Mankiw 5e Chapter 1: The Science of Macroeconomics

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International Trade Theory Chapter 1
Introduction
Hyun-Hoon Lee
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OUTLINE

• 1.1 Importance of International Economics
• 1.2 International Trade and the Nations Standard
  of Living
• 1.3 The Major U.S. Trade Partners The Gravity
  Model
• 1.4 The Subject Matter of International Economics
  
• 1.5 Purpose of International Economic Theories
  and Policies
• 1.6 Current International Economic Problems
• 1.7 The Globalization Challenge
• 1.8 Organization and Methodology of the Text

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1.1 Importance of International Economics

• International trade is crucial to the well-being
  of nations
• Some knowledge of international economics is
  necessary to understand what goes on in the world
  of today and to be informed consumers, citizens,
  and voters. 
• On a more practical level, the study of
  international economics is required for numerous
  jobs in international banking, various government
  agencies, and international organizations. 
• - Case Study 1-1 The Dell and Other PCs Sold in
  the US are All but American
• - Case Study 1-2 What is an American Car?.

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1.2 International Trade and the Nations
Standard of Living

• International trade is crucial to the well-being
  of nations
• FIGURE 1.1. Imports and Exports as a Percentage
  of GDP in Various countries
• FIGURE 1.2. Growth of World Production and Trade,
  1994-2004 
• FIGURE 1-3 Rising Importance of International
  Trade
• FIGURE 1-3-1 Trade as a Percentage of GDP,
  1965-2003
• FIGURE 1-3-2 U.S. Imports and Exports as a
  Percentage of GDP, 1965-2001.
• FIGURE 1-3-3 Japans Imports and Exports as a
  Percentage of GDP, 1965-2003.
• FIGURE 1-3-4 Koreas Imports and Exports as a
  Percentage of GDP, 1965-2003.
• FIGURE 1-3-5 Chinas Imports and Exports as a
  Percentage of GDP, 1970-2003.

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FIGURE 1-1 Imports and Exports as a Percentage of
GDP in Various Countries in 2001.
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FIGURE 1-2 Growth of World Production and Trade,
1990-2001 (annual percentage changes).
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FIGURE 1-3-1 Trade as a Percentage of GDP,
1965-2003.
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FIGURE 1-3-2 U.S. Imports and Exports as a
Percentage of GDP, 1965-2001.
slide 7
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FIGURE 1-3-3 Japans Imports and Exports as a
Percentage of GDP, 1965-2003.
slide 8
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FIGURE 1-3-4 Koreas Imports and Exports as a
Percentage of GDP, 1965-2003.
slide 9
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FIGURE 1-3-5 Chinas Imports and Exports as a
Percentage of GDP, 1970-2003.
slide 10
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1.3 The Major Trading Partners of the U.S., and
Korea The Gravity Model

• The Gravity Model postulates that the bilateral
  trade between countries is positively related to
  the product of the two countries GDP and
  negatively related to the distance between them.
• Table 1.2a. Major Treading Partners of the U.S.
  in 2005
• Table 1.2b. Major Treading Partners of Korea in
  2005

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Table 1.2b. The Major Trade partners of Korea
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1.4 The Subject Matter of International
Economics

• International economics deals with the economic
  interdependence among nations. 
• The microeconomic aspects (international trade)
• - Part One (Chapters 2-7) pure trade theory
• - Part Two (Chapters 8-12) trade (commercial)
  policies 
• The macroeconomic aspects (international finance)
• - Part Three (Chapters 13-15) balance of
  payments and foreign exchange markets
• - Part Four (Chapters 16-21) open-economy
  macroeconomics

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1.5 Purpose of International Economic Theories
and Policies

• Assumptions and merits of economic models
• Examples

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1.6.1 Current International Economic Problems

• Trade Protectionism in Advanced Countries
• Excessive Fluctuations and Large Disequilibria in
  Exchange Rates
• Increasing International Competition from China
• High Structural Unemployment and Slow Grow in
  Europe
• Financial Crises in Emerging Market Economies
• Restructuring Challenge of Transition Economies
• Deep Poverty in Many Developing Countries

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1.6.2 Current International Economic Problems

• Sustainable Development and Environment
  (Instructors addition)
• Regionalism and Faltering Multilateralism
  (Instructors addition)

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1.7 The Globalization Challenge

• Globalization Increasing integration of
  economies around the world, particularly through
  trade and financial flows.
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• Pros vs Cons

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1.8 Organization and Methodology of the Text

• Organization (See table of contents.)
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• Methodology of the Text

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Appendix

• Table 1.3 Commodity Composition of World
  Merchandise Trade, 2004
• Table 1.4 Geographical Composition of World
  Merchandise Trade, 2004
• Table 1.5 Geographical Destination of Merchandise
  Exports, 2001
• Table 1.6 Leading Exporters and Importers of
  Merchandise, 2001
• Table 1.7 Leading Exporters and Importers of
  Commodity Services