Transcript International economics as a field of study in economics; one may ask: • What makes economic relations among nation states different from economic relations.

International economics as a field of
study in economics; one may ask:
• What makes economic relations among
nation states different from economic
relations within a nation state?
Possible answers:
 Each country identifies itself by a geographical area over
which it claims sovereignty.
 Each country has its own government (political system)
and its own of rules and regulations. The political systems
of most nation states are different.
 Activities or transactions leading to movements of people,
factors of production (i.e., labor, capital and raw
materials), manufactured goods and services across a
county's borders are often controlled or restricted and in
some cases are prohibited.
 Most nation states have their own monies
(currencies) and banking systems.
 Despite the basic commonalties among all human
beings, people of different countries tend to have
different cultures, speak different languages, and
have different tastes and habits.
==>All of the above have restricting effects on
economic interactions among nation states.
• Since the end of the Second World War the
world's international trade has been growing
steadily.
• Better and less expensive transportation, lower
trade barriers, the establishment of international
institutions and organizations including trade
organizations, reduced levels of international
tension, regional economic agreements, and
international trade agreements have all
contributed to the growth in the in international
trade.
More recent developments:
• Trade liberalization ( the establishment of
WTO)
• Capital market liberalization
• Economic integrations
European Union
NAFTA
ASEAN
• Emergence of China as an economic force
• Globalization developments
International Economic
Relations
• Trade
»Exports
»Imports
• International Factor Movements
• International Investment
»Direct
»Portfolio
• Unilateral transfers (of goods and services and
capital )
• Official transactions
International Financial Transactions
•
•
•
•
Trade-based transactions
Investment transactions
Unilateral transactions
Official transactions
• Speculative transactions
• Hedging transactions
• Trading in FX derivatives
International Financial
Institutions
• Markets and exchanges in international
financial centers such as London, New York,
Paris, Tokyo, Singapore, etc.
• International banks and brokerage firms
• Central banks
• The IMF
• The World Bank
Studying International Economics
• Microeconomics: International Trade and
Factor Mobility
• Macroeconomics: International Finance
(Balance of Payments, Exchange Rate, and
International Monetary System)
• Positive and Normative Analysis
The United States and the World
• From the production possibilities curve analysis
we have learned that an economy's output cannot
grow beyond its production possibilities unless
there an increases in one or more of its economic
resources or/and there is an improvement in its
technology.
• Trading with other countries allows a country's
consumers to consume outside the country’s
production possibilities area; that means the
country can achieve a consumption level not
achievable without trade.
Gains from Trade
Food
100
b
a
TT
0
50
Clothes
US and the World Economy
2002
•
•
•
•
•
The World GDP
US
Other Rich
Middle Income
The Poor
$33.3 (Trillion)
$11
$16
$ 5.2
$ 1.2
The U.S. and International Trade
• The United States has the largest amount of
international trade in the world. In recent years
the U.S. has exported (and imported) about 15
percent of its GDP annually.
• Since 1981 the value of the U.S. annual imports
has (consistently) been greater than the value of
its annual exports resulting in balance of trade
deficits.
1960
1965
1970
1975
1980
1985
1990
1995
2000
2002
GDP Exports Imports
527
25.30
22.80
720
35.40
31.50
1040
57.00
55.80
1635 136.30 122.70
2796 278.90 293.80
4213 303.00 417.20
5803 557.20 628.60
7400 818.60 902.80
9825 1131.00 1520.30
10446 971.00 1392.00
BOP %Exprts %Imprts
2.50
4.80
4.33
3.90
4.92
4.38
1.20
5.48
5.37
13.60
8.34
7.50
-14.90
9.97
10.51
-114.20
7.19
9.90
-71.40
9.60
10.83
-84.20
11.06
12.20
-389.30
11.51
15.47
-421.00
9.30
13.33
U.S. Exports and Imports as % of
GDP
20.00
15.00
%Exprts
10.00
%Imprts
5.00
20
00
19
90
19
80
19
70
19
60
0.00
US Trade Deficits: Selected Regions/Countries
2002 (Mil)
470,104
World
97,501
EU
86,962
NAFTA
19,318
S. America
262,710
Asia
70,055
Japan
12,979
Korea
13,805
Taiwan
103,115
China
4,426
Rusia
US Financial Link to the Rest of the World
International Capital
Flow
$Million
Selected
Years
1960
1970
1980
1990
1997
US invest.
Foreign
Abroad Invst. in US
4,099
2,294
9,337
6,359
86,967
62,612
74,011
74,160
478,502 477,666
US GDP
526,600
1,035,600
2,784,200
5,743,800
8,111,000
US Inv Ab F Inv In US
0.78
0.44
0.90
0.61
3.12
2.25
1.29
1.29
5.90
5.89
US Investment Abroad and Foreign
Investment in US
as % of GDP
7.00
6.00
5.00
4.00
US Inv Ab
3.00
F Inv In US
2.00
1.00
19
60
19
70
19
80
19
90
19
97
0.00
US Net International Investment Position, 19812002
500000
$ Million
-1000000
-1500000
-2000000
-2500000
-3000000
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
83
85
19
19
-500000
19
81
0
The World Merchandise Trade (1998): The
Major Player
Export
$B
Extra-EU
%
Ch
813.2
20.1
0
United States 682.5
16.8
-1
Japan
387.9
9.6
-8
China
183.8
4.5
1
Korea
132.3
3.3
-3
Mexico
117.5
2.9
6
Singapore
109.9
2.7
-12
Import
$B
%
Ch
944.4
22.3
5
800.7
280.5
140.2
93.3
129.0
101.6
18.9 5
6.6 -17
3.3 -2
2.2 -35
3.0 14
2.4 -23
The Basic Theory of Trade
• Comparative advantage and the gains from
trade
• Specialization and trade as a means to
economic efficiency
• Trade as a way of life
• Trade and economic interdependence
• Trade and economic growth
Early Thinking about Trade
• Mercantilism
• Advocating exports and accumulation of gold and other
precious metals
• David Hume and the specie-flow mechanism
• Accumulation of gold => domestic inflation
of exports and increase in imports
=> decline
• Adam Smith (1776)
• Trade is beneficial for both trading partners (countries) if
each specializes in the production of the good she is more
efficient in.