INTERNATIONAL ECONOMICSLecture 1 | Lucía Rodríguez| Introduction

INTRODUCTION

• Introducing ourselves.• What is interesting about international

economics?• Trends in international economics and

international trade.• Course overview.• Course logistics.

GLOBALIZATION

• International Integration in commodity, capital and labor markets Not a new phenomenon!

Figure 1. Globalization Waves in the 19th and 20th century

Source: World Trade Organization

– Rapid trade and output growth went together increased size and openess– It has not been a smooth process: waves

GLOBALIZATION

• After WWII:

19481950

19521954

19561958

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

World Exports (1948 - 2010)(billion US$)

GLOBALIZATION

• Main Drivers of Global Integration

– Technological innovations• Transportation and Communications improvements• Production methods

– Political developments• Initial fragmentation: Cold War• Integrating forces: Marshall Plan, collapse of the Soviet Union

– Economic Policy• Global Macroeconomics stability• Reduction of restrictions on trade and financial transactions

GLOBALIZATION

• The World ex-ante the financial crisis: – Commodities, labor and capital were indeed integrated (in different

degrees).– Rising Global Imbalances

Figure 2. Current Account Balances of Selected Economies. (Billion dollars)

Source: World Trade Organization

GLOBALIZATION

• Was this pattern sustainable? The World ex-post the financial crisis:

Figure 3. Real GDP and Trade growth of OECD countries, 2007-08 (% change)

Source: OECD

GLOBALIZATIONFigure 4. Growth in volume of world merchandise trade and GDP, 2000-11 a

Annual % change

a. Figures for 2011 are projectionsSource: WTO Secretariat.

GLOBALIZATION– Reasons for Trade Contraction:

• Widespread fall-off in demand• Increasing presence of global supply chains in total trade• Shortage of trade finance• Increase in protectionism

• Current International Economic Problems– In 2010, the volume of exports rebounded: 14.5% rise was the largest

annual figure in the present data series.– For 2011, forecast is more modest (6.5%), with uncertainty.– Trade Protectionism in a rapidly globalizing world– Excessive Fluctuations and Misalignement in Exchange Rates– Structural Imbalances– International inequalities in standards of living– Resource Scarcity, Environmental Degradation, Climate Change and

Sustainable Development.

GLOBALIZATION

• From bubble to crisis and recovery: 2011 World Trade in perspective.

http://www.youtube.com/watch?v=uE5O9sta2BsBy Hubert Escaith, WTO Chief Statistician.

INTERNATIONAL ECONOMICS

• International Trade: focuses on the real transactions– Physical movement of goods– Tangible commitment of economic

resources– Micro side: individual nations

treated as single units, relative price issues.

A. International Trade Theory: basis and gains from trade

B. International Trade Policy: reasons for and effect of trade restrictions

• International Finance: focuses on the monetary side– Financial transactions– Macro side: deals with aggregate

variables, such as output and the general price index.

A. Balance of Payments: 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.

B. Foreign Exchange Markets: Framework for the exchange of one national currency for another.

INTERNATIONAL TRADE

• International Trade Theory: Why do countries trade?A. Classical Theory 

– Adam Smith– David Ricardo– John Stuart Mill– Gottfried Haberler 

B. Neoclassical Theory – Factor Endowments Model– Extensions of the Hecksher-Ohlin model– Empirical evidence and fallacies

C. New Trade Theory – Inter and intra industry trade.– Imperfect competition, economies of scale, and product diversification.– Geography and Trade.

INTERNATIONAL TRADE

• International Trade PolicyA. The Instruments of Trade Policy. 

– Tariffs: Costs/Benefits– Effective Protection theory.– Non-tariff Barriers.

 

B. Policy options. – The case for Free-Trade.– Arguments for Protectionism.– The political Economy of Trade Policy.

C. Regional Integration vs. Multilateral Liberalization. 

– Preferential Trade Agreements (PTAs)– Rationale for Multilateral Trade– International Institutions– Current debates.

 

D. Open Issues and Future prospects

COURSE LOGISTICS

• meeting times & locationTuesday, Thursday7pm to 8:30pmRoom 204 III

• syllabus• articles for discussion and reading package

– Questions for Thursday 8th:• Effects of the ban on the importing and exporting country• Peculiarities of international trade in oil • Effects of this commodity on macroeconomic stability• Other examples of trade sanctions. Effectiveness?

• instructorLucía Rodríguez.lucia.rodriguez@meh.es

http://econ2181.wordpress.com