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ECON 317 International Economics D. Allen Dalton Fall 2014.

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Presentation on theme: "ECON 317 International Economics D. Allen Dalton Fall 2014."— Presentation transcript:

1 ECON 317 International Economics D. Allen Dalton Fall 2014

2 Information MBEB 3222 (Adjunct offices) 9:30 -11:00 am TuTh or by appointment allendalton@boisestate.edu https://cobe.boisestate.edu/allendalton/ http://www.macmillanhighered.com/launchpad /feenstrataylorintlecon3/561022 http://www.macmillanhighered.com/launchpad /feenstrataylorintlecon3/561022 2

3 Grading Problem Sets (Homework) Learning Curve Quarterly exams (mid- midterms!) Mid-term (final over international trade) Final (final over international macroeconomics) Book review Classroom participation (experiments) 3

4 Important Dates Every Monday @ midnight – Problem Set due September 18 – 1 st Quarterly Exam September 25 – Submission of Book review title October 16 – Mid-term Exam (In-class portion) October 17 – Mid-term Exam (On-line portion); Midnight November 13 – 2 nd Quarterly Exam November 20 – Book review due December 16 – Final Exam (In-class portion); Noon – 2 pm December 16 – Final Exam (On-line portion); Midnight 4

5 Launchpad Intro 5

6 No class on Thursday, August 28 Go Broncos! No class on Thursday, August 28 6

7 Trade in the Global Economy 1 1.International Trade 2.Migration and Foreign Direct Investment © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 7

8 1 International Trade The Basics of World Trade - Terminology export import trade balance – trade surplus – trade deficit bilateral trade balance © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 8

9 Map of World Trade FIGURE 1-2 World Trade in Goods, 2010 ($ billions) This figure shows trade in merchandise goods between selected countries and regions of the world. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 9 1 International Trade

10 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 10 APPLICATION Is Trade Today Different from the Past? FIGURE 1-1 (a) The Changing Face of U.S. Import Industries, 1925–2010 The types of goods imported by the United States has changed drastically over the past 84 years. Foods, feeds, and beverages, and industrial supplies were 90% of imports in 1925, but represented only 40% in 2010.

11 FIGURE 1-1 (b) The Changing Face of U.S. Export Industries, 1925–2010 The types of goods exported by the United States has also changed drastically over the past 84 years. Capital plus consumer goods plus automobiles have increased from 20% of exports in 1925 to 60% of exports in 2010. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 11 APPLICATION Is Trade Today Different from the Past?

12 Map of World Trade TABLE 1-1 Shares of World Trade, Accounted for by Selected Regions, 2010 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 12 1 International Trade

13 Trade Compared with GDP TABLE 1-2 Trade/GDP Ratio in 2010 This table shows the ratio of total trade to GDP for each country, where trade is calculated as (Imports + Exports)/2, including both merchandise goods and services. Countries with the highest ratios of trade to GDP tend to be small in economic size. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 13 1 International Trade

14 Barriers to Trade This diagram shows total trade in merchandise goods and services for each country divided by GDP. There was a considerable increase in the ratio of trade to GDP between 1890 and 1913. This trend was ended by World War I and the Great Depression. Most of the industrial countries shown did not reach the level of trade prevailing in 1913 until the 1970s. FIGURE 1-3 Trade in Goods and Services Relative to GDP The term trade barriers refers to all factors that influence the amount of goods and services shipped across international borders. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 14 1 International Trade

15 FIGURE 1-4 Average Worldwide Tariffs, 1860–2010 This diagram shows the world average tariff for 35 countries. The average tariff fluctuated around 15% from 1860 to 1913. After World War I, however, the average tariff rose sharply because of the Smoot-Hawley Tariff Act in the United States and the reaction by other countries, reaching 25% by 1933. Since the end of World War II, tariffs have fallen. Interwar Period “First Golden Age” of Trade © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 15 1 International Trade

16 2 Migration and Foreign Direct Investment Map of Migration FIGURE 1-5 Foreign-Born Migrants, 2005 (millions) This figure shows the number of foreign-born migrants living in selected countries and regions of the world for 2005 in millions of people. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 16

17 Map of Foreign Direct Investment FIGURE 1-6 Stock of Foreign Direct Investment, 2010 ($ billions) This figure shows the stock of foreign direct investment (FDI) between selected countries and regions of the world for 2010 in billions of dollars. The largest stocks have the heaviest lines. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 17 2 Migration and Foreign Direct Investment

18 Map of Foreign Direct Investment Horizontal FDI The majority of foreign direct investment occurs between industrial countries. These flows between industrial countries are called horizontal FDI. Vertical FDI The other form of foreign direct investment occurs when a firm from an industrial country owns a plant in a developing country, which is called vertical FDI. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 18 2 Migration and Foreign Direct Investment

19 The Global Macroeconomy 1 1.Foreign Exchange: Currencies and Crises 2.Globalization of Finance: Debts and Deficits 3.Government and Institutions: Policies and Performance © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 1

20 20 Unique features of international macroeconomics can be reduced to three key elements: 1.The world has many monies (not one). 2.Countries are financially integrated (not isolated). 3.In this context economic policy choices are made (but not always very well). This introductory chapter briefly explains the road ahead. Introduction

21 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 21 Based on observable differences in exchange rate behavior, economists divide the world into two groups of countries: those with fixed (or pegged) exchange rates and those with floating (or flexible) exchange rates. How Exchange Rates Behave John T. Fowler/Alamy Steve Stock/Alamy 1 Foreign Exchange: Currencies and Crises

22 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 22 2 Globalization of Finance: Debts and Deficits Financial globalization has taken hold around the world, starting in the economically advanced countries and spreading to many emerging market countries. Deficits and Surpluses: The Balance of Payments At the national level, economic measurements such as income, expenditure, deficit, and surplus, are important barometers of economic performance, and the subject of heated policy debate. The income measure is called gross national disposable income; the expenditure measure is called gross national expenditure. The difference between the two is a key macroeconomic aggregate called the current account.

23 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 23 FIGURE 1-3 Global Imbalances For more than a decade, the United States current account deficit has accounted for about half of all deficits globally. Major offsetting surpluses have been seen in Asia (e.g., China and Japan) and in oil- exporting countries. 2 Globalization of Finance: Debts and Deficits

24 Three important features of the broad macroeconomic environment in the remainder of this book are: the rules that a government decides to apply to restrict or allow capital mobility, the decision that a government makes between a fixed and a floating exchange rate regime, and the institutional foundations of economic performance, such as the quality of governance that prevails in a country. © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 24 3 Government and Institutions: Policies and Performance

25 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 25 Independence and Monetary Policy: The Choice of Exchange Rate Regimes FIGURE 1-6 Exchange Rate Regimes The pie chart shows a classification of exchange rate regimes around the world using the most recent data for the year 2010. 3 Government and Institutions: Policies and Performance

26 © 2014 Worth Publishers International Economics, 3e | Feenstra/Taylor 26 FIGURE 1-7 Institutions and Economic Performance The scatterplots show how an index measuring the quality of a country’s institutions is positively correlated with the level of income per capita as shown in panel (a), and is inversely correlated with the volatility of income per capita as shown in panel (b). In each case, the line of best fit is shown. 3 Government and Institutions: Policies and Performance

27 No class on Thursday, August 28 Go Broncos! No class on Thursday, August 28 27


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