An Introduction to International
Economics
Chapter 1: Introduction
Dominick Salvatore
John Wiley & Sons, Inc.
Presented by: Assoc. Prof. Dr. Nguyen Thuong Lang
1-1
What is International Economics?
• International trade in goods and services
• An example: Sony Televisions
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
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
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
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
1-6
What is International Economics?
• International trade in goods and services
– A key issue –Value
its ofnot just
World imports!
Merchandise Exports (1995 = 100)
Source: World Trade Organization
– Its also not
140
just for consumers!
– Services,120not just goods!
100
– International
80
trade is expanding
60
40
20
0
1950 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
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
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
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
1 - 11
Standard of Living
• The International Economy generates
Interdependence
• Sources of potential gain
– Access to items not available domestically
• Coffee
• Bananas
• Tin
• Tungsten
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
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
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
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
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
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
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
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?
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?
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
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
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
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
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
1 - 26
Globalization
• What is globalization?
• Increasing international economic connections
• International Trade
• International Asset Ownership
1 - 27
Globalization
• What is globalization?
– Increasing international economic connections
– Increasing role of International Organizations in
constraining domestic policies
1 - 28
Globalization
• What is globalization?
– Increasing international economic connections
– Increasing role of International Organizations in
constraining domestic policies
– Increasing cultural homogeneity
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
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
1 - 31
Organization of the Text
• Part One: Chapters 2-4
• International Trade Theory
1 - 32
Organization of the Text
• Part One: Chapters 2-4
• Part Two: Chapters 5-6
– International Trade Policies
1 - 33
Organization of the Text
• Part One: Chapters 2-4
• Part Two: Chapters 5-6
• Part Three: Chapters 7-9
– International Asset Ownership
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
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
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
1 - 37
