Introduction

• International economics is the study of interrelationships among nations.

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports

• domestic jobs vs. jobs abroad

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports• domestic jobs vs. jobs abroad

• domestic prices vs. international prices

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports• domestic jobs vs. jobs abroad• domestic prices vs. international prices

• trade deficits (surpluses)--are they harmful ?

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports• domestic jobs vs. jobs abroad• domestic prices vs. international prices• trade deficits (surpluses)

--are they harmful ? --to whom are they harmful

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports• domestic jobs vs. jobs abroad• domestic prices vs. international prices• trade deficits (surpluses)

--are they harmful ?

--to whom are they harmful

-- are they beneficial?

Introduction

• International economics is the study of interrelationships among nations. It deals with questions such as:

• imports• exports• domestic jobs vs. jobs abroad• domestic prices vs. international prices• trade deficits (surpluses)

--are they harmful ?

--to whom are they harmful

-- are they beneficial?

-- to whom are they beneficial?

Introduction

• what is so important about the value of the dollar ?

Introduction

• is the dollar any different from other currencies (international currency)?

Introduction

This course provide some answers to all of the questions posed above. We will discuss the trade questions first and then we engage with the international finance aspects of the course.

Introduction

All countries are different. When one deals with international economic questions, it is difficult to classify and analyze all countries and all problems in a same fashion. There are:

Country Classification

Population Size

small population large population

small countries Fiji, JapanLuxembourg

large countries Australia, IndiaGreenland China,

Terminology

GNP: Value of all goods and services produced by domestic factors of production regardless of their location, in or out of the country.

Terminology

GDP: value of all goods and services produced within a country.

Terminology

Therefore, wages paid to a Canadian worker in a Ford plant in Canada is included in the U.S GNP and in Canada's GDP (not in the U.S.'s GDP).

Terminology

GDP: wages paid to a Canadian worker in a Ford plant in the U.S. is included in the US GDP and Canada’s GNP (it is excluded From Canada's GDP but included in the Canadian GNP)

Terminology

Canadian worker in a Ford Plant in U.S. in Canada

U.S. GNP no yes

U.S. GDP yes no

Canadian GNP yes no

Canadian GDP no yes

index of openness

the ratio of Exports/GDP

the ratio of (Imports + Exports/GDP

index of openness

• Imports: goods purchased by domestic economic agents from foreign economic agents

• Exports: goods purchase by foreign economic agents from domestic economic agents

Pattern of Trade

1-- Industrialized countries account for the most of the world trade. They are largest exporters and importers in the world.

year % of total world trade

1965 61%

1992 70%

Pattern of Trade

• 1-- Industrialized countries account for the most of the world trade. They are largest exporters and importers in the world.

2-- Over years, pattern of trade has changed.

Pattern of Trade

• Pattern of Trade1-- Industrialized countries account for the most of the world trade. They are

largest exporters and importers in the world.

2-- Over years, pattern of trade has changed. Asian countries have gained a great deal of importance in the international trade arena at the expense of African and Latin American countries.

Pattern of Trade

• Pattern of Trade1-- Industrialized countries account for the most of the world trade. They are largest

exporters and importers in the world.

2-- Over years, pattern of trade has changed. Asian countries have gained a great deal of importance in the international trade arena at the expense of African and

Latin American countries. Even though world exports has increased by a factor of 22 between 1965 and 1992, exports of Asian countries (china, Japan, NICs) have increased by a factor of 48.

Pattern of Trade• Pattern of Trade1-- Industrialized countries account for the most of the world trade. They are largest exporters and importers in the world.

2-- Over years, pattern of trade has changed. Asian countries have gained a great deal of importance in the international trade arena at the expense of African and Latin American countries. Even though world exports has increased by a factor of 22 between 1965 and 1992, exports of Asian countries (china, Japan, NICs) have increased by a factor of 48. Their share of world exports have increased from 12% in 1965 to 25% in 1992

Asia

year share of world exports

1965 12%1992 25%

Latin America

year share of world exports

1965 7%1992 5%

Africa

year share of world exports

1965 5%1992 2%

North America

year share of world exports

1965 20%1992 16%

3-- U.S. is a major trading partner for most countries.

4-- Distance plays a roll in magnitude of trade. The largest U.S. trade partner is Canada; France , England, and West Germany are each others large trade partners. Iran, Pakistan, and Turkey have their own trading bloc.

• What goods nations trade

• There are several factors explaining the goods countries trade:

• 1-- availability of resources is one important determinant. One could compare United States and Japan. Looking at the U.S. one can observe that the US exports a great deal of agriculture products. The reason is very simple. The United States has:

• --Vast farmland• --enormous forests• --skilled labor

• Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

• does not have much raw material of its own,• but it does have a very skilled and productive labor force .

• Therefore, Japan imports and processes the imported raw material and export them as finished products.

• This is, in essence, the Heckcher-Ohlin theory of international Trade.

Pattern of Trade

Asia

year share of world exports1965 12%

1992 25%

Pattern of Trade

Latin America

year share of world exports

1965 7%

1992 5%

Pattern of Trade

Africa

year share of world exports

1965 5%

1992 2%

Pattern of Trade

North America

year share of world exports

1965 20%

1992 16%

Pattern of Trade

3-- U.S. is a major trading partner for most countries.

Pattern of Trade

4-- Distance plays a roll in magnitude of trade. The largest U.S. trade partner is Canada; France , England, and West Germany are each others large trade partners. Iran, Pakistan, and Turkey have their own trading bloc.

What goods nations trade

There are several factors explaining the goods countries trade:

1-- availability of resources is one important determinant. One could compare United States and Japan. Looking at the U.S. one can observe that the US exports a great deal of agriculture products. The reason is very simple.

What goods nations trade

There are several factors explaining the goods countries trade:

1-- availability of resources is one important determinant. One could compare United States and Japan. Looking at the U.S. one can observe that

the US exports a great deal of agriculture products. The reason is very simple. The United States has:

--Vast farmland

What goods nations trade

There are several factors explaining the goods countries trade:

1-- availability of resources is one important determinant. One could compare United States and Japan. Looking at the U.S. one can observe that

the US exports a great deal of agriculture products. The reason is very simple. The United States has:

--Vast farmland--enormous forests

What goods nations trade

There are several factors explaining the goods countries trade:

1-- availability of resources is one important determinant. One could compare United States and Japan. Looking at the U.S. one can observe that

the US exports a great deal of agriculture products. The reason is very simple. The United States has:

--Vast farmland--enormous forests

--skilled labor

What goods nations trade

Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

What goods nations trade

Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

• does not have much raw material of its own, but it does have a

What goods nations trade

Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

• does not have much raw material of its own, but it does have a • very skilled and productive labor force .

What goods nations trade

Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

• does not have much raw material of its own, but it does have a • very skilled and productive labor force .

Therefore, Japan imports and processes the imported raw material and export them as finished products.

What goods nations trade

Looking at Japan one can observe that Japan exports a great deal of manufactured products. The reason is very simple. Japan:

• does not have much raw material of its own, but it does have a • very skilled and productive labor force .

Therefore, Japan imports and processes the imported raw material and export

them as finished products. This is, in essence, the Heckcher-Ohlin theory of international Trade.