Assignment (20%)
International Economics I
I. Case: Globalization and Multinational Corporations
Multinational corporations (MNCs) such as Apple, Toyota, and Samsung operate in multiple
countries. They source raw materials from one country, manufacture products in another, and
sell them worldwide. This global production network affects trade flows, employment,
exchange rates, and economic growth.
International economics provides tools to study how globalization, foreign direct investment
(FDI), and international trade influence both developed and developing economies. However,
economic theories used to analyze these issues rely on assumptions that may not always hold
true in the real world.
Questions:
1. Define international economics and explain its nature and scope with reference to
globalization.
2. Describe the components of international economics involved in the activities of
MNCs.
3. Explain why international economics is important for understanding globalization.
II. Case: Trade Policies from the 16th Century to the Industrial
Revolution
During the 16th and 17th centuries, European nations such as Britain, Spain, and France
followed protectionist trade policies. Governments encouraged exports, restricted imports,
and accumulated gold and silver. Over time, criticism of these policies emerged. The
Physiocrats in France argued that agriculture was the true source of wealth and opposed
excessive government control.
Later, classical economists like Adam Smith and David Ricardo challenged mercantilist ideas
and promoted free trade based on absolute and comparative advantage. These theories laid
the foundation for modern international trade. As global trade expanded and industrialization
progressed, economists began to question the limitations of traditional trade theories.
Questions:
1. Explain the mercantilists’ view on trade as reflected in early European trade
policies.
2. How did Physiocracy act as a link between mercantilism and the classical school?
3. Discuss the main ideas of the classical/traditional trade theories
III. Case: Trade Protection and Liberalization in the Global
Economy
Many countries impose tariffs, subsidies, and non-tariff barriers to protect domestic industries
from foreign competition. Developed countries often protect agriculture, while developing
countries protect infant industries. However, global institutions like the WTO encourage
trade liberalization to improve global welfare.
Trade policies are also influenced by political pressure from industries, labor unions, and
multinational corporations. In recent years, intellectual property rights have become an
important aspect of international trade policy, especially in pharmaceuticals, software, and
technology sectors.
Questions:
1. Explain the instruments of trade policy commonly used by countries worldwide.
2. Discuss the economic arguments for and against trade protection.
3. Examine the relationship between trade policy and economic welfare.
4. What is meant by optimal trade policy intervention? Under what conditions is it
justified?
IV. Case: Trade Liberalization and Development Challenges in
Developing Countries
Many developing countries initially followed inward-looking trade strategies such as import
substitution to promote industrialization. Over time, concerns such as limited export earnings,
declining terms of trade, and inefficiencies led to a shift toward outward-oriented strategies
and trade liberalization.
The Prebisch–Singer thesis argued that developing countries exporting primary goods face
long-term deterioration in their terms of trade. While trade liberalization has created new
opportunities, it has also raised concerns about environmental damage, unequal gains, and
dependence on developed economies.
Questions:
1. Explain the link between international trade and economic development.
2. Discuss the beneficial effects of trade for developing countries.
3. Compare static and dynamic analysis of trade in the context of development.
4. Explain alternative trade strategies, including import substitution and export
promotion
v. Case: Regional Economic Integration in Africa
African countries have increasingly pursued regional economic integration to enhance intra-
regional trade, industrialization, and economic growth. Different forms of integration exist,
such as free trade areas, customs unions, and common markets. Examples include the
Southern African Customs Union (SACU), the East African Community (EAC), and the
recently established African Continental Free Trade Area (AfCFTA).
Regional integration can lead to trade creation and trade diversion, which have different
effects on economic welfare. The AfCFTA aims to deepen integration across the continent,
but its success depends on infrastructure development, policy coordination, and effective
implementation.
Questions:
1. Explain the major forms of regional economic integration, giving examples from
Africa.
2. Discuss the concepts of trade creation and trade diversion and their welfare effects
in a customs union.
3. Evaluate the current state of regional economic integration in Africa under
AfCFTA.
4. How can African and other developing countries use both regional and global trade
institutions to promote economic development?