It’s that time of the year for IB Economics students all over the world. Time to choose their extended essay topics! The International Baccalaureate (IB) program is a rigorous, two-year diploma program for 11th and 12th graders. In addition two three “higher level” courses and three “standard level” courses chosen from each of the six subject areas (maths, physical sciences, social sciences, fine arts, language A and language B), students must also complete a major research project over the two year program. This “extended essay” is externally assessed and counts towards their points and their final diploma score.

As an IB Economics teacher, it is my duty to assist students who choose to write an economics extended essay. This year I will supervise four Zurich International School students, who will be researching topics ranging from the competitive nature of the local fast food market, to Malaysia’s economic policy and the country’s development, to the health insurance industry in Switzerland and Brazil’s coffee market. Helping students fine tune their research topics and refine their essay is an exciting and rewarding process.

This afternoon I received an email from an IB Economics student in Berlin. Here’s what she had to say:

Dear Mr.Welker :

I’m currently an IB Grade 11 student studying at Berlin International School, and i would like to write my extended essay in Economics. Your blog has provided me with so many ideas now that the problems is now i don’t know what to choose or how to narrow it down . My ideas are mainly focusing on China’s economy, because I’m from Taiwan, I thought it would be an advantage for me, since i can understand information if it was written in Chinese.

I’m thinking of writing about the following topics:

• Limiting factors of China’s economic expansion (inequality, inflation, protectionism from other countries like US, spending and saving habits of the Chinese, export and import) and maybe the possible future of China’s economy, because while some people say it’s going to help lift the global economy out of recession, some say they see an economic crash.( but I’m not sure if as a high school student is able to do that, at the same time I think one of the criterias is to discover something new ? )
• Another thing i also find interesting is about Chinese currency and how it might solve inflation (I came across this from one of your blog posts about China at May 2008) or what policies do governments use to maintain RMB without buying US exports and the possible effects on other countries as a result of weak Chinese currency

I really can’t decide which one to do, therefore i would really appreciate it if you could advice me and give me some feedbacks.

Looking forward to your responses !

I was happy to receive an email from such an enthusiastic young economist. Below is my response and advice to the student:

Hello,

Your ideas are very interesting… it’s impressive as an IB Econ teacher to see a student as thoughtful and reflective on the EE topic as you are. Here are my thoughts on your proposed topics:

I think your first topic would be particularly difficult to research and write a good essay on. In all honesty, not many of the factors that you identify (inequality, inflation, protectionism from other countries like US, spending and saving habits of the Chinese, export and import) have really limited China’s economic growth. China’s growth has been unprecedented in the world in modern history. Inequality could be viewed as a result of the rapid growth the country has experienced; such inequality has been experienced in many countries during their early stages of economic development. Inflation is also a symptom of rapid growth, but in most cases China has keep inflation under control. It has been the lack of protectionism from countries like the US which have led to the massive growth of China’s export industry. If anything, China’s own protectionist policy of managing the value of the RMB at such a low rate has also contributed to its rapid growth.

Even Chinese spending and savings habits have contributed to the growth of the country’s economy. A high savings rate enables the Chinese government to tap the country’s savings to buy US government bonds, which keeps interest rates low in America, the dollar strong, and helps finance the US government’s budget deficits, meaning lower taxes and more disposable income among American consumers who turn around and import hundreds of billions of dollars worth of Chinese goods every year, further fueling growth in China. With a lower savings rate, China would experience fewer net exports. On the other hand, they’d experience more domestic consumption, which is probably what we should expect to see in the future if Beijing begins to loosens its control of the RMB and allows it to strengthen. Chinese will then begin consuming more of their own output and buying more imports from abroad, while net exports decrease in response to the rising prices of Chinese goods in the west. Domestic consumption will begin to replace exports as domestic savings decreases.

I like your second proposal much better. Since you are in Germany, I would consider researching the effects of China’s exchange rate controls on a particular industry in which both German and Chinese firms compete. I had a student in Shanghai who had a similar background to yours; he was of Chinese descent, but born in Germany. He spoke both German and Mandarin. He researched the impact of China’s low cost automobile parts manufacturers on the German auto parts and automobile industries. He did not focus exclusively on the exchange rate, but it was part of his research.

The IB really likes when you research local markets. If you examine the impact of the weak RMB on, say, US net exports, it’s not nearly as impressive as if you focus your investigation on German firms. You may have friends at your school whose parents work for firms who do business with or compete against Chinese firms. Interview them! You could measure historical exchange rate data between the RMB and the Euro, explain the mechanism by which China manages its currency against the US dollar but then explain how that also affects exchange rates with the Euro, then examine the impact on exports and imports from Germany to China and vis versa in response to the fluctuations of the RMB/Euro exchange rate. America is not the only country that wants China to let the RMB float. Europe’s exports are also affected by the weak RMB.

So that’s my suggestion. Take your two homes (well, not really as you’re Taiwanese, but close enough!) and focus on them. Choose one or two industries that exist in Germany AND China, and research the effects of free trade, China’s entry to the WTO, China’s exchange rate policies, and so on, to draw conclusions about how China’s entry to the global economy has affected firms in Germany.

Good luck, I hope this helps! Click on the “China” category on my blog to find all the dozens of articles I’ve written about China over the last three years!

Best,
Mr Welker

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

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3. How do changing interest rates affect exchange rates? The example of the RMB

Tags: advice, Extended Essay, IB Economics