An Introduction to International Economics Chapter 1: Introduction Dominick Salvatore John Wiley & Sons, Inc. Dale R. DeBoer University of Colorado, Colorado Springs

What is International Economics? International trade in goods and services An example: Sony Televisions

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

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

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

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

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 Source: World Trade Organization

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

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

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 European Union

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

Standard of Living The International Economy generates Interdependence Sources of potential gain Access to items not available domestically Coffee Bananas Tin Tungsten

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

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

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

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

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

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

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

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?

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?

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

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

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

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

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

Globalization What is globalization? Increasing international economic connections International Trade International Asset Ownership

Globalization What is globalization? Increasing international economic connections Increasing role of International Organizations in constraining domestic policies

Globalization What is globalization? Increasing international economic connections Increasing role of International Organizations in constraining domestic policies Increasing cultural homogeneity

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

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

Organization of the Text Part One: Chapters 2-4 International Trade Theory

Organization of the Text Part One: Chapters 2-4 Part Two: Chapters 5-6 International Trade Policies

Organization of the Text Part One: Chapters 2-4 Part Two: Chapters 5-6 Part Three: Chapters 7-9 International Asset Ownership

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

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

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