Transcript Document
International Economics
By Robert J. Carbaugh
7th Edition
Chapter 1:
The international economy
Copyright ©2000, South-Western College Publishing
Economic interdependence
Elements of interdependence
Trade: goods, services, raw materials,
energy
Finance: foreign debt, foreign investment,
exchange rates
Business: multinational corporations, global
production
Carbaugh, Chap. 1
2
Economic interdependence
Exports of goods and services as percent of
Gross Domestic Product, 1997
Country
Netherlands
Norway
Canada
Mexico
South Korea
United Kingdom
Germany
France
United States
Japan
Carbaugh, Chap. 1
Exports as percent of GDP
55%
41
39
31
31
29
25
25
12
10
3
Economic interdependence
Leading trading partners of the United States,
1997
Country
Canada
Japan
Mexico
United Kingdom
South Korea
China (incl. Hong Kong)
Germany
Singapore
Belgium/Luxembourg
Carbaugh, Chap. 1
Value of US
exports ($ bill.)
$133
68
55
31
27
25
23
17
13
Value of US
imports ($ bill.)
$160
118
76
31
18
64
40
21
7
4
Economic interdependence
Interdependence: Impact
Overall standard of living is higher
Access to raw materials & energy not available
at home
Access to goods & components made less
expensively elsewhere
Access to financing and investment not
available at home
Carbaugh, Chap. 1
5
Economic interdependence
Interdependence: Impact (cont’d)
Other impacts - good & bad
Curtails inflationary pressures at home
Limits domestic wage increases
Makes economy vulnerable to external
disturbances
Limits impact of domestic fiscal policy on
economy
Carbaugh, Chap. 1
6
Economic interdependence: case study
The US & the Asian economic crisis
Who could be hurt by
the Asian crisis of
1997-98:
US creditors &
investors in Asia
US exporters to Asia
US firms that compete
with Asian imports
US workers who
compete with Asian
workers
Carbaugh, Chap. 1
US firms that sell imports
from Asia
US multinationals
wanting markets in Asia
US firms manufacturing
in Asia
US firms using
components from Asia
US consumers of imports
7
Economic interdependence: case study
The US & the Asian economic crisis
Potential macroeconomic effects of the
Asian crisis
US trade balance hurt as exports to the region
suffer and imports become cheaper
US economic growth might suffer as a result of
Asia’s economic decline
Carbaugh, Chap. 1
8
Comparative advantage
Competitiveness & trade
Main objective of any nation is to generate
high and rising standard of living
No nation can efficiently make everything itself
International trade allows countries to focus on
producing what they make efficiently
Inefficient sectors will be squeezed out
Sectors open to competition become more
efficient and productive
Carbaugh, Chap. 1
9
Comparative advantage
Comparative advantage means:
If the relative cost of making two items is
different in two countries, each can gain by
specializing in the one it makes most cheaply each has a comparative advantage in that
product
Even countries that make nothing cheaply can
benefit from specialization
Carbaugh, Chap. 1
10