"Western leaders, by contrast, must answer to voters who care deeply about their wallets"
The sanctions and export controls will lead to lower imports on the part of the allies like the US. This will lead to an increase in AD, and Price Levels. Creating an inflationary gap in the US economy. These price levels will be focus on goods imported from Russia, such as oil, palladium, etc. https://www.cnbc.com/2022/03/03/how-the-ukraine-russia-conflict-may-hit-your-wallet.html
“In the weeks before these measures were announced, the Biden administration hinted that it would target Russia’s state-owned banks and impose a bevy of technology-related export controls.”
These export controls lead to lower demand for the Russian Ruble as people won’t buy goods from Russia. This lower demand for Rubles leads to depreciation and a lower quantity of rubles. A decrease in the quantity of rubles leads to an increase in the interest rate, which in turn causes lower investment. The low investment caused a leftward shift in AD, causing a recession in Russia. These export controls aimed to threaten Russia into submission. While they didn’t achieve this, they did manage to push Russia into a recession as a punishment for invading Ukraine https://www.allianz-trade.com/en_global/economic-research/country-reports/Russia.html
That poses a problem forChinese manufacturers, many of which are now up and running again but facing weak demand
This highlights that China had both the absolute and comparative advantage in certain markets. This was especially beneficial for them since this would make them a country that is able to trade a lot of goods. This comparative advantage comes from the division of knowledge as they know how to fight the virus.
But globalization also created a complex system of interdependence.
This interdependence of global economies. has led to a lot of individual variety. This means that consumers have a lot of options when it comes to purchasing goods. For example, the market for smart phones is filled with a variety of products from countries like China, South Korea, and the United States. This paper (https://www.imf.org/external/np/exr/ib/2008/053008.htm) on globalisation, mentions similar benefits to this interdependence. It allows for a competitive market and low prices. It also increases productivity, because the increase in variety of goods, also applies to intermediate goods, so some products are more productive at certain tasks.
Our economic activity today will affect climate changes in the distant future, so we are essentially creating consequences that others will bear. This is just an extreme form of external effects that we have studied throughout the course. It is extreme not only in its potential consequences, but also in that those who will suffer the consequences are future generations.
This is the negative externality that comes with economic growth. While taking cars to and from work may make the country's labor force, the CO2 emissions from the cars lead to adverse effects on the health of future generations. The increased CO2 emissions can lead to increased temperature, and damaged ozone layer, which can negatively impact the agricultural sector, this can then lead to a weaker economy. This is just one example of how the economic growth of a country can harm its environment.
Recall the way we modelled the climate change game as a prisoners’ dilemma in which two countries (the US and China) can either restrict carbon emissions or continue with business as usual (see Figure 4.17).
This dilemma is one that can be seen in the Paris Agreement. Where countries have to decide between to spend money on bettering the environment or not. When a country pulls out of the agreement, they become free riders, benefiting from efforts of other countries while not putting in any funds themselves. This way we can see that the "optimal" choice for all countries is to not sign the agreement. However if all countries back out of the agreement there will be no improvement in the environment.
"which asserts that world inequality exists because we or our rulers do not know how to make poor countries rich" - Pg 18
This could be similar to the discussion we had in class about how the Indonesian government would spend tax money versus how the Singaporean government would spend it and how the Singaporean would probably be able to utilise the money more efficiently.
"could it still be a useful theory for explaining differences between North and South America? Between Europe and Africa? Simply, no." - Pg 6
I think that the author overlooks the impacts that geography can have on a country's economy. The author previously mentions climate and diseases as possible theories as to how geography may impact an economy. The author, however, fails to account for geographical feature such as access to natural resources, such as oil for middle eastern countries. In Singapore's case, geography plays a very important role in its economy. The deep waters around it, and its placement at the tip of the Malay peninsula make it a great hub for trade routes. Additionally, The author uses examples like the difference in South and North Korea's economy and also East and West Germany to justify how the geography theory is not a "useful" method of justify world inequality. The author fails to recognise that the culture in these areas was and still is vastly different. The split in Germany was due to the cold war, where East Germany was "allied to the Western democracies" and the West was "allied to the Soviet Union"(“What Was the Berlin Wall and How Did It Fall?”). The ideologies at the time were completely different. While one was Communist, the other was more Capitalistic. Which not only taps into cultural but also institutional factors as to why one's economy was worse off. Specifically the East's market orientation was much more beneficial than that of the West. Furthermore, The authors example of South and North Korea, further exemplify my point. Much like the situation in East and West Germany, South Korea is a Capitalist country while North Korea is a Communist country. This can explain the differences in their economies. Overall, I think that the author fails to see that while geography might not be the sole reason for economic growth, it is a major factor in it.
Sources:
“What Was the Berlin Wall and How Did It Fall?” Imperial War Museums, www.iwm.org.uk/history/what-was-the-berlin-wall-and-how-did-it-fall#:~:text=By%201945%2C%20the%20United%20States,did%20the%20division%20of%20Germany. Accessed 22 Aug. 2023.
Map 3 shows the prosperity of a country in 2008 based on GDP per capita. In the map, most countries seem to have similar ranking to its neighbouring countries. For example, many countries in Central Africa had a GDP per capita under $2000. This could be a result of geographical factors. It is very likely that neighbouring countries have similar geographical feature. For instance, many countries in the middle east have access to oil. These geographical similarities could be the reason why countries close to each other see similar economic growth or lack thereof. Another reason adjacent countries might have similar economic prosperity, is because of culture. As mentioned in class, culture is a possible reason for economic growth, and neighbouring countries usually have similar cultures. So this similarity could lead to a similar economic growth. Overall this map could justify how either geography and/or culture play a significant role in economic growth.
"Individuals who must exert a great deal of mental energy every day just to ensure access to necessities such as food and clean water are left with less energy for careful deliberation" - pg 13
This highlights how the burden on poor people can overwhelm them. This video (https://mru.org/courses/development-economics/are-poor-overwhelmed) highlights the same issue, where there is so much on a poor person's plate that they are discouraged to act on any of it. There are so many issues at hand for them that it doesn't seem like any one step would help.
"Second, how people act and think often depends on what others around them do and think: we call this “thinking socially.”" - pg 3
"Thinking socially" can justify why poor people spend so much money on "leisurely" items such as alcohol, tobacco, televisions, and even festivals. They see their friends and family, who might be in similar situations spending money on such things and so they do it too. As more and more of the people around them do it it become more of a local norm.
"Rather, people are malleable and emotional actors whose decision making is influenced by contextual cues, local social networks and social norms, and shared mental models. All of these play a role in determining what individuals perceive as desirable, possible, or even “thinkable” for their lives."" - Pg 3
This speaks to how decision-making is based on more than just logical thinking. It is a complex process, which relies heavily on emotions and social norms. In the case of people living in poverty, it could signify that they may prioritise immediate needs and conform to local norms, even if they seem irrational from an outside perspective. One such example, would a poor family deciding to make their children work instead of sending them to school. While this decision may seem illogical from an outside perspective, the family maybe in a dire situation, where they can't afford school fees, or they can't afford to miss out on the marginal product from free labor from their children. Their decision might seem irrational but it wasn't based on just logical and long term thinking, it was based on their immediate needs. Another example was highlighted in a video (https://mru.org/courses/development-economics/spending-money) about the spending of poor people. It underscored that poor people often spend money on alcohol and tobacco, and while this may be a waste of their money, their decision to buy chewing tobacco or cigarettes was most likely based off of their emotions and local norms. This video also states that in India the median household living in poverty spend 10% of their annual income on festivals. Looking from an outside perspective this may seem illogical or irrational, but, again, the decision to spend so much money on festivals is based off of the local norms. It is very common to see extravagant festivals in India, even if it is out of budget for the hosts. The text emphasises the importance of understanding the unique circumstances of people in poverty, and how those circumstances can influence their decision making.