Introduction to International Economics

1. Learning Unit 1
Introduction to International Economics
Part 1: Overview
ECON452
International Economics

2. Objectives
1. Distinguish between international and domestic economic issues
2. Explain why seven themes recur in international economics and
discuss their significance
3. Distinguish between the trade and monetary aspects of
international economics

3. What Is International Economics About?
• International economics is about how nations
interact through trade of goods and services,
flows of money, Investment, and Immigration
• International economics is a political economics
– IE is an old subject, but continues to grow in
importance.
• Nations are now more closely linked than ever
before.
– What one nation does affects other nations.

4. How Important International Trade Is?
An importance of International Trade in an economy can be measured
by shares of imports and exports in GDP (Gross Domestic Product).
• GDP measures total production and expenditure of an economy. If a share of
exports in GDP is large, a large portion of production is sold to foreigners and
domestic workers earn income from foreign sales.
• GDP measures total expenditure of an economy. If a share of imports in GDP
is large, a large portion of consumption and other expenditure is from foreign
countries.

5. Fig. 1-1: Exports and Imports as a Percentage of U.S. National Income
• Both imports and exports
have risen as a share of
the U.S. economy.
• U.S. has been in trade
deficit (imports exceed
exports) since late 1970s.
• Trade as share of GDP
tends to decrease during
recessions.

6. Fig. 1-2: Average of Exports and Imports as Percentage of National Income in 2015
Compared to the United States, other
countries are even more tied to
international trade.
• Their imports and exports as a share
of GDP are substantially higher.
• The United States, due to its size and
diversity of resources, relies less on
international trade than almost any
other country.

7. Seven Main Themes in International Economics
1. Gains from Trade
2. Pattern of Trade
3. How Much to Trade
4. Balance of Payments*
5. Exchange Rate Determination*
6. International Policy Coordination*
7. International Capital Market*

8. Gains from Trade
• That there are gains from trade is probably the most important
insight in international economics.
• Countries selling goods and services to each other almost always
generates mutual benefits.
• Trade is predicted to benefit countries as a whole in several ways,
but trade may harm particular groups within a country.

9. Patterns of Trade
• The pattern of trade describes who sells what to whom.
• Differences in climate and resources explain why Brazil exports
coffee and Saudi Arabia exports oil.
• Why some countries export certain products can stem from
differences in:
1. Labor productivity
2. Relative supplies of capital, labor and land and their use in the
production of different goods and services

10. How Much to Trade
How much two countries trade between them depends on many
economic and non-economic factors:
• Distance: Closer two countries, easier and cheaper to trade
• Size of Economies: Larger an economy, more demand for foreign
goods and more supply of goods for foreigners
• Impediments of Trade: Natural impediments of trade such as
large ocean and high mountains discourage trades

11. Effects of Government Policies on Trade
Government policies can affect the amount of trade through
• tariffs: a tax on imports or exports
• quotas: a quantity restriction on imports or exports
• export subsidies: a payment to producers that export
• regulations (ex., product specifications) that exclude foreign
products from the market, but still allow domestic products.
What are the costs and benefits of these policies?

12. Globalization
Globalization: Increasing integration of economies around the world,
particularly through trade and financial flows, but also through the
movement of ideas and people, facilitated by the revolution in
telecommunication and transportation.
Anti-globalization movement: Recently, activists (in both sides) in
developed countries oppose globalization because
• (Right) globalization and immigration are threats to national identity
• (Left) globalization and capitalism are a threat to global democracy
and global justice

13. Trade and Money
Two main subfields of international economics are
• International trade focuses primarily on the real transactions in
the international economy – transactions involving a physical
movement of goods and services or a tangible commitment of
economic resources.
• International finance focus on the monetary side of the
international economy – financial transactions including foreign
exchange and balance of payment as well as international capital
market.

14. Disclaimer
Please do not copy, modify, or distribute
this presentation
without author’s consent.
This presentation was created and owned
by
Dr. Ryoichi Sakano
North Carolina A&T State University