Transcript Chapter 1

Chapter 1
The United
States in a
Global Economy
Learning Objectives
• Explain how economists measure
international economic integration.
• List the three types of evidence to support
the idea that trade supports economic
growth.
• Discuss the differences in international
economic integration at the end of the
nineteenth century and the current era.
• Describe the major themes of international
economics.
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Introduction: International
Economic Integration
• International integration of national
economies has brought many benefits to
many nations
– Technological innovation
– Less expensive products
– Greater investments in scarce resource regions
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Elements of International
Economic Integration
• Today’s major economies are more
integrated than they’ve been at any time in
history
- Instantaneous communications
- Modern transportation
- Relatively open trading systems
• This allows most goods to move across
boundaries without major obstacles and low
relative costs
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Elements of International
Economic Integration (cont.)
There are four criteria or measures for judging
the degree of integration:
1.
2.
3.
4.
Trade flows
Capital flows
People flows
Similarity of prices in separate markets
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The Growth of World Trade
• Since the end of World War II, world trade
has grown much faster than world output
• In 1950, total world exports were estimated
to be 5.5% of world gross domestic
product (GDP)
• By 2005, total world exports were 20.5% of
world GDP
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Trade to GDP ratio
• The trade to GDP ratio is the ratio of trade
to GDP
Trade to GDP ratio = (Exports +Imports)/GDP
• The ratio does not reveal a country’s trade
policies or define its barriers to trade
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FIGURE 1.1 Trade-to-GDP Ratios
for Six Countries, 1913-2010
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Capital and Labor Mobility
• Factor movements are indicators of
economic integration
• As national economies become more
interdependent, labor and capital generally
move more easily across international
borders
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Capital and Labor Mobility (cont.)
• Labor is less mobile internationally than it
was in 1900
• Capital flows are harder to measure
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Capital and Labor Mobility (cont.)
Two types of capital flows:
• flows of financial capital representing paper
assets such as stocks, bonds, currencies,
and bank accounts, and
• flows of capital representing physical assets
such as real estate, factories, and
businesses - foreign direct investment
(FDI).
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Capital and Labor Mobility (cont.)
When comparing international capital flows
today to a century ago, two points to keep in
mind:
1.Savings and investment are highly
correlated
2.Technology improvements increase capital
flows
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Capital and Labor Mobility (cont.)
Important quality differences in capital flows
today:
1. Many more financial instruments available
2. Role of foreign exchange transactions
3. Costs of foreign transactions has fallen
significantly (transaction costs)
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Features of Contemporary
International Economic Relations
• There are three features of contemporary
international economic relations:
- Deeper integration (tariffs and quotas)
- Multilateral organizations
- Regional trade agreements
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Features of Contemporary
International Economic Relations
Deeper integration (tariffs and quotas)
Two trends the second half of 20th Century:
1.Lower trade barriers exposed most countries
with domestic policies as obstacles to
international trade
2.Labels such as “Made in China” or “Made in
the USA” are less and less meaningful
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Features of Contemporary
International Economic Relations
Shallow integration
• reduction of tariffs and the elimination of
quotas
Deep integration
• negotiations over domestic policies that
impact international
• more contentious and harder to accomplish
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Features of Contemporary
International Economic Relations
Multilateral organizations
International Monetary Fund (IMF)
World Bank
General Agreement on Tariffs and Trade (GATT)
United Nations (UN)
World Trade Organization (WTO) (grew out of
the GATT)
- Host of smaller organizations
-
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Features of Contemporary
International Economic Relations
Regional trade agreements (RTAs)
–
–
–
–
–
North American Free Trade Agreement (NAFTA)
European Union (EU)
Mercado Común del Sur (MERCOSUR)
Asia Pacific Economic Cooperation (APEC)
More than 330 have been recorded by the World
Trade Organization
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Trade and Economic Growth
Economists remain convinced the benefits of
trade outweigh the costs pointing to three
kinds of evidence:
– Casual empirical evidence of historical experience
– Evidence based on economic models and
deductive reasoning
– Evidence from statistical comparisons of
countries
While none of these is conclusive by itself,
together they provide
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Twelve Themes in
International Economics
1. The Gains from Trade and New Trade
Theory
2. Wages, Jobs and Protection
3. Trade Deficits
4. Regional Trade Agreements
5. The Resolution of Trade Conflicts
6. The Role of International Institutions
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Twelve Themes in International
Economics (cont.)
7. Exchange Rates and the Macroeconomy
8. Financial Crisis and Global Contagion
9. Capital Flows and the Debt of Developing
Countries
10. Latin America and the World Economy
11. Export-Led Growth in East Asia
12. The Integration of the BRICs into the
World Economy
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