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International Introduction Economics
Agenda
International Economics
What is International Economics All About?
International Economics studies the special
issues raised by economic transactions
between sovereign nations.
Why Study International Trade?
The study of international economics is very old.
7 Major Themes in International Economics.
The first formal exposition was David Humes On the
Balance of Trade in 1758.
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International Economics
International Economics
International economics continues to grow in
importance with increasing globalization and
its backlash.
Globalization is the process of intensifying the
connections between national economies through:
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International trade in goods and services,
International factor movements,
International flows of money, and
International financial investments.
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We use the same fundamental methods of
analysis as other branches of economics.
The motives and behavior of individuals and
businesses are the same in international trade as
they are in domestic transactions.
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International Economics
International Trade
Focuses primarily on transactions of goods
and services across countries.
Two broad subfields:
International trade, and
Involves the physical movement of goods and/or
International finance.
The commitment of tangible resources like labor
services.
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International Finance
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International Trade and Finance
Focuses on financial transactions across
countries.
No simple dividing line between the two.
Most international trade involves monetary
transactions and
Involves the exchange of financial assets.
Many international monetary events have
important consequences for trade.
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International Trade
Why Study International Trade?
International economics has grown in
importance as the world economy has
become increasingly integrated.
We will focus on international trade.
Develop analytical theories to explain the
patterns of international trade.
Trade has grown as a share of world GDP.
Including who benefits and who loses from trade.
Trade as a fraction of national income has tripled in
the US over the past 40 years.
Apply trade theory to the analysis of
government trade policies.
Compared to the US, other countries are even more
dependent on international trade.
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Trade has Increased in the U.S.
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Trade More Important Elsewhere
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Why Study International Trade?
Why Study International Trade?
International economics is important to
understanding many of the key events that
have shaped the domestic and international
economic environment.
Other measures of globalizationforeign
direct investment and international capital
flowshave also increased dramatically.
Why have trade flows and globalization
increased so much?
Integration of China, India, Eastern Europe into
the world trading system.
Globalization/anti-globalization.
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Why Study International Trade?
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Why Study International Trade?
More key events:
More Key Events:
Free trade/fair trade/trade protection.
Exchange rate appreciations/depreciations.
Multilateral/Bilateral trade agreements.
Current account surpluses/deficits.
Monetary union.
International debt crises/Currency crises.
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Why Study International Trade?
7 Major Themes
As the world economy has become
increasingly integrated, policy makers must
take into account economic and political
events everywhere in the world.
1. The Gains from Trade
2. The Patterns of Trade
3. The Effects of Government Policy on Trade
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The Balance of Payments
Exchange Rate Determination
International Coordination
International Policy Capital Markets
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The Gains from Trade
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The Gains from Trade
Two basic ideas underlie these gains.
The single most important insight from
international economics is that there are
economic gains from trade for both trading
partners.
When buyers and sellers engage in voluntary
transactions, both must have gained from the
transaction; trade is not a zero-sum; there are
mutual gains to trade.
Countries can specialize in production but still
consume a wide variety of goods and services
through trade.
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The Gains from Trade
The Patterns of Trade
Although international trade will benefit
countries as a whole, it may harm particular
groups within a country.
International trade may have strong effects on
the distribution of income within a country.
Patterns of trade are influenced by:
Differences in labor productivity,
Differences in technologies,
Differences in resource endowment,
Conflicts about trade should occur between
groups within countries rather than between
countries.
Differences in factor intensity,
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The Patterns of Trade
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The Patterns of Trade
Patterns of trade are influenced by:
Each of these factors influences the pattern
of trade and determines the distribution of
gains and losses between and within
economies.
The short-run fixity of factors of production,
Differences in tastes and preferences,
First mover advantages and economies of scale,
Imperfect competition, or
We will examine each of these factors
separately and evaluate their relative
importance empirically.
It may be random.
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The Effects of Government
Policies on Trade
The Effects of Government
Policies on Trade
Policy makers can affect the amount of
trade through:
We will develop a simple yet powerful
analytical framework for determining the
effects of government policies on
international trade.
Tariffs,
Quotas,
Who wins and who loses from various
government policies.
Export subsidies, and
Which government policies should be used?
Other regulations.
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The Effects of Government
Policies on Trade
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The Balance of Payments
Measures the value of exports and imports
and the value of international financial
flows into and out of a country.
Attempts by government to shield some
sectors of the economy from the effects of
international trade will hurt welfare
generally but may improve welfare for the
protected sectors.
These have become very large numbers for
many countries.
What are the consequences of this?
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Exchange Rate Determination
International Policy Coordination
A key difference between international
economics and other areas of economics is
that countries usually have their own
currencies.
In an increasingly integrated world
economy, one countrys economic policies
will affect other countries as well.
The exchange rate is determined by the flows of
international trade and finance.
International trade policies
International macroeconomic policies
Exchange rates can change dramatically over time
which affects the value of exports and imports.
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International Capital Markets
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International Capital Markets
International capital markets differ in
important ways from domestic capital
markets.
There are special risks associated with
international capital markets.
Especially by regulations on capital inflows and
outflows.
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Currency fluctuations,
Capital controls, and
National default.
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A Look Ahead
Explaining the Volume of Trade
Explaining the Pattern of Trade
Analyzing the Effects of Government Trade
Policies
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