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Chapter 1GlobalizationManagement 3460 Institutions and Practices
in International Finance Fall 2003Greg Flanagan
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The EconomyThe AgentsHouseholdsmaximize utility*Firmsmaximize
profit (shareholder equity*)Governmentsmaximize public welfare* *
Working hypotheses
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The EconomyReal ElementsResourcesland, labour &
capitalProductiongoods & servicesConsumptionutility
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The EconomyMonetary ElementsIncomesCostsSavings/Investment a
Financial Intermediaries
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The Economy: An Overview
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Chart2
811
968
1684
1903
3049
5303
8627
12117
13360
1997$/capita
Year
1997 $/Capita (millions)
All Government Expenditures
Chart3
13.1
14.5
22.7
18.7
25
31.3
37.6
44.9
42.6
%GDP
Year
Percentage of GDP
All Governments Expenditure
Chart1
7047663
8719886
158819171
358326144
986954609
27928113074
116633212177
300485336745
429704410806
Current $
1997 $
Year
Current $ (millions)
All Government Expenditures
Sheet1
TABLE 1.2
All Governments Expenditures (slected years)
YearCurrent $1997 $1997$/capita%GDP
1926$704$7,66381113.1
1930$871$9,88696814.5
1940$1,588$19,171168422.7
1950$3,583$26,144190318.7
1960$9,869$54,609304925
1970$27,928$113,074530331.3
1980$116,633$212,177862737.6
1990$300,485$336,7451211744.9
2000$429,704$410,8061336042.6
Sheet2
Sheet3
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Table 1.4
Expenditures by function all
governmentsFunction193319632001Health3.79.216.6Social
welfare141525.8Education11.316.214.8Trans &
Com9.412.24Protection4.247.8Debt
charges31.58.514.8Other30.234.716.2Total100100100
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Table 1.5
Government Revenues and Expenditures by Level of
GovernmentYear192619602000RevExpRevExpRevExpFederal44.93860.25147.239Provincial182021.82541.742Local37.14217.32511.119
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Table 1.6
Sources of Revenue all governmentsRevenue193419642001Personal
Income Tax4.320.732.4Corporate Income Tax7.415.710.5Payroll
Taxes2.75.57.5Customs, excises and sales tax34.930.819.6Property
Tax30.812.59.4Investment income5.26.98.2Other
revenue14.77.912.3
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Chart1
4.320.732.4
7.415.710.5
2.75.57.5
34.930.819.6
30.812.59.4
5.26.98.2
14.77.912.3
1934
1964
2001
Percentage
Sources of Revenue all governments
Sheet1
Sources of Revenue all governments
Revenue193419642001
Personal Income Tax4.320.732.4
Corporate Income Tax7.415.710.5
Payroll Taxes2.75.57.5
Customs, excises and sales tax34.930.819.6
Property Tax30.812.59.4
Investment income5.26.98.2
Other revenue14.77.912.3
Sheet2
Sheet3
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TradeExpanded production/consumption possibilities
setComparative advantageEconomies of scale
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Comparative advantageDiffering opportunity costsproduction
possibilities < consumption possibilities
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Economies of Scale
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Limitations to TradeMarket imperfectionsTransaction
costsTransportation costsInformation costsCultural/political/legal
differencesLoss of sovereigntyStrategic resources/industries
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RisksLiabilitiesForeign exchange fluctuationsPolitical
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GlobalizationTrade Liberalization WTO (GATT); NAFTA; EU;
etc.Financial Integration i.e EuroEmerging stock markets mutiple
listingsMultinational (transnational) corporationsPrivatization
