Intermediate Macroeconomics Zambia_Open_Economy_Macroeconomics.pptx

Intermediate Macroeconomics - Open Economy

1. Open Economy Macroeconomics ~ Zambia ~ Fred Mukonda [email protected] Intermediate Macroeconomics - Fred Mukonda

2. International Flows of Capital and Goods In an open economy, goods and capital flow between countries. - Trade Flows : Zambia exports copper, cobalt, and other minerals. Its main trading partners are China, Switzerland, and South Africa. - Capital Flows : Foreign direct investment (FDI) in Zambia primarily targets the mining sector, with additional capital inflows from development aid. - The balance of payments records these flows, where Zambia often runs a trade surplus but a current account deficit due to debt servicing and interest payments. Intermediate Macroeconomics - Fred Mukonda

3. Trade in Zambia Intermediate Macroeconomics - Fred Mukonda

4. Trade in Zambia Intermediate Macroeconomics - Fred Mukonda

5. Saving and Investment in a Small Open Economy In a small open economy like Zambia, saving and investment are heavily influenced by international capital flows. - Domestic Savings : Savings rates in Zambia are relatively low due to high poverty rates and limited access to formal banking. - Foreign Investment : Foreign capital is crucial for financing Zambia's investments, especially in the mining and infrastructure sectors. - Zambia runs a savings-investment gap , meaning it relies on foreign loans and aid to fund its investments. Intermediate Macroeconomics - Fred Mukonda

6. Saving in Zambia Intermediate Macroeconomics - Fred Mukonda

7. Investment in Zambia Intermediate Macroeconomics - Fred Mukonda

8. Exchange Rates and the Zambian Kwacha Exchange rates affect international trade and capital flows. - Zambian Kwacha (ZMW ): The Kwacha is subject to volatility, influenced by commodity prices (especially copper) and foreign investment flows. - A weak Kwacha makes imports more expensive, contributing to inflation, but can boost export competitiveness. - Exchange Rate Regime : Zambia follows a flexible exchange rate system, with the Kwacha floating against major currencies like the USD. Intermediate Macroeconomics - Fred Mukonda

9. Zambian Kwacha Intermediate Macroeconomics - Fred Mukonda

10. Small vs Large Open Economies Small and large open economies differ in their ability to influence global markets. - Small Open Economy : Zambia has limited influence over global prices, especially for commodities like copper. Its economic policies are constrained by international capital markets and foreign demand. - Large Open Economy : Countries like the USA or China can influence global prices and have more control over their exchange rates and capital flows. - Small economies often face external shocks (e.g., commodity price fluctuations) more strongly than large economies. Intermediate Macroeconomics - Fred Mukonda

11. References - World Bank (2023). Zambia: Trade and Capital Flows Data. Available at: https://data.worldbank.org - IMF (2024). Zambia's Macroeconomic Performance in an Open Economy. Available at: https://www.imf.org Intermediate Macroeconomics - Fred Mukonda