Transcript Financial Performance

The World Economy:
International Trade
by
Yarbrough & Yarbrough
Chapter One
Introduction to International Trade
in the World Economy
Why Study International Trade?
 Does trade really benefit societies?
 By studying the differences in the economic
performance of closed and open economies we
can draw our own conclusions.
 Should Trade be completely free?
 What would happen to developed country
wages if trade with developing countries
continue to grow?
 Would trade mean a demise of some of our
industries, like steal, apparel?
What do we mean by International
Interdependence?
International Economic
Integration
International Interdependence:
The degree to which economic events in one
country can affect others.
International Economic Integration:
It is a measure of how freely goods, services,
labor and capital can move freely across
international borders.
Countries differ in terms of their laws, customs,
language, currency, etc., and these differences
can generate significant barriers to the free flow
of goods, services, labor and capital. The
question that is addressed under international
economic integration, therefore, is how to lower
these barriers and promote the flow of goods,
services, labor and capital across international
borders.
Figure 1: Honda Automobiles Produced and Exported
by Region, January-September 2004
Trade Policy Implications of International
Interdependence
In a world which is becoming increasingly
interdependent, policy makers have to be more
cautious in designing and implementing policy.
Symptoms of International Interdependence
Figure 2: Transport and Communication Costs. 19301990 (Index: 1930=100)
Figure 3a: Growth in World Merchandise Trade and
Output Volume, 1950-2002 (Present)
Figure 3b: Growth in World Merchandise Trade and
Output Volume, 1950-2002 (Present)
Figure 4: Merchandise Exports and Imports, 2002
(Percent of GDP)
Figure 5: U.S. Merchandise Imports and Exports,19502002 (Billions $)
Figure 6: Regional Flows of Merchandise Trade,
2002 (Billions $)
The Economic Significance of Political
Boundaries
International Trade Theory:
Microeconomic Analysis
Open Economy Macro:
Macroeconomic Analysis
Positive Economic Models: Models that
describe in a simplified way how the
world economy works.
Normative Economic Models: Models
that suggests the path that has to be
followed or policies that has to be
pursued.