Contents
Introduction
What is International Economics About?
International Economics: Trade and Money
Slide 1-2
What is
International Economics About?
International economics deals with economic
interactions that occur between independent nations.
• The role of governments in regulating international trade
and investment is substantial.
• Analytically, international markets allow governments to
discriminate against a subgroup of companies.
• Governments also control the supply of currency.
There are several issues that recur throughout the study
of international economics.
Slide 1-3
What is
International Economics About?
The Gains from Trade
• Many people are skeptical about importing goods that
a country could produce for itself.
• When countries sell goods to one another, all countries
benefit.
• Trade and income distribution
– International trade might hurt some groups within
nations.
– Trade, technology, and wages of high and low-skilled
workers.
Slide 1-4
What is
International Economics About?
The Pattern of Trade (who sells what to whom?)
• Climate and resources determine the trade pattern of
several goods.
• In manufacturing and services the pattern of trade is more
subtle.
• There are two types of trade:
– Interindustry trade depends on differences across
countries.
– Intraindustry trade depends on market size and occurs
among similar countries.
Slide 1-5
What is
International Economics About?
How Much Trade?
• Many governments are trying to shield certain industries
from international competition.
• This has created the debate dealing with the costs and
benefits of protection relative to free trade.
– Advanced countries’ policies engage in industrial targeting.
– Developing countries’ policies promote industrialization:
– Import substitution versus export promotion industrialization.
Slide 1-6
What is
International Economics About?
The Balance of Payments
• Some countries run large trade surpluses.
– For example, in 1998 both China and South Korea ran trade
surpluses of about $40 billion each.
• Is it good to run a trade surplus and bad to run a trade
deficit?
Exchange Rate Determination
• The role of changing exchange rates is at the center of
international economics.
Slide 1-7
What is
International Economics About?
International Policy Coordination
• A fundamental problem in international economics is
how to produce an acceptable degree of harmony
among the international trade and monetary policies of
different countries without a world government that
tells countries what to do.
The International Capital Market
• There are risks associated with international capital
markets:
– Currency depreciation
– National default
Slide 1-8
International Economics:
Trade and Money
International trade analysis focuses primarily on the
real transactions in the international economy.
These transactions involve a physical movement of goods
or a tangible commitment of economic resources.
Slide 1-9
International Economics:
Trade and Money
International monetary analysis focuses on the
monetary side of the international economy.
• That is, financial transactions such as foreign
purchases of U.S. dollars.
– Example: The dispute over whether the foreign
exchange value of the dollar should be allowed to float
freely or be stabilized by government action
Slide 1-10
International Economics:
Trade and Money
International trade issues
• Part I: International Trade Theory
• Part II: International Trade Policy
International monetary issues
• Part III: Exchange Rates and Open-Economy
Macroeconomics
• Part IV: International Macroeconomic Policy and
Institutions
Slide 1-11