1 International Economy Week 2 Prepared by Shi Young Lee* (Chung-Ang University) March 7, 2010

2 Basic Concept of Exchanges & Trade  Introduction to Exchanges - Definition of exchanges: Two parties voluntarily engage in a form of trade of goods or services - Why do we engage in trade: As two parties voluntarily engage in exchanges, both parties become better off after exchanges  There must be some gains from trade, otherwise, there would no exchange in the first place - Examples are abound: international trade, etc

3 Basic Concept of Exchanges & Trade  Specialization - Agents tend to specialize in production of goods or services - Specialization pays off  Agents can produce more and at cheaper costs via specialization, i.e., they become more productive - Exchanges and specialization are complementary with each other - Example: Pin factory by A. Smith or production of pencils by M. Freidman - Causality between the two  Specialization to exchanges or vice versa

4 Basic Concept of Exchanges & Trade  Contracts & Institutions - Throughout the world history, institutions evolve to reduce transaction cost of exchanges - Formal Institutions: laws (& contracts) Informal Institutions: conventions and culture  These institutions facilitate the exchanges - Institutions often determine the profitability (or transaction cost) of exchange per se - The evolution of institutions reduces uncertainty in exchanges and thus expands the volume of trade

5 Basic Concept of Exchanges & Trade  Exchanges, Specialization and Institutions 1. Specializations and institutions often facilitate exchanges by reducing uncertainty and increasing profitability of exchanges 2. Since specialization and sounding institutions facilitate exchanges, they can make economies develop 3. Restriction of such exchanges may lower the volume of trade and thus tends to depress economies

Topics for Presentations  International Policy Coordination & Exit Strategy - Does international policy coordination matter when we employ exit strategy? - How does the exit strategy employed by China or the US affect the Korean economy? - What if international policy (exit strategy) coordination is failed?  Define coordination or coordination failure

Topics for Presentations  Dollar vs Gold during Economic Crisis - Values of dollar and gold may change during crisis period - Do they tend to move together or differently and why? - Why is there the surge in demand for gold during the recent global financial crisis (compared to any other crisis)? - Why does gold (or dollar) look more attractive than dollar (or gold)?

Topics for Presentations  Mutually Beneficial Trade - Trade is basically known as a positive sum game  Or is it? - Is there any possibility that it is a zero-sum rather than positive sum? - How do we know that we gain from trade either ex-ante or ex-post? - Are there too much trade or too less trade today?

Topics for Presentations  Kyoto Protocol & International Initiative - Japan’s initiative on environment protection  curb CO2 - Under what circumstances did Japan initiate Kyoto Protocol? - Is Kyoto protocol considered as success or failure? (either from Japan’s prospective or environment protectionist’s point of view)

Topics for Presentations  Outsourcing & Production Fragmentation - What determine production fragmentation and outsourcing? - Why is there surge in outsourcing since late 1990s? - How does the decline of transport cost affect the surge in outsourcing? - Consider benefits and cost of outsourcing

Topics for Presentations  Corruption and Development - Does corruption dampen economic development? - Specify the conditions that corruption dampen economic development /or that corruption help economic prosperity - How do we define corruption? - Why does level of corruption change over time? - Africa vs. Asia: Is there any difference with respect to corruption?