Global Economic

Environment
•Increasing Interdependency Among Economies
•Emerging Markets
•Global Focus of Nations
•FX Market – Tail Wagging the Dog
•Types of Economic Systems
•Market Allocation
•Command Allocation
•Mixed Allocation

M 2- 1 © Warren Keegan Associates, Inc.

 The Asian
Flu annual average %
Real GDP growth estimates,
1997 1998* 1998**

China 8.8# 8.8 7.5

Hong Kong 5.4 3.9 2.5
Indonesia 6.3 3.2 2.1
Japan 0.0# 1.3 1.0
Korea 5.8 3.4 2.2
Malaysia 7.4 3.1 2.1
Philippines 4.9 3.9 2.5
Singapore 7.4 5.3 3.2
Taiwan 6.6 6.2 3.5
Thailand 0.9 -1.7 -2.0
USA 3.7% 2.3
2.5
*Data Sources: Merrill Lynch, ING Barings, and Morgan Stanley Dean Witter ** W K A, Inc.
# = actual performance
M 2- 2 © Warren Keegan Associates, Inc.
 Measures of Economic
Performance
1950 - 1987 Averages

Real Compound Overall Labor Net National

Annual Growth in Productivity Investment
GDP Per Capita Growth
Japan 6.2% Japan 5.9% Japan 17.6%
Korea 5.7% Korea 5.8% South Korea 14.7%
Germany 4.0% Italy 4.4% Switzerland 13.7%
Italy 3.9% Germany 3.8% Germany 11.8%
Denmark 2.7% Denmark 2.4% Denmark 11.6%
Sweden 2.6% Sweden 2.3% Sweden 11.6%
Switzerland 2.2% U.K. 2.2% Italy 10.9%
U.K. 2.2% Switzerland 1.2% U.K. 7.7%
United States 1.9% United States 1.4% United States 7.1%

M 2- 3 © Warren Keegan Associates, Inc.

 World GNP Top 10 - 1995
In Billions

Germany: $1,999
Japan:
$4,247 France: $1,352

Italy: $1,183
United States:
$6,659 U.K.: $1,076
26%
China: $677

Rest of World:
Canada: $595
$6,255
24%
Spain: $570

Brazil: $484

M 2- 4 © Warren Keegan Associates, Inc.

 World GNP Top 10 - 2020
In Billions

Germany: $3,707
China:
Japan: $4,126
$10,037 France: $2,446

Korea: $2,184
United States:
$11,195
Italy: $1,989

Taiwan: $1,825
Rest of World:
$15,474
U.K.: $1,601

Spain: $1,283

M 2- 5 © Warren Keegan Associates, Inc.

 Free Economies
1. Hong Kong 6. United States
2. Singapore 7. Ireland
3. Bahrain 8. Luxembourg
4. New Zealand
9. Taiwan
5. Switzerland
10. United
Kingdom

M 2- 6 © Warren Keegan Associates, Inc.

 Mostly Unfree Economies
73. Lithuania 103. Pakistan
74. Saudi Arabia 105. Venezuela
76. Kenya 107. Bulgaria
109. Madagascar
79. Slovak Rep.
110. Russia
81. Colombia
116. Croatia
86. Mexico
120. Ethiopia
91. Brazil
121. India
96. Romania 125. China
97. Cambodia 127. Ukraine
99. Egypt
M 2- 7 © Warren Keegan Associates, Inc.
 Mostly Free Economies
11. Bahamas 35. France
12. Japan 36. Italy
13. Czech Rep. 37. Spain
14. Australia 49. Guatemala
16. Canada 56. Israel
58. Turkey
17. U.A.E
62. Greece
25. Germany
63. Hungary
28. South Korea
64. South Africa
33. Sweden
70. Poland
34. Argentina
M 2- 8 © Warren Keegan Associates, Inc.
 Country Income Segmentation

+ $9,385 High Income (Advanced Countries)

- Triad
- Others

+ $3,036Upper Middle Income (NIC's)

+ $765 Lower Middle Income (DC's)

< $765 Low Income (LDC's)

Basket Cases (BC's)

M 2- 9 © Warren Keegan Associates, Inc.

 GNP per Capita: 1995 & 2020
Top Ten Countries

1995 2020
Luxembourg $37,800 Singapore $75,200
Switzerland 36,900 Luxembourg 73,600
Japan 33,700 Japan 72,400
Denmark 27,100 Hong Kong 71,900
Norway 26,600 Switzerland 44,000
U.S. 25,300 Austria 40,500
Sweden 24,900 Belgium 40,200
Germany 24,500 Germany 39,200
Austria 24,100 Korea 38,400
Kuwait 23,700 Cyprus 38,000

M 2- 10 © Warren Keegan Associates, Inc.

 The Expanding
1997 figures Triad GNP
(billion)
Population
(million)
GNP
Per Capita

N. American Free Trade Area $ 8,354 393 $ 21,248

U.S., Canada, Mexico % of World: 30% 7%

Japan and the Tigers $ 5,638 284 $ 19,831

Hong Kong, % of World: 21% 5%
Japan, Malaysia,
Singapore, South Korea, Taiwan,
Thailand

European Economic Area $ 8,293 374 $ 22,134

EU: Austria, % of World: 30% 7%
Belgium,
Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, U.K.
EFTA: Iceland, Switzerland

M 2- 11 © Warren Keegan Associates, Inc.

 GLOBAL
GLOBALINCOME
INCOMEAND
ANDPOPULATION:
POPULATION:1995
1995

% of % of
Market GNP
(billion)
GNP
Per Capita
World Population World
GNP (million) Population

World (Total) $25,097 $4,678 100 5,815 100

Triad (Total) 19,119 24,203 76 790 14
North America* 7,253 24,903 29 291 5
Japan 4,247 33,748 17 126 2
EU 7,619 20,435 30 373 6
Other High Income 844 34,415 3 25 <1
Upper Middle Income 2,239 4,397 9 509 9
Lower Middle Income 2,403 1,001 10 2,401 41
Low Income 491 300 2 1,640 28
Unavailable Data N/A N/A N/A 450 8

*Not including Mexico

M 2- 12 © Warren Keegan Associates, Inc.

 Why do nations trade
with
one another?
•Theory of Absolute
Advantage
•Theory of Comparative Advantage

M 2- 13 © Warren Keegan Associates, Inc.

 World Trade Flows
(in billions of dollars)

WESTERN EUROPE
Intra-Trade:1,230
160 Exports: 481
Imports: 473 170
162 128

143
AMERICAS ASIA
Intra-Trade: 221 253 Intra-Trade: 394
Exports: 364 Exports: 491
Imports: 455 160 Imports: 360

191
40 72
44
REST OF WORLD 68
Intra-Trade: 57
Exports: 255
Imports: 303
Sources: International Trade Statistics
1992
General Agreement on Tariffs and Trade
Geneva 1993

M 2- 14 © Warren Keegan Associates, Inc.

 Balance of
Payments

Current Account Capital Account

Merchandise Trade Short Term

Services
Long Term
Travel
Income On Investments - Direct Investment
Military Expenditure - Portfolio Investment
Aid and Gifts

Official Reserves Errors and Omissions

M 2- 15 © Warren Keegan Associates, Inc.

 International Product Trade
Cycle Model
High Income Countries production

Export
consumption
Import
Q
u 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

a Medium Income Countries

Export
n
t
i Import
t 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
y Low Income Countries
Export

Import
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Time
New Product Maturing Product Standardized Product

Stages of Production Development

M 2- 16 © Warren Keegan Associates, Inc.