What is International Economics About?
International economics deals with economic interactions that occur between independent nations.
- The role of governments in regulating international trade and investment is substantial.
- Analytically, international markets allow governments to discriminate against a
subgroup of companies.
-Governments also control the supply of currency.
There are several issues that recur throughout the study of international economics.
1.The Gains from Trade
• Many people are skeptical about importing goods that a country could produce for itself.
• When countries sell goods to one another, all countries benefit.
• Trade and income distribution
- International trade might hurt some groups within nations.
- Trade, technology, and wages of high and low-skilled workers.
2.The Pattern of Trade (who sells what to whom?)
• Climate and resources determine the trade pattern of several goods.
• In manufacturing and services the pattern of trade is more subtle.
• There are two types of trade:
- Inter industry trade depends on differences across countries.
- Intra industry trade depends on market size and occurs among similar countries.
• How Much Trade?
- Many governments are trying to shield certain industries from international competition.
- This has created the debate dealing with the costs and benefits of protection relative to free trade.
Advanced countries’ policies engage in industrial targeting.
Developing countries’ policies promote industrialization:
Import substitution versus export promotion industrialization.
3. Protectionism
4. The Balance of Payments
• Some countries run large trade surpluses.
- For example, in 1998 both China and South Korea ran trade surpluses of about $40 billion each.
• Is it good to run a trade surplus and bad to run a trade deficit?
5. Exchange Rate Determination
• The role of changing exchange rates is at the center of international economics.
6. International Policy Coordination
• A fundamental problem in international economics is how to produce an acceptable degree of harmony among the international trade and monetary policies of different countries without a world government that tells countries what to do.
7. The International Capital Market
• There are risks associated with international capital markets:
- Currency depreciation
- National default