Economics 314

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Economics 314

• International Economics

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Econ 314

• MWF, 301 Linfield 210-300
• Text Pugel, International Economics
• Additional Reading Handouts, The Economist, NY
  Times, etc.
• Homework Students Present Answers
• Exams Midterm and Final
• Based on Homework

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Presentations/Papers

• 2 or 3 students per team
• 15 minute presentation using Powerpoint
• Written version (7-10 pages)
• Last 2 ½ weeks of course

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Grading

• Midterm Exam 25
• (Comprehensive) Final Exam 40
• Presentation/Paper 25
• Class Participation 10
• Total 100

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Contacts

• Office 208 Linfield, 9-11, 2-4 PM TuTh
• Appointments See me after class
• Email djyoung_at_montana.edu
• Web site http//djyoung.org
• Click on Econ 314

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Douglas J. Young

• PhD (Economics)
• From University of Wisconsin
• Professor of Economics
• Montana State University
• Since 1977

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Research

• State-Local Government Finances
• How Do Montana Taxes Compare?
• Recruitment, Retention and Teachers Salaries
• Alcohol Policy
• How do advertising bans affect drinking?
• How would a 50 cent increase in the cost of a six
  pack affect traffic fatalities?

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Visiting Professor

• Carnegie Mellon University, Pennsylvania
• University of Botswana
• Al Akhawayn University, Morocco
• American University in Cairo, Egypt
• University of International Business and
  Economics, Beijing, China
• Indian Institute of Technology Bombay, India

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Other International Experience

• Mexico, 1963 (Kennedy Asesinado)
• Vietnam, 1968-69
• Europe, Turkey, Iran, Afghanistan, Pakistan,
  India, Nepal (and back), 1971-72

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International Terms - 1

• Exports Domestic production sold to foreigners
  (people, companies, governments)
• Imports Foreign production purchased by domestic
  (people, companies, governments)
• Open Economy Trade (versus Closed little or No
  Trade)

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Leading Goods Exporters, 2005 (US Billions
US x 109)
IMF, Intl Finl Stat, 28 Aug 06
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Exports ( of GDP, 2006)

• Singapore 246
• Hong Kong 205
• Malaysia 117
• Korea 43
• Japan 16

WDI
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GDP C I G (X M)

• GDP Gross Domestic Product
• C Consumption
• I Investment
• G Government
• X Exports
• M Imports

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Reliance on Trade ( of GDP, 2006)
WDI, 2003
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Determinants of Trade Volume

• Natural Factors
• Size of Country
• Diversity of Resources
• Access to Ocean Transport
• Economic Policy
• Tariffs
• Nontariff Barriers (Quotas, Health Regulations)
• Import Substitution Policies

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International Issues - 1

• How does trade affect domestic and foreign
  consumers and producers?
• How do tariff and nontariff barriers to trade
  affect each of these?
• How does trade affect economic growth and
  development?
• How does trade affect the environment?
• What were the Seattle riots all about?

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What is Traded?

• Goods (Merchandise) Crude Oil and other Raw
  Materials, Goods in Process, Finished Goods, both
  Consumer and Capital
• Services Transportation, Travel (Tourism),
  Financial, Consulting and Other Services, Study
  Abroad

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Shares of Exports (2000)
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World Goods Trade( Shares, 2003)

• Office machines, computers, parts 10.9
• Passenger cars 5.6
• Crude petroleum 5.5
• Transistors, valves, etc 4.2
• Clothing 3.4
• Resins, Plastics 3.3
• Telecom Equipment 3.2
• Medical/Pharmaceutical 2.9

Husted Melvin, 7th Ed.
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Major Goods Exports, 2007( of Total Goods
Exports)

• China
• Elect Mach 11
• Clothing 10
• Yarns/Textiles 5
• Petrol 1

• USA
• Capital Goods 38
• Industrial Supplies 27
• Consumer Goods 13
• Autos Parts 10

Economist.com Country Briefings June 08
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Major Goods Imports, 2007( of Total Goods
Imports)

• China
• Elect Mach 22
• Crude Oil, Fuel 10
• Indus Machines 3
• Iron Steel 2

• USA
• Industrial Supplies 32
• Consumer Goods 24
• Capital Goods 23
• Autos Parts 13

Economist.com Country Briefings June 08
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Which Country Trades What?

• Why does China export apparel and the US import
  it?
• Why is the USA a leading exporter of capital
  goods (think Boeing)?
• Why does the USA both import AND export machinery?

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Leading Markets, 2007

• For China
• USA 19
• Hong Kong 15
• Japan 8
• South Korea 5

• For USA
• Canada 21
• Mexico 12
• Japan 6
• China 6

Economist.com Country Briefings June 08
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Leading Suppliers, 2007

• For China
• Japan 14
• South Korea 11
• Taiwan 11
• US 7

• For USA
• China 17
• Canada 16
• Mexico 11
• Japan 7

Economist.com Country Briefings June 08
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Who Trades with Whom?

• Ah, an easy question!
• USA (and EU) are Huge Economies (nearly 50 of
  world income) gt They are important markets for
  many countries
• Transport costs are Important gt Countries trade
  with their neighbors

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International Terms - 2

• Balance of Trade
• Trade Surplus Exports Imports
• Trade Deficit Imports Exports
• - Trade Surplus

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Trade Balances (2004)(US Billions)
WDI, 2006
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WDI, 2006
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http//www.census.gov/briefrm/esbr/www/esbr042.htm
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International Issues - 2

• What causes trade deficits and surpluses?
• What are the consequences?
• What about trade deficits and unemployment?
• Is a trade deficit bad?

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A Floating Exchange Rate

http//www.oanda.com/convert/fxhistory
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Or, EquivalentlyUS/Euro 1/(Euro/US)
http//www.oanda.com/convert/fxhistory
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International Terms - 3

• Appreciation When a currency becomes more
  valuable relative to other currencies.
• Depreciation When a currency becomes less
  valuable relative to other currencies.
• Question Has the US appreciated or depreciated
  relative to the Euro in the last year?

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A Fixed Exchange Rate
http//www.oanda.com/convert/fxhistory
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Another Exchange Rate
http//www.oanda.com/convert/fxhistory
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Another Fixed Exchange Rate
http//www.oanda.com/convert/fxhistory
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International Issues 3Exchange Rates

• How are floating exchange rates determined? Why
  do they change?
• How are fixed exchange rates fixed?
• Why do governments change their exchange fixed
  rate?
• Which is better, fixed or floating?
• Are the Chinese manipulating their exchange rate?
  (Yes!)

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International Issues 4Capital Flows and
Foreign Direct Investment

• Positive for Economic Growth?
• Fast In, Faster Out?
• Implications for Exchange Rate and Balance of
  Trade?
• How Strong are Domestic Financial Institutions
  and Regulation?

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Worlds Largest Debtor CountryInternational
Investment Position USA
www.bea.doc.gov/bea/di/intinv2000_2001.xls
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International Issues 5Domestic Macroeconomic
Policy

• Maintaining Internal Economic Balance
• Domestic Impact of External Shocks
• Exchange Rate Policy and Monetary Policy
  Sterilization
• The Role of International Financial Institutions

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ECNS 394-01 Seminar

• 1 cr. Upper Division
• Meet Wednesdays 510 PM 206 Linfield
• Discuss/Lead
• Dr. Rivoli, a Professor at Georgetown University,
  follows a t-shirt from the cotton farms of
  Texas, to the textile mills in China, back to the
  USA, and finally Africa Where T-Shirts Go
  After the Salvation Army Bin.

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Econ 300-01 Seminar

• 1 credit upper division
• Meet Weekly
• Discuss
• First Meet today, Sep 3, 206 Linfield, 510PM
• Or Email/Talk to me

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Econ 300-02 Seminar

• Economics Policy and the Presidential Election
• Education, Oil, Immigration, Health, Climate,
  Energy, Taxes, Finl Mkt Reg., Social Security,

• 1 credit upper division
• First Meet today, Sep 3, 206 Linfield, noon
• Or Email/Talk to Vince Smith

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Welcome Back Picnic

• Econ Ag Bus majors
• Friday, Sep 5 at noon
• Lawn in front of Linfield
• RSVP
• agecon_at_montana.edu
• 994-3703

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For Next Time

• Get the book
• Read Chapter 1
• Friday Chapter 2