Basics of International Economics
The basics of international economics encompass the study of how countries interact through trade, finance, and investment. Key concepts include comparative advantage, exchange rates, balance of payments, and trade policies. International economics seeks to understand the impact of globalization on national economies and the implications for economic growth, income distribution, and overall welfare.
7 Key excerpts on "Basics of International Economics"
eBook - ePub- Harlan M. Smith(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...The International Economy 32 International Economic Relations Recently there has been more attention to the importance of international economic relations. To study them, students need background in both micro and macro; but when the topic is put at the end of the book, instructors may fail to get that far in the course. There is a problem in any case if the books don’t provide enough tie to the real international relations issues that are not just a matter of the theory of comparative advantage. One may get a discussion of protectionism as against free trade principles, but one may get little if any indication of the respects in which the cold war distorted international trade and investment, little if anything on the background of and nature of the third world demands for a New International Economic Order, little if anything on the conflict over the Common Agricultural Policy of the European Economic Community, little on the complex factors in the U.S. quarrel with Japan, and little on the complex sets of factors leading to the breakdown first of the gold standard and then of the Bretton Woods System. Having any real understanding of international economic relations is simply not reducible merely to understanding the principle of comparative advantage and the present nonsystem in international exchange rate determination. As for comparative advantage, despite efforts to distinguish it from absolute advantage, students typically do not learn why trade would pay even if a country was in some sense more efficient in every line of production than competitors, or how a country could still trade profitably even if it was less efficient in every line than any foreign country...
eBook - ePub- Won Kwang Paik(Author)
- 2018(Publication Date)
- Routledge(Publisher)
...I The Study of International Trade Relations INTRODUCTION For many years, international trade has been an essential part of international relations. Traditionally, economists rather than political scientists have paid the most attention to international trade and national policies. Recently, however, with the emergence of “new Protectionism” and the resurrection of international political economy as a legitimate field of international relations, international trade and trade relations have become the focal points of political science inquiries. Given its varied intellectual attractions, the central theme of international trade remains constant: What are the causes of trade relations? Specifically, what factors determine a flow of commodities from country A to country B ? There are basically three major types of answers to this question. The first type is a neoclassical economic explanation which originates in the writings of Adam Smith and David Ricardo. In this explanation, the amounts and types of commodities that are traded are not determined by any single individual or enterprise. Rather, exchanges are determined by the advantages and disadvantages which are naturally endowed to a particular producer. If a particular person, business firm, or country has a naturally endowed advantage in producing a particular commodity, then that commodity will be exported to another place with a less amount of the endowed factor. The second type of explanation stems loosely from the writing of Karl Marx. Exchanges of commodities are not naturally determined. Rather, they are structurally distorted. Because of the dialectical nature of the international system, trade relations are bound by a nation’s status in the system as either an undeveloped or a developed economy. For an undeveloped nation, the nature and types of trade relations will be conditioned and defined by a developing trading partner...
eBook - ePubThe Theory of International Business
Economic Models and Methods
- Mark Casson(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
...© The Editor(s) (if applicable) and the Author(s) 2016 Mark Casson The Theory of International Business 10.1007/978-3-319-32297-1_1 Begin Abstract 1. The Relationship Between Economics and International Business Studies Mark Casson 1 (1) Department of Economics, University of Reading, Reading, UK Abstract The literature on international business (IB) studies relies heavily on concepts from business strategy and makes relatively little use of concepts from economics. This is a mistake. This chapter introduces the concepts used by economists to analyse IB issues. It describes ‘how economists think’ and what they do and explains why their approach is so useful in IB studies. Keywords Model Mathematics Economics Rationality Equilibrium End Abstract The Role of Economics in International Business Studies This book concerns the application of economic theory to international business (IB). There is a particular focus on the multinational enterprise (MNE). A major stimulus to the development of modern IB theory was the need to explain the dramatic expansion of US MNEs into Europe (and elsewhere) in the 1950s and 1960s. The economic theory of IB developed as a branch of applied economics. Most of the early writers had trained as economists and worked in either business economics or economic development. Mainstream models of international trade and investment could not analyse MNEs satisfactorily as they could not explain why a firm would own and control assets in a foreign country. It is interesting that, with the exception of Stephen Magee, trade theorists did not play an important part in developing early IB theory—probably because they were too strongly attached to the standard ‘factor-proportions’ approach to trade. Some IB scholars have drawn the wrong conclusion from this. They argue that this story shows that economic methods do not work in IB. In fact the opposite is true...
eBook - ePub- Kenneth M. Eades, Timothy M. Laseter, Ian Skurnik, Peter L. Rodriguez, Lynn A. Isabella, Paul J. Simko(Authors)
- 2010(Publication Date)
- Wiley(Publisher)
...But the focus on domestic economic activity is not quite as troubling as you might think. Most nations’ economies are still largely domestic. For the United States, only about 14 percent of the GDP consists of exports and imports. Nevertheless, the share of international trade in the U.S. economy is rising and low relative to some economies, particularly in emerging markets. Moreover, trade and capital flow more freely across borders than ever, raising the influence of foreign firms and economic actions over all economies. The relationship of one economy’s health to that of its trading partners and financial counterparties is a significant influence on common macroeconomic variables such as the level of interest rates, inflation, and even unemployment. Understanding the international economy is more important than ever. The first step in understanding the basic relationships among national economies is to understand the financial/capital and goods flows among nations for a given period, typically one quarter or one year. The balance of payments is a statistical record of all the cross-border transactions engaged in by the residents of a country; an importer that brings wine or olive oil into the United States, an exporter that distributes movies overseas, a tourist who travels in China, and an investor who buys Brazilian equities are all engaging in cross-border transactions that show up in the balance of payments. The range of transactions is broad, so there are a number of measures or definitions of the balance of payments. We are going to focus on one, the current account balance. The current account is commonly used to discuss the relationships among countries as measured by their trade flows, or exports and imports. Specifically, the current account measures all the transactions involving goods and service trades and unilateral transfers (i.e., one-way gifts) or foreign aid...
eBook - ePub- Rob Dransfield(Author)
- 2013(Publication Date)
- Routledge(Publisher)
...11 The international economy Chapter Outline 11.1 Introduction 11.2 Advantages of international trade 11.3 Comparative and absolute advantage 11.4 The UK as a trading nation 11.5 The balance of payments 11.6 The UK’s main trading partners 11.7 The importance of trading blocs 11.8 The UK and the European Union 11.9 Exchange rates 11.10 The euro 11.11 Crisis in the Eurozone 11.12 Terms of trade 11.13 Summary Chapter Objectives After carefully reading this chapter you should be able to : Explain the benefits of international trade for consumers, producers and countries Differentiate between absolute and comparative advantage Outline the significance of international trade to the UK economy Explain the key components of a balance of payments account Identify the UK’s main trading partners Explain the main benefits of trading blocs Analyse some of the impacts to the UK of being a member of the European Union Evaluate different exchange rate systems Analyse issues associated with the euro as an international currency Define. terms of trade and their implications for international exchange 11.1 Introduction This chapter starts out by outlining the theory of international trade, with particular focus on the benefits of specialization. It explains the nature of the theory of comparative advantage which provides a justification for economies to focus on what they do best. The chapter then shows various ways in which a business organization can enter a foreign market. It then goes on to examine ways in which the UK benefits from trade and to show that our major trading partners (apart from the US and China) consist primarily of countries in the European Union (EU). We show how the EU was originally set up and how it has expanded to cover economic, political and social objectives. In addition, as well as the geographical spread the depth of integration within the EU has increased with successive periods of expansion...
eBook - ePubMacroeconomic Theory: A Short Course
A Short Course
- Thomas R. Michl(Author)
- 2015(Publication Date)
- Routledge(Publisher)
...Chapter 12 Open Economy Basics DOI: 10.4324/9781315702742-12 Globalization has raised awareness among millions of people of the forces unleashed when an economy is opened up to trade and world capital markets. No survey of macroeconomic theory would be complete without some coverage of open economy macroeconomics. This is a vast field. In order to get a grasp on it, we will concentrate on the open economy version of the IS-LM model of short-run equilibrium 1. This means we must backtrack a bit, by returning to the assumption of fixed wages and prices. 1 For more in-depth treatment of the open economy, Dernburg (1989) is an excellent source. 12.1 The exchange rate Before any agent can import a good or invest in a foreign capital market, she must obtain the foreign exchange that will be accepted there. Exchange rates are the prices of foreign currencies. We will simplify by lumping the rest of the world into one category so we can speak of “the” exchange rate 2. For purely illustrative purposes, we will use the euro (€) to exemplify the foreign currency and the US dollar ($) to represent the home currency. 2 Statisticians accomplish this by calculating a weighted average of a country’s bilateral exchange rates, often using trade shares as weights. The exchange rate, e, could be measured as $/€ or as €/$. Since we have measured all other prices in dollars, we will stick with that convention and define the dimension of the exchange rate as the dollar price of the euro: dim [ e ] = $ € Many foreign exchange rates are traded using the opposite convention, whether for convenience or tradition. The Japanese yen is usually quoted as ¥/$ for convenience, for example, to avoid awkwardly small decimals. There are two pure systems for setting exchange rates. Under fixed exchange rates, the central bank posts the price at which it is willing to buy or sell foreign currencies, and then tries to maintain those rates administratively...
eBook - ePubThe American Economy
How it Works and How it Doesn't
- Wade L. Thomas, Robert B. Carson(Authors)
- 2014(Publication Date)
- Routledge(Publisher)
...First, the basis for trade and its predicted benefits are examined by presenting the principle of comparative advantage. Second, barriers to trade and the rationale behind trade barriers are considered. Finally, the trend in international trade is considered with reference to U.S. trade policy. Comparative Advantage The economics of international trade is based upon a disarmingly simple theory. The principle of comparative advantage maintains that a country should specialize in producing products that it can produce at a lower opportunity cost and trade those items for goods it can produce only at a higher opportunity cost. The origins of this theory are credited to economist David Ricardo, who published the basic concept in 1817. Although it underwent revision, comparative advantage is an enduring and widely accepted foundation for modern international economics. The principle is easy to grasp at an intuitive level. Just as no individual attempts to produce all the goods he or she might want to consume because it is inefficient to do so, no country would find it efficient to produce all the commodities that its citizens might demand. Individuals tend to specialize according to what they do best or most efficiently and then trade those outputs for other goods. For example, an appliance repairman finds that his output is greatest when he devotes his labor time to fixing clothes dryers and that he is far less productive at growing his own food. When he attempts to perform both tasks, he finds that growing food uses up a great amount of time because he is not skilled at it and that it subtracts immensely from his time available to perform successful appliance repairs. In short, his opportunity cost (see Chapter 1) of growing food is high compared to that of repairing clothes dryers. Indeed, he is better off leaving the cultivation of crops to someone who can do it at a lower opportunity cost. The same reasoning is true for countries...
