Is free trade dying?

By Prof. Srimanta Bhaumik

Self-interest had been the driving force behind the opening up of trade between and among nations — not altruism to do good to others. It was pure and simple, perceived and revealed, self-interest. The English classical economists put it in a philosophical manner called utilitarianism, which attached significance to something that reduced pain and increased pleasure. Nations did trade and still do it because it increases the mass of commodities and the sum of enjoyment. However, instances surfaced when some nations deviated from free trade and did something opposite of it. For instance, despite their vigorous advocacy of the merits of free trade, one of the classicists, namely, David Ricardo, continued his support of the Corn Laws, brought in the wake of the Continental System simply because it raised the share of landed interests in Britain against other income groups till they were repealed in 1846.

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Source: The Economic Times

Prof. Srimanta Bhaumik is the faculty of Economics in Globsyn Business School

Indian economy expected to show strong recovery

The Economic Advisory Council has lowered the growth forecast for the current fiscal to 7.1% due to the impact of global meltdown. However it is expected that GDP will expand by 7.5% during the next fiscal with expected annual rate of inflation to fall to 4.1% from its current level of 5.6%. Given the positive outlook it is expected that the economy will slowly pick up with signs of strong recovery in the second half of the fiscal.
Source: The Statesman

Richa Shukla
Globsyn Business School

What shape the world will be in: An Interesting observation

An interesting observation by a corporate economist on the path that recession is expected to take- Growth would dip followed by recovery, the after effects of the recent monetary easing, implying a familiar ‘U’ shape.
However other anticipated patterns resemble other letters of the alphabet- Optimists apprehend the recovery path to look like ‘V’ implying a quick return of confidence and credit; on the other hand it could be a ‘W’ shaped double dip. Pessimists fear the pattern of the future to resemble an ‘L’, implying a big dip and then a ride along the bottom. A gloomy frame of mind would rather think of a back slash: ‘\’ , displaying a relentless decline. Other options could be a downward spiral, shaped like ‘S’ or ‘Z’.
The bottom line is that the next year is different from an up-down business pattern which we saw in the last three decade, and that the range of alternative options as provided by alphabet economics shape the range of policy prescriptions that the policy makers may opt, for driving the economy out of recession.

Source: http://www.economist.com/

Richa Shukla
Globsyn Business School

Does economics support the smoking bans?

……looking through the lens of an econometrician
Econometric studies undertaken by smoke free advocates, on the effect of smoking bans on restaurant industry in several locations in California and Massachusetts shows that smoking bans have not harmed the restaurant industry. Some have even shown an increase in overall restaurant business. Their findings are however based on restaurant sales-tax receipts or other aggregate data.

Does this mean smoking bans are really a “win-win situation for restaurant owners”? Also is it justifiable for the authorities to tell property owners that they can’t allow smoking on their premises?

Not necessarily as the studies supporting smoking bans are based on aggregated restaurant sales data; that is, they look at the “restaurant industry” in the smoke-free communities. Also from the economic perspective, it largely ignores the concept of private property rights acting as an essential prerequisite and a fundamental linchpin of wealth creation in a market economy.

However the following are sufficient reasons for smoke free advocates to remain undeterred on their stand-
1) Environmental tobacco smoke “is responsible for approximately 3,000 lung cancer deaths each year in nonsmoking adults”
2) It harms the “respiratory health of hundreds of thousands of children”

Source: http://www.fee.org/publications/the-freeman/article.asp?aid=5120

Richa Shukla

Globsyn Business School

Indian growth not immune to International slow down

The Indian march towards becoming a economic super-power just hit a road block in recent times. In light of the tight credit condition and the governments struggle to control the record high inflation accounted for the Indian economy to grow at slowest rate in three years. Annual growth slowed to 7.9 per cent in the first fiscal quarter of 2008 ended on June 30, significantly lower than the 8.8 per cent rate reported in March.

The growth momentum slowed down as a result of multiple factors including tighter monetary policy, adverse global environment, higher interest rates, slow bank credit growth and ever raising crude and commodity prices.

This is in contrast to China’s economic growth. It has remained strong and shows signs of resilience in the face of the global economic slowdown. China's economic growth in the second quarter grew 10.1 per cent, down from 10.6 per cent.

In the opinion of several analysts the RBI is expected to maintain a tight policy stance with an aim to curb inflation to single digits. However, economists expect it to grow further in the later part of the year.

However the growth in the services sector, showed great resilience and remained strong at around 10 per cent. The sector which was hampered the most is the manufacturing sector as it suffered the sharpest fall and grew only 5.8 per cent compared to 10.9 per cent in the same period in 2007.

Contributed By:

Mr. Param Shah
(Assistant Registrar)
Globsyn Business School - Ahmedabad

Effect of non US currencies on India’s Foreign Exchange reserves

India’s foreign exchange reserves fell by $6.498 billion to $288.811 billion from $295.309 billion. It is primarily due to fall in foreign currency assets (expressed in US dollar terms) which includes the effect of appreciation or depreciation of non US currencies such as Euro, Sterling and Yen held in reserves.
It calls for a proactive thinking given the protracted evidence of economic woes afflicting Europe and America which are spreading eastwards.

Source: The Statesman

Richa Shukla

Globsyn Business School

Theorizing Consumer Behaviour

1) When does the demand curve potentially slope upward?
– This happens when a consumer buys more of a good when its price rises-Case of Giffen goods
a. Economists use the term Giffen good to describe a good that violates the law of demand.
b. Giffen goods are goods for which an increase in the price raises the quantity demanded.
c. The income effect dominates the substitution effect.
d. They have demand curves that slope upwards.
2) How wages affect labour supply?
If the substitution effect is greater than the income effect for the worker, he or she works more.
If income effect is greater than the substitution effect, he or she works less.
3) How do interest rates affect household saving?
a. If the substitution effect of a higher interest rate is greater than the income effect, households save more.
b. If the income effect of a higher interest rate is greater than the substitution effect, households save less.

Richa Shukla
Globsyn Business School