mangoes

Ban on Indian mango imports to EU to be lifted. “Today’s decision demonstrates the marked improvements India has made to its export system and it is important that these standards are maintained so that trade can continue and UK plant health remains protected,” – Increase in quality of the mangoes due to the protectionist measures and thus a potential increase in consumer surplus when the ban is lifted.

Even though India sells only a fraction of its mangoes abroad, Europe is a significant market for the industry. PRofits were more than halved after prices came down. Exports fell from $307.4m between April and November in 2013, to $291.4m in the same period last year.

However, imports of four other products – aubergines, bitter gourds, snake gourds and patra leaves – remain suspended subject to sustained improvements in plant pest control.

http://www.bbc.com/news/business-30898966


 

World Commodities Map

An interesting image to preview next week’s patterns of trade. – Every Country’s Highest Valued Exports

http://www.businessinsider.com/every-countrys-highest-valued-export-2014-5


 

 

 

Nobel prize for Economics 2014 – Market Power and Regulation

Jean Tirole became the second Frenchman to receive a Nobel Prize this year, winning the Economic Sciences award for his research into curtailing the power of oligopolies.

Jean Tirole Awarded Nobel Prize in Economic Science – Video

Traditional economic theory does not deal with the case of the oligopoly, i.e. many markets dominated by a few firms that all influence prices, volumes and quality, instead it presupposes a single monopoly or what is known as perfect competition. Also, the regulatory authority lacks information about the firms’ costs and the quality of the goods and services they deliver. thus providing regulated firms with a natural advantage. Tirole has researched into the means of dealing with these issues regarding this market system.

http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2014/popular-economicsciences2014.pdf

Read/Skim through this summary of Tirole’s work and then read FT’s Jean Tirole: 5 things to know about the Nobel Prize winner’s work… Maybe try and answer some of the questions yourself before reading the answers…

http://www.ft.com/cms/s/0/01bc3910-52ca-11e4-a236-00144feab7de.html

What were Mr Tirole’s most important contributions?

What were his crucial findings on regulating oligopolies?

What about competition policy?

Within what context has Mr Tirole won the prize?

Coal is not the only monopoly India wants to break up…

Apparently, a lot is being split or broken up… As Mashiat posted earlier, the state run monopoly Coal India is being broken up, but that is not the only vital industry being broken up, – The Indian government, acting on Air Force demands, has offered to spend $12 billion to encourage private firms to establish an aircraft manufacturing facility — a move that would break Hindustan Aeronautics Limited’s (HAL) monopoly on aircraft manufacturing.

The reason for this potential break are years of delays on several essential projects, possibly due to the diversification. HAL is involved in the design of fighters, transports, trainers and helicopters, avionics and engines, which meant a decline in focus, decrease in efficiency and a delay in projects.

Many experts have expressed their views on the issue, eluding to various concepts we have discussed in class. See if you can figure out what these concepts and terms are…


“It is absolutely essential to set up an additional military aircraft facility here, as HAL is overloaded for the next 10 years and has become too unwieldy,” defense acquisition expert Miral Suman said.

Vivek Rae, former director general (acquisition) in the MoD, said, “India sorely needs aircraft manufacturing capability in the private sector. We cannot afford to put all eggs in the HAL basket.”

Subhash Bhojwani, retired Air Force air marshal, agreed an additional manufacturing facility is needed, but said HAL should be made more commercial.

“HAL is into the design and contemporary manufacture of fighters, transports, trainers and helicopters, as well as avionics and engines,” he said. “It is possibly the only company in the world to be so diversified. However, while this may sound good in a book of world records, it isn’t good as a commercial model.”

Defense analyst Amit Cowshish, a retired Defence Ministry bureaucrat, said the objective should be “not to create an entity that could compete with HAL but to have additional capability in India to manufacture aircraft so that the requirement, both of the military and civil sectors, could be met in a more cost-effective manner and in shorter time frames. Of course, competition would help in improving HAL’s efficiency.”

Sujith Haridas, deputy director general of India’s industry lobbying agency, the Confederation of Indian Industry, said, “It is very much desired to have an additional manufacturing facility, but one should not ignore that it takes several decades of consistent investment and efforts to create a mammoth system integrator like HAL.”

The continued break up of Indian monopolies

 

Breaking up for good

Mining for coal? Not any more. The Indian government  is currently looking to abolish the state run monopoly Coal India. Now this action is not just to increase the competition within the coal industry,  but to also ensure that the Indian society , especially in the rural areas has access to coal derived power. The major causes for this disintegration are the fact that Coal India has to import expensive coal due to the scarcity of local coal,the coal mines are leased to companies in the cement and steel industries and that the government has to subsidise kerosene to areas with no power. By breaking up Coal India, the government is planning to reduce its trade deficit, increase innovation and efficiency amongst firms, lower power prices to customers, lower price inflation and ensure accessible reliable power  to remote rural areas. Although it seems like this is a win win situation , let us remind ourselves that by breaking up a natural monopoly, the firms will face very high start up costs that can lead them  becoming  insolvent. Moreover, there seems to be a lot of corruption regarding the accessibility of power and the government has to take careful measures to ensure that rural power becomes a reality. Check out this interesting article and try to come up with your own evaluations.

The break up of Indian Coal

-Mashiat

Air France Pilots on Strike

Competition from lower-cost airlines such as EasyJet and Ryanair has redirected the demand from pricier Air France to its cheaper counterparts. As a result, the beginning of this year saw Air France faced with a net loss of €614 million. In a move to become more cost-effective, Air France had planned to shift its focus on to the cheaper Transavia Airlines. Unfortunately for the pilots (who mind you, appear to earn €160,000 yearly,) this low budget airline would mean lower pay and welfare benefits- effectively leading to the longest strike Air France has seen since 1998. Evidently, a move to become more cost-effective has backfired and the airline is losing €20 million a day due to the strikes.

http://www.businessinsider.com/air-france-strike-implications-2014-9

http://www.businessweek.com/articles/2014-09-29/europe-gets-fed-up-with-striking-pilots-at-air-france-luftansa