International economics is the study of interrelationships among nations.

1
Introduction

• International economics is the study of
  interrelationships among nations.

2
Introduction

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

3
Introduction

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

4
Introduction

• International economics is the study of
  interrelationships among nations. It deals with
  questions such as
• imports
• exports
• domestic jobs vs. jobs abroad

5
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

6
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 ?

7
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

8
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?

9
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?

10
Introduction

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

11
Introduction

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

12
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.

13
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

14
Country Classification

• Population Size
• small population large population
• small countries Fiji, Japan
• Luxembourg
• large countries Australia, India Greenland
  China,

15
Terminology

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

16
Terminology

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

17
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).

18
Terminology

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

19
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

20
index of openness

• the ratio of Exports/GDP
• the ratio of (Imports Exports/GDP

21
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

22
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

23
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.

24
Pattern of Trade

• 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.
  Asian countries have gained a great deal of
  importance in the international trade arena at
  the expense of African and Latin American
  countries.

25
Pattern of Trade

• 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.
  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.

26
Pattern of Trade

• 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.
  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

27
Pattern of Trade

• Asia
• year share of world exports 1965 12
• 1992 25

28
Pattern of Trade

• Latin America
• year share of world exports
• 1965 7
• 1992 5

29
Pattern of Trade

• Africa
• year share of world exports
• 1965 5
• 1992 2

30
Pattern of Trade

• North America
• year share of world exports
• 1965 20
• 1992 16

31
Pattern of Trade

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

32
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.

33
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.

34
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

35
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

36
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

37
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

38
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

39
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 .

40
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.

41
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.