Investigative Article Brief – Panama and Morocco

Article Brief #4 Syllabus Section Macro/Development Word Count:  1027 Written: August 26, 2015

Sources:

“Morocco’s Cereal Harvest Reaches Record 11 Million Tons.” Morocco World News RSS. N.p., 12 May 2015. Web. 18 May 2015.

<http://www.moroccoworldnews.com/2015/05/158283/moroccos-cereal-harvest-reaches-record-11-million-tons/>.

“Comment: Climate Change Is Hitting African Farmers the Hardest of All.”SBS. SBS, n.d. Web. 18 May 2015.
<http%3A%2F%2Fwww.sbs.com.au%2Fnews%2Farticle%2F2015%2F05%2F12%2Fcomment-climate-change-hitting-african-farmers-hardest-all>.

“El Nino Drought Spurs New Cargo Limits in Panama Canal.” CBC News. N.p., n.d. Web. <http%3A%2F%2Fwww.cbc.ca%2Fnews%2Fworld%2Fel-nino-drought-spurs-new-cargo-limits-in-panama-canal-1.3184328>.

Concepts: Aggregate Demand and Economic Growth

Diagrams: AD/AS Model and Lorenz Curve

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Investigative Article Brief

Brief Summary of Issue: Panama and Morocco, two countries on the verge on developing, have experienced certain drawbacks in the year of 2015. Despite experiencing issues in different sectors, Panama in service and Morocco in agriculture, the causes of these economic problems intersect at a point – Climate change. This year, both countries have suffered, and are still economically suffering from capricious climate. The El Niño phenomenon has caused devastated weather patterns in coast of Peru; rainfall has been so infrequent that the lakes dried up, causing the government to set weight limit restrictions for cargo ships passing through the Panama Canal. The infrequent rainfall has also made growing crops very difficult for Moroccans, which account for 15% of GDP. With agriculture accounting an average of 32% of GDP, other African countries have surpassed Morocco in this sector.

 

Economic Linkages: The economics concepts connected to this issue are Aggregate Demand, Economic Growth, and Injection.

Aggregate Demand (AD) is the total demand for the goods and services of a nation at a given price level and at a given period of time. There are four components that make a country’s aggregate demand: Consumption (C), Investment (I), Government Spending (G), and Net Exports (X – M). Therefore, this can be expressed as follows: AD = C + I + G + (X – M).

As Aggregate Demand and Economic Growth are directly proportional, as AD increases, Economic Growth increases as well. Economic growth resembles increase in real output; thus, increase in GDP.

Injection is comprised of three areas: government spending, investment and export. These three areas bring money into the circular flow, which could also be interpreted as GDP. Export is area that is affected in the issue for Panama and Morocco.

 

Application of Concepts: The AD/AS diagram shows the relationship between average price level and real output. Depending on the changing factors in the economy, the aggregate demand and aggregate supply curve will shift. It is important to note that there are no figures on the diagram because both Panama’s and Morocco’s numbers and figures are very different. However, this diagram is still accurate to illustrate the essential concept of both economies.

 

Diagram:

P and Y show the average price level and real output of Panama and Morocco. The aggregate demand curve shifting to the right is a result of one of the components – net export (X – M) in this case – increasing. The net exports are the measure of foreigners spending on a nation’s good or services minus the amount spent by domestic firms on imports. Around 50% of the country’s land is already used for agriculture; therefore, exports to other countries are great. Cargo ships and yachts paying the government to use the Panama Canal account for net exports for Panama. The shift from AD to AD2 is the potential aggregate demand, or in other words is the point the government was hoping to reach if there were no drawbacks due to climate. This would make P2 and Y2 the expected average price level and output. However, because both countries faced issues due to climate, the net exports could only increase by so much, shifting the AD curve to AD1. Furthermore, P1 and Y1 show the actual average price level and real output. In addition to this, the increase from P to P1 illustrates the inflation and the Y to Y1 illustrates the economic growth.

 

Diagram 2: A Lorenz curve illustrates the income distribution and income equality in both countries. The climate’s impact on both economies will be presented through this diagram.

Panama has a GINI coefficient of 51.9; therefore its curve is further away from the perfect equality line in comparison to that of Morocco. Morocco’s 40.9 GINI coefficient enables its curve to be closer to the perfect equality curve. In reality, there is no country that has a perfect distribution of its income; therefore, the close the curve, the better it is. Also, generally the closer the curve is to the perfect equality line, the more developed the country is. The Lorenz curve suggests that Morocco is more developed; however, some other development indicators illustrate Panama as more developed.

 

Evaluation:

Panama and Morocco are very much affected by climate this year; it has hindered economic growth and development a lot. Although both countries were affected negatively, it could have been worse. The situation for Moroccans could have also been worse too. Despite dedicating more than 50% of land on agriculture, it accounts for only 14.6% of GDP. Some actions are already being taken for this. For example, 400,000 crops have been supplied with drip irrigation systems and around 20 million fruit trees have been planted. Although costly and requires time, this project will bring Morocco’s agriculture economy back up again. The irrigation systems may be used if such situations repeat, and this time it will not be as devastating.

 

For Panama it has been slightly worse because the GDP component that is directly affected is services, which account for 78.3% of GDP. Although the authorities say that six of the 26 daily passing ships will be affected, this could add up to some big economic loss. An average full cargo ship contains 3,800 full containers and each full container is charged 82 dollars – that’s already 320,000 dollars. Tugboats and ground assistants also account for another 30,000 dollars. In 6 months, if 6 boats were to change their route per day, that would sum up to a 400 million dollar loss. However, the restrictions set by the government are the most appropriate action to take. If a cargo ship were to be stuck there, this would be catastrophic. Also, if the government had just decided to temporarily close the Panama Canal route until lakes fill up again, this would create an immense economic loss. In short, the government is dealing with the unfortunate situation very well. If the scarcity of water continues, a greater restriction could be applied, but the canal should not be closed to access unless absolutely needed. To end on another positive not, it is good that the services sector in Panama does not only depend on income from the Panama Canal but other areas too.

 

 

 

 

Categories: Economics

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