International Economics 国贸 112 班(本科) 陈画妍 刘莉 宋忆婧 朱佳盛 吕玲
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- Slide 1
- International Economics 112
- Slide 2
- Introduction What is International Economics About?
International Economics: Trade and Money International economics
theory
- Slide 3
- International economics deals with economic interactions that
occur between independent nations. The role of governments in
regulating international trade and investment is substantial .
Analytically, international markets allow governments to
discriminate against a subgroup of companies. Governments also
control the supply of currency. There are several issues that recur
throughout the study of international economics. What is
International Economics About?
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- The Gains from Trade Many people are skeptical about importing
goods that a country could produce for itself. When countries sell
goods and services to one another, all countries benefit. Trade and
income distribution International trade might hurt some groups
within nations. Trade, technology, and wages of high and
low-skilled workers. What is International Economics About? The
Pattern of Trade (who sells what to whom?) Climate and resources
determine the trade pattern of several goods. In manufacturing and
services the pattern of trade is more subtle. -International
difference in labor productivity. -The relative supplies of
national resources such as capital, labor, and land on one side and
the relative use of these factors in the production of different
goods on the other. -A substantial random component. There are two
types of trade: Interindustry trade depends on differences across
countries. Intraindustry trade depends on market size and occurs
among similar countries. What is International Economics
About?
- Slide 5
- Protectionism? Many governments are trying to shield certain
industries from international competition. This has created the
debate dealing with the costs and benefits of protection relative
to free trade. Advanced countries policies engage in industrial
targeting. Developing countries policies promote industrialization:
Import substitution versus export promotion industrialization. What
is International Economics About?
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- The Balance of Payments Some countries run large trade
surpluses. For example, in 1998 both China and South Korea ran
trade surpluses of about $40 billion each. Is it good to run a
trade surplus and bad to run a trade deficit? Exchange Rate
Determination The role of changing (floating)exchange rates is at
the center of international economics. What is International
Economics About?
- Slide 7
- International Economics: Trade and Money International trade
analysis focuses primarily on the real transactions in the
international economy. These transactions involve a physical
movement of goods or a tangible commitment of economic resources.
Example: The conflict between the United States and Europe over
Europes subsidized exports of agricultural products
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- International monetary analysis focuses on the monetary side of
the international economy. That is, financial transactions such as
foreign purchases of U.S. dollars. Example: The dispute over
whether the foreign exchange value of the dollar should be allowed
to float freely or be stabilized by government action International
Economics: Trade and Money
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- International trade issues Part I: International Trade Theory
Part II: International Trade Policy International monetary issues
Part III: Exchange Rates and Open- Economy Macroeconomics Part IV:
International Macroeconomic Policy International Economics: Trade
and Money
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- Two Basic Concepts balance of trade 1. Trade Surplus Exports
Imports Favorable Balance of Trade 2. Trade Deficit Exports Imports
Unfavorable Balance of Trade 3. Trade Balance Exports Imports Trade
Structure 1. Commodity Structure 2. Geographical Structure
Dependency of Trade 2004 2005 2004 2005 2004 70% 2005
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- ( Adam Smith :17231790 ---The Wealth of Nations) In a
two-nation, two-product world, international trade and
specialization will be beneficial when one nation had an absolute
cost advantage in one good and the other nation has an absolute
cost advantage in the other good. . Absolute advantage 11
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- For the world to benefit from international division of labor,
each nation must have a good that it is ablolutely more efficient
in producing than its trading partner. A nation will import those
goods in which it had an absolute cost disadvantage; it will export
those goods in which it has an absolute cost advantage.
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- Countries engage in international trade for two basic reasons:
They are different from each other in terms of climate, land,
capital, labor, and technology. For example, China and U.S. They
try to achieve scale economies in production, such as Boeing and
airbus.
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- 2 Comparative Cost David Ricardo 1817 Background Cultivation of
wheat expands, land of grass shrinks, and price of wool goes up
Labor is more expansive Food expend increases, end goods expend
decreases Revenge from other countries, export of end products
decrease
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- Case of Ricardian Model Unit Cost Calculated in terms of labor
Britain Portugal Carpet Wine 4848 6 10 Assumptions Two nations, two
products, one factor, fixed productivity, sufficient employment,
perfect competition, non-mobility of factor, barter, no
technological improvement, no transportation cost Assumptions Two
nations, two products, one factor, fixed productivity, sufficient
employment, perfect competition, non-mobility of factor, barter, no
technological improvement, no transportation cost The absolute
costs of both products in Britain is lower than that in Portugal,
why is there still trade between these two countries
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- A necessary condition of international trade: Comparative cost
difference A sufficient condition of international trade:
international exchange rate is between domestic exchange rates in
both countries. There is benefit from trade Limitation Why there is
comparative cost
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- Some failings of Ricardian model An extreme specialization is
not in the real world, as we mentioned above. Without concern the
distribution of income within countries in trade. It allows no role
for differences in resources among countries as a cause of trade.
It neglects the possible role of economies scale as a cause of
trade.
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- 18 We have learned the Ricardian model, but there are so many
wrong ideas about the international trade. We need to correct them.
1 Productivity and Competitiveness 2 The Pauper Labor Argument ( )
3 Exploitation Misconceptions About Comparative Advantage
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- 19 1. Productivity and Competitiveness A well-known historian
said: What if there is nothing you can produce more cheaply or
efficiently than anywhere else? Myth 1: Free trade is beneficial
only if a country is strong enough to withstand ( ) foreign
competition. This argument fails to recognize that trade is based
on comparative not absolute advantage. The competitive advantage of
an industry depends not only on its productivity relative to the
foreign industry, but also on the domestic wage rate relative to
the foreign wage rate. In our numerical example, Foreign has
competitive advantage with lower wages in wine production.
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- 20 2. The Pauper Labor Argument ( ) In 1993 Ross Perot warned
that free trade between U.S. and Mexico was not beneficial to U. S.
economy. Myth 2: Foreign competition is unfair and hurts other
countries when it is based on low wages. It is favorite of labor
unions to seeking protection from foreign competition. Again in our
example Foreign has lower wages but home still benefits from trade.
Because it is cheaper in term of its own labor for home to produce
cheese and trade it for wine than to produce wine for itself.
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- 21 3. Exploitation One columnist contrasted the $2 million
income of the chief executive officer of the clothing chain The Gap
with the $0.56 per hour paid to the central American workers who
produce the clothing. Myth 3: Trade makes the workers worse off in
countries with lower wages. In the absence of trade these workers
would be worse off. Again in our example, the purchasing power of a
workers hourly wage would fall from 1/3 to 1/6 pound of cheese.
Denying the opportunity to export is to condemn poor people to
continue to be poor.