International Economics
By Robert J. Carbaugh 9th Ednternational Economy
KEY CONCEPTS AND TERMS Agglomeration economies Economic interdependence Law of comparative advantage
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CONTENT
Introduction----economic interdependence Globalization of economic activity Waves of globalization The U.S. as an open economy Why is globalization important Common fallacies of international trade What makes a company “American”? International competitiveness Has globalization gone too far?
Foreign ownership of US financial assets has risen, the United States had become a net borrower from the rest of the world to pay for the difference. In commercial banking, US banks developed worldwide branch networks in the 1960s and 1970s for loans, payments, and foreign exchange trading. Foreign banks also increased their presence in the United States throughout the 1980s and early 1990s. US securities firms have also globalized their operations.
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Ⅳ The U.S. as an open economy
Exports of goods and services as percent of Gross Domestic Product, 2001
Country
Netherlands Norway South Korea Canada Germany France United Kingdom Mexico United States Japan
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Ⅵ Common fallacies of international trade
• International trade is a zero-sum activity. • Imports reduce employment and act as a drag on the economy, while exports promote growth and employment. • Tariffs, quotas, and other import restrictions will save jobs and promote a higher level of employment.
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Ⅰ Economic interdependence
In today’s world, no nation exists in economic isolation. All aspects of a nation’s economy---its industries, service sectors, levels of income and employment, living standard---are linked to the economies of its trading partners. This linkage takes the form of international movements of goods
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Ⅱ Globalization of economic activity
Forces driving globalization Technological change:
Production Communication & information Transport
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Ⅶ What makes a company “American”?
“American competitiveness” can be thought of as the capacity of US workers to add value to the international economy irrespective of the nationality of the company that employs them. If the US desires to maintain its competitiveness, it must invest in people, not in nationally defined corporations.
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Ⅲ Waves of globalization
1st wave: 1870-1914 Falling tariff barriers improved transportation 2nd wave: 1945-1980 Agreements to lower barriers again Rich country trade specialization Poor nations left behind 3rd wave: 1980-present Growth of emerging markets international capital movements regain importance
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and services, labor, business enterprise, investment funds, and technology. Indeed, national economic polices cannot be formulated without evaluating their probable impacts on the economies of other countries. When the United States sneezes, the economies of other nations catch a cold.
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However, globalization can make the domestic economy vulnerable to disturbances initiated overseas. Take financial crisis in east Asia during 1997 to 1999 for example.
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Exports (% of GDP)
68% 48 46 45 35 29 28 28 11 11
Imports (% of GDP)
62% 30 41 39 34 27 30 30 14 10
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Leading trading partners of the United States, 2000
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Elements of interdependence
Trade: goods, services, raw materials, energy Finance: foreign debt, foreign investment, exchange rates Business: multinational corporations, global production
Country Canada Mexico Japan Germany France Italy Netherlands Belgium/Luxembourg Venezuela Australia
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Value of US exports ($ bill.)
$202.4 125.2 98.4 45.2 30.6 16.4 28.9 17.9 9.0 17.9
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Ⅷ International competitiveness
Firm competitiveness relative prices and qualities of products ---factors which will affect the productivity A nation’s competitiveness A high and increasing standard of living for its people---productivity
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Ⅴ Why is globalization important
Comparative advantage means:
If the relative cost of making two items is different in two countries, each can gain by specializing in the one it makes most cheaply each has a comparative advantage in that product. Even countries that make nothing cheaply can benefit from specialization.