An Introduction to International Economics Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. Dale R. DeBoer University of Colorado, Colorado Springs 1-1 What is International Economics? • International trade in goods and services – An example: Sony Televisions Dale R. DeBoer University of Colorado, Colorado Springs 1-2 What is International Economics? • International trade in goods and services – A key issue – its not just imports! • Exports of Boeing Aircraft • Exports of Microsoft Software Dale R. DeBoer University of Colorado, Colorado Springs 1-3 What is International Economics? • International trade in goods and services – A key issue – its not just imports! – Its also not just for consumers! • Trade in component parts • Monitors for Dell Computers Dale R. DeBoer University of Colorado, Colorado Springs 1-4 What is International Economics? • International trade in goods and services – A key issue – its not just imports! – Its also not just for consumers! – Services, not just goods! • Lloyd’s of London Dale R. DeBoer University of Colorado, Colorado Springs 1-5 What is International Economics? • International trade in goods and services – – – – A key issue – its not just imports! Its also not just for consumers! Services, not just goods! International trade is expanding Dale R. DeBoer University of Colorado, Colorado Springs 1-6 What is International Economics? • International trade in goods and services – – – – A key issue –Value its ofnot just imports! World Merchandise Exports (1995 = 100) Source: World Trade Organization Its also not just for consumers! 140 120not just goods! Services, 100 International trade is expanding 80 60 40 20 0 1950 Dale R. DeBoer University of Colorado, Colorado Springs 1960 1970 1980 1990 2000 1-7 What is International Economics? • International trade in goods and services • International ownership of assets – Examples • Foreign stock ownership • Automobile assembly plants – Toyota WWW link • US government debt Dale R. DeBoer University of Colorado, Colorado Springs 1-8 What is International Economics? • International trade in goods and services • International ownership of assets • Currency exchange – International transactions require conversions between currencies – Foreign exchange markets • Federal Reserve Bank Exchange Rate Data WWW link Dale R. DeBoer University of Colorado, Colorado Springs 1-9 What is International Economics? • • • • International trade in goods and services International ownership of assets Currency exchange International organizations – World Trade Organization • WWW link – International Monetary Fund • WWW link – European Union • WWW link Dale R. DeBoer University of Colorado, Colorado Springs 1 - 10 Standard of Living • The International Economy generates Interdependence – Economic growth in the United States spurs increased demand for imports – Increased import demand by the United States generates economic growth in other countries Dale R. DeBoer University of Colorado, Colorado Springs 1 - 11 Standard of Living • The International Economy generates Interdependence • Sources of potential gain – Access to items not available domestically • • • • Coffee Bananas Tin Tungsten Dale R. DeBoer University of Colorado, Colorado Springs 1 - 12 Standard of Living • The International Economy generates Interdependence • Sources of potential gain – Access to items not available domestically – Access to lower cost products – Access to greater product variety Dale R. DeBoer University of Colorado, Colorado Springs 1 - 13 Standard of Living • The International Economy generates Interdependence • Sources of potential gain • 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 Dale R. DeBoer University of Colorado, Colorado Springs 1 - 14 Subjects 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 Dale R. DeBoer University of Colorado, Colorado Springs 1 - 15 Subjects in International Economics • International Trade Theory • 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 Dale R. DeBoer University of Colorado, Colorado Springs 1 - 16 Subjects in International Economics • International Trade Theory • International Trade Policy • 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. – Provides a statistical summary of the size of international trade and international asset ownership for a country Dale R. DeBoer University of Colorado, Colorado Springs 1 - 17 Subjects in International Economics • • • • International Trade Theory International Trade Policy Balance of Payments 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 Dale R. DeBoer University of Colorado, Colorado Springs 1 - 18 Subjects in International Economics • • • • • International Trade Theory International Trade Policy Balance of Payments Foreign Exchange Markets Adjustments in the Balance of Payments – Focuses on the relationship between internal and external aspects of the economy – Examines how disequilibria lead to macroeconomic adjustment under difference international monetary systems Dale R. DeBoer University of Colorado, Colorado Springs 1 - 19 Current International Economic Problems • Trade Protectionism in Industrial Countries – What are the reasons for this protection? – What are the implications of this protection for the industrial countries? – What are the implications of this protection for the rest of the world? – How do regional trade blocks (the NAFTA, the European Union, etc.) complicate efforts to reduce this protection? Dale R. DeBoer University of Colorado, Colorado Springs 1 - 20 Current International Economic Problems • Trade Protectionism in Industrial Countries • Excessive Fluctuations and Large Disequilibria in Exchange Rates – Large exchange rate fluctuations may disrupt international trade and harm economic growth – What is the source of these fluctuations? – How can the international financial system be reformed to eliminate these fluctuations? Dale R. DeBoer University of Colorado, Colorado Springs 1 - 21 Current International Economic Problems • Trade Protectionism in Industrial Countries • Excessive Fluctuations and Large Disequilibria in Exchange Rates • Financial Crises in Emerging Market Economies – The causes and consequences of a sudden collapse in the value of a currency of an emerging economy Dale R. DeBoer University of Colorado, Colorado Springs 1 - 22 Current International Economic Problems • Trade Protectionism in Industrial Countries • Excessive Fluctuations and Large Disequilibria in Exchange Rates • Financial Crises in Emerging Market Economies • High Structural Unemployment and Slow Growth in Europe and Stagnation in Japan Dale R. DeBoer University of Colorado, Colorado Springs 1 - 23 Current International Economic Problems • Trade Protectionism in Industrial Countries • Excessive Fluctuations and Large Disequilibria in Exchange Rates • Financial Crises in Emerging Market Economies • High Structural Unemployment and Slow Growth in Europe and Stagnation in Japan • Job Insecurity from Restructuring and Downsizing in the United States Dale R. DeBoer University of Colorado, Colorado Springs 1 - 24 Current International Economic Problems • Excessive Fluctuations and Large Disequilibria in Exchange Rates • Financial Crises in Emerging Market Economies • High Structural Unemployment and Slow Growth in Europe and Stagnation in Japan • Job Insecurity from Restructuring and Downsizing in the United States • Restructuring Problems of Transition Economies Dale R. DeBoer University of Colorado, Colorado Springs 1 - 25 Current International Economic Problems • Excessive Fluctuations and Large Disequilibria in Exchange Rates • Financial Crises in Emerging Market Economies • High Structural Unemployment and Slow Growth in Europe and Stagnation in Japan • Job Insecurity from Restructuring and Downsizing in the United States • Restructuring Problems of Transition Economies • Deep Poverty in Many Developing Countries Dale R. DeBoer University of Colorado, Colorado Springs 1 - 26 Globalization • What is globalization? – Increasing international economic connections • International Trade • International Asset Ownership Dale R. DeBoer University of Colorado, Colorado Springs 1 - 27 Globalization • What is globalization? – Increasing international economic connections – Increasing role of International Organizations in constraining domestic policies Dale R. DeBoer University of Colorado, Colorado Springs 1 - 28 Globalization • What is globalization? – Increasing international economic connections – Increasing role of International Organizations in constraining domestic policies – Increasing cultural homogeneity Dale R. DeBoer University of Colorado, Colorado Springs 1 - 29 Globalization • What is globalization? – Increasing international economic connections – Increasing role of International Organizations in constraining domestic policies – Increasing cultural homogeneity – Increased domestic economic growth caused by expanded international connections • Potential harm? – Environmental concerns Dale R. DeBoer University of Colorado, Colorado Springs 1 - 30 Globalization • What is globalization? • The Anti-Globalization movement – A loose coalition of groups opposed to globalization – Concerns • Environmental damage • Loss of domestic labor protections • Erosion of domestic sovereignty Dale R. DeBoer University of Colorado, Colorado Springs 1 - 31 Organization of the Text • Part One: Chapters 2-4 – International Trade Theory Dale R. DeBoer University of Colorado, Colorado Springs 1 - 32 Organization of the Text • Part One: Chapters 2-4 • Part Two: Chapters 5-6 – International Trade Policies Dale R. DeBoer University of Colorado, Colorado Springs 1 - 33 Organization of the Text • Part One: Chapters 2-4 • Part Two: Chapters 5-6 • Part Three: Chapters 7-9 – International Asset Ownership Dale R. DeBoer University of Colorado, Colorado Springs 1 - 34 Organization of the Text • • • • Part One: Chapters 2-4 Part Two: Chapters 5-6 Part Three: Chapters 7-9 Part Four: Chapters 10-12 – Balance of Payments and Exchange Rate Markets Dale R. DeBoer University of Colorado, Colorado Springs 1 - 35 Organization of the Text • • • • • Part One: Chapters 2-4 Part Two: Chapters 5-6 Part Three: Chapters 7-9 Part Four: Chapters 10-12 Part Five: Chapters 13-14 – Open-Economy Macroeconomics Dale R. DeBoer University of Colorado, Colorado Springs 1 - 36 Organization of the Text • • • • • • Part One: Chapters 2-4 Part Two: Chapters 5-6 Part Three: Chapters 7-9 Part Four: Chapters 10-12 Part Five: Chapters 13-14 Part Six: Chapters 15-16 – The International Economy in Operation Dale R. 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