INTERNATIONAL ECONOMICS
CHAPTER1
Chapter objectives
What is International Economics?
Why does international economics is a distinct branch of economics?
What are the importance of international economics?
Aspects in International Economics
Difference between domestic & international trade
Difference between international, multinational and global company
Current International Economic Problems
International business environment
What is International Economics?
International economics is concerned with the effects upon economic activity from international
differences in productive resources and consumer preferences and the international institutions
that affect them. International Economics is the study of economic interactions between
countries.
It seeks to explain the patterns and consequences of transactions and interactions between
different countries, including trade, investment and transaction.
International trade between different countries is an important factor in raising living standards,
providing employment and enabling consumers to enjoy a greater variety of goods.
International trade is the exchange of capital, goods, and services across international borders or
territories because there is a need or want of goods or services.
How does international trade help the economy? Trade is central to ending global poverty.
Countries that are open to international trade tend to grow faster, innovate, improve productivity
and provide higher income and more opportunities to their people. Open trade also benefits
lower-income households by offering consumers more affordable goods and services.
Why does international economics is a distinct branch of economics?
• International economics is a distinct branch within economics because it is extremely relevant to the
contemporary, globalized economic system.
• International economics is a superset of major topics including international trade, international finance,
foreign exchange markets, exchange rate regimes, multilateral institutions, trading blocs, etc.
• International trade studies goods-and-services flows across international boundaries from supply-and-
demand factors, economic integration, international factor movements, and policy variables such
as tariff rates and trade quotas.
• International finance studies the flow of capital across international financial markets, and the effects of
these movements on exchange rates.
• International monetary economics and international macroeconomics study flows of money across
countries and the resulting effects on their economies as a whole.
• International political economy, a sub-category of international relations, studies issues and impacts from
for example international conflicts, international negotiations, and international sanctions; national security
and economic nationalism; and international agreements and observance.
• Currency exchange
• International transactions require conversions between currencies
• Foreign exchange markets
What are the importance of international economics?
• International trade between different countries is an important factor in raising living standards,
providing employment and enabling consumers to enjoy a greater variety of goods.
• The scope of international economics is wide as it includes various concepts, such as
globalization, gains from trade, pattern of trade, balance of payments, and FDI. Apart from this,
international economics describes production, trade, and investment between countries.
• The growth in cross-border economic activities takes five principal forms:
(1) international trade;
(2) foreign direct investment;
(3) capital market flows;
(4) migration (movement of labor);
(5) diffusion of technology
What are the importance of international economics?
Globalization refers to the opening of local and nationalistic perspectives to a broader outlook of
interconnected and interdependent world with free transfer of capital, goods and services across the
national frontiers.
Globalization has several facets, including globalization of markets and globalization of production:
1. Globalization of market: refers to the merging of historically distinct and separate national markets
into one huge global marketplace.
2. Globalization of production: refers to the sourcing of goods and services from locations around
the globe to take advantage of national difference in the cost and quality of factors of production.
What are the importance of international economics?
Standard of Living
• The International Economy generates Interdependence
• A standard of living refers to the amount and quality of material goods and services available to a
given population. The standard of living includes basic material factors such as income, gross
domestic product (GDP), life expectancy, and economic opportunity
• Sources of potential gain
• Access to items not available domestically
• Access to lower cost products
• Access to greater product variety
• Is it always a gain?
• Import competing sectors may experience production and job losses
• This loss is at least partially (and potentially, completely) offset by gains in the exporting
sectors
Aspects in International Economics
• International Trade Theory
• Analyzes the basis of and the gains from international trade
• Focuses on the microeconomic aspects of the international economy
• International Trade Policy
• Examines the reasons for and the effects of restrictions on international trade
• Analyzes the implications for International Trade Theory of such restrictions
• Balance of Payments
• A summary statement of all the international transactions of the residents of a nation with the rest of
the world during a particular period of time, usually a year.
• The balance of payments of a country is the difference between all money flowing into the country in a
particular period of time and the outflow of money to the rest of the world.
• Foreign Exchange Markets
• The institutional framework for the exchange of one national currency into another
• Part of the study of International Finance (or Open-Economy Macroeconomics) that is concerned with
the macroeconomic implications of the International Economy
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Current International Economic Problems
International Business Environment
The environment of international business is regarded as the sum total of all external forces
working upon the firm as it goes about its affairs in foreign and domestic markets
The environment can be classified in terms of domestic, foreign and international spheres of
impact
The economic environment, political environment, cultural environment, technological
environment, legal environment and competitive environment play a vital role in determining
an international business operation
• The international environment is conceived as the interaction between domestic and foreign
factors, they cover a wide spectrum of forces:
1. Political environment
2. Legal environment
3. Cultural environment
4. Technological environment
5. Economic environment
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Legal environment
Cultural Environment
Technological Environment
