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Summary - Economics 348
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In depth summary of industrial policy done in Economics 348
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Trade and Industrial PolicyThe world in 2023
….a Malthusian nightmare of “all unwholesome occupations, severe labour and exposure to
the seasons, extreme poverty, bad nursing of children, great towns, excesses of all kinds, the
whole train of common diseases and epidemics, wars, plagues and famine”.
Theme 1: Trade-and industrial policy in the Age of uncertainty, advancing AI and just green
transitioning: are there feasible global solutions?
- What is there for multilateral institutions?
- Can trade be a driver for sustainable development and a green, inclusive economy?
What role could technology play?
Theme 2: Do recent developments shaping the Global Trade and Climate landscape favour
developing countries?
- What are the feasible policy options for developing countries?
- How is South Africa positioned to embrace new technologies towards greening industry
and trade?
THEME 1 - Trade-and Industrial Policy in the Age of Uncertainty, Advancing AI and Just
Green Transitioning: Are There Feasible Global Solutions?
Key Question 1: What are key threats to the global economy in 2023?
Literature: Mckinsey Global Survey on economic conditions
https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/
economic-conditions-outlook-2023#/
- Economic optimism continues to grow in much of the world, while views on interest
rates and potential risks to global growth have shifted
- Respondents report more positive views on their home economies, and the global
economy, than they have in the past year
- Domestic outlook has held steady with half of respondents believing conditions will
improve in the next six months
- Top three risks to economic growth:
o Geopolitical instability and conflicts
o Inflation
o Rising interest rates
- Rising interest rates: Respondents in emerging economies (61%) are more likely to
expect the same or lower rates than their developed-economy peers (42%). 61% of
executives also indicated that it is likely that central banks will continue to raise interest
rates to control inflation
- Executives’ views on the world economy are brightening as well, with a steadily growing
share of respondents reporting improved global conditions and a positive outlook for
the months ahead
- Newly emerging threats:
o Income inequality
, o Transitions of political leadership
- Biggest potential risks to global growth, next 12 months:
1. Geopolitical instability and/or conflicts
2. Inflation
3. Rising interest rates
4. Trade conflicts
5. Increased economic volatility
6. Volatile energy prices
7. Changes in trade policy and/ or relationships
8. Financial-market volatility (concern thereof has decreased during past year)
9. Supply chain disruptions
10. Rising income inequality
11. Transitions of political leadership
- However, the list of Mckinsey does not include environmental issues
Key Question 2: What are the key drivers of the 21st century growth story?
Literature: The global growth story of the 21st century: driven by investment and innovation
in green technologies and artificial intelligence
https://www.lse.ac.uk/granthaminstitute/publication/the-global-growth-story-of-the-21st-
century/
- Investment and innovation in green technology, boosted by artificial intelligence
- How can this opportunity be unlocked? How can one use the benefits of AI without
creating more environmental issues?
- New global and development growth story – Stern and Romani
o Driven by investment and innovation in green technologies
o Boosted by artificial intelligence (AI)
Main message
- In the next five years more than half of the tipping points for crucial green technologies
will have been met, making them competitive in key markets. This decade is decisive to
limit the risk of greater climate instability
o AI is creating real opportunities for this acceleration.
- The faster growth of emerging markets and developing economies (EMDEs) relative to
richer countries and the location of renewable energy sources will change the world’s
industrial geography and patterns of trade
o If managed well, these changes can make supply chains more diverse and less
fragile
- Major investment is needed for the transition to rapid, sustainable growth: some $5–7
trillion a year globally in gross investment for clean energy and digital transformation.
The necessary global increase in investment will be around 2–3% of GDP
o The aggregate world macro position makes this increase in investment possible;
there is no global savings constraint
o This investment can give momentum to a strong and durable recovery from the
current crises and pre-empt a lost decade for development.
, - The new, technology-driven, sustainable growth story represents the greatest
investment opportunity since the Industrial Revolution. Private sector will provide most
of the investment however, public–private partnerships in policy, innovation and
finance are essential
- There are also immediate challenges of climate vulnerability. All countries are affected
but poorer countries have already suffered particularly severe losses from the impacts of
climate change.
o There should be strong international support in their efforts to build resilient
economies.
- An international, shared strategic agenda, including on goals, finance and trade, will
enhance the confidence necessary for investment – and for technology, particularly AI.
AI. Cooperation around the international financial system and the flow of both private
and public investment in EMDEs is crucial
o A key role for multilateral institutions
- In summation: At some point we will reach a tipping point where green technologies will
be necessary and cheaper than continuing to use dirty energy
How will it work? (Discussion)
- Understanding of climate change: Extreme changes in weather patterns
- What are these technologies?: wind turbines, solar panels
- From an economic perspective, how will they enable climate change solutions?
o Supply side: Y = f(L, N, K, t)
• Technologies that we can combine with the natural resources
• Technology can help us improve other factors in the equation for example
labour
• L: improve the quality of labour
• N: The impact on natural resources: how can technology help us with
natural resources in a way that is efficient and not destructive
• Can change eating habits: plant based products, products made from soy
• Rather do not buy new clothing
o Demand side: Y = C + I + G + [EX – IM]
- Examples of progress
- Specific focus: industry 4.0 and green economy
Key Question 3: Can trade and industry be a driver of sustainable development and a green,
inclusive economy?
Literature: United nations Economic and Social Council
https://unctad.org/system/files/official-document/ecn162022d2_en.pdf
Key points to consider:
1. What is industry 4.0 aka as the 4th Industrial revolution?
2. What are the key technologies driving it for manufacturing?
3. How will it increase productivity and reduce environmental impact?
4. Will it create or replace jobs?
5. What can developing countries do to make the best of the opportunities?
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