Faculty of International Relations & Diplomatic Studies

Batch 3 Semester 4 Course Title: International Economic Relations (IRD 225)

Lecture Title: Introduction to International Economic Relations Instructor: Prof. Bakri M. Abdul Karim

1 What is International Economic Relations? International Economic Relations (IERs) is a branch of economics, which studies how economic and financial transactions take place, and what is the effect of the interactions between nations on the global economy. It explains the effects of international differences in productive resources and consumer preferences on the global economy, and focuses on the international institutions involved in the organization of global economic activities. These include the World Trade Organization (WTO), the IMF and customs unions like COMESA. Therefore,internationaleconomicsaddressesissuesraisedbythespecialproblemsofeconomicinteractionbetweensovereignstates. 2 What is “Economic Globalization”? Economic globalization is the increasing economic integration and interdependence of national, regional, and local economies across the world through cross-border movement of goods, services, technologies and capital. It is the globalization of production, finance, markets, technology, organizational systems, institutions, corporations, and labor. Economic globalization has grown at an increased rate due to an increase in communication and technological advances. The recent development in IERs has been supported by globalization and the integration between developing and developed countries through foreign investment, trade and international migration. While globalization has increased incomes and economic growth in developing countries and lowered consumer prices in developed countries, it also changes the power balance between developing and developed countries and affects the culture of each affected country. IERs look at the global economy as an interrelated system with four basic components or subsystems. These subsystems are explained in the following diagram:

3 What are the four sub-systems of International Economic Relations? IER composed of four subsystems of the world economy. These subsystems are: (1) International Trade, (2) International Finance, (3) International Production (4) International Development. The following diagram illustrates the four subsystems of IERs:

We will study these four subsystems in detail during the course. Below is a brief description of each one of them. 4 What is international Trade? International trade is the exchange of goods and services between countries.

International trade gives consumers and countries the opportunity to have goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, technology, cars, spare parts, oil, jewelry etc.

Services are also traded including tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments. The following diagram explains international trade:

5 What is international finance? International finance studies the flow of capital across international financial markets, and the effects of these movements on exchange rates. It is also concerned about the modern international monetary and financial system like the International Monetary Fund (IMF) and the central banks of individual countries like the Bank of Sudan and the Bank of England. International finance focuses on the problems concerning the exchange rate and the mechanism of its formation, the balance of payments, which determine the position of the national economies in the world economy. The following diagram explains international finance:

InternationalTrade

Supplyof&demandforgoodsandservices&factorsofproductionacrossinternationalborders.

International&regionalinstitutionsthatorganize

internationaltradesuchastheWorldTradeOrganization

(WTO)&COMESA

Policiesthatorganizeinternationaltradesuch

astariffs&traderegulations.

6 What is International Production? International production means the production of a product in several countries. For example different parts of Japanese cars like Toyota are produced in many countries. International production takes advantage of differences in the cost and quality of factors of production in different countries. Example: the production of Boing takes place in USA, Japan, France and Italy, and its parts are produced by 45 companies in those four countries.

InternationalFinance

FlowofcapitalacrossinternationalHinancialmarkets

Balanceofpaymentandexchangerates,

Internationalmonetary&Hinancialsystem(centralbanks,capitalmarkets,IMFandIFC)

7 What is international development? International development is concerned with raising the level of human development in the whole world. It focuses on removing poverty and improving living conditions in poor countries. International development also aims to improve government policies of the developing countries. "State building" is the strengthening of local institutions necessary to support long-term economic, social, and political development. 8 Conclusion: Economic globalization affects all of us, and it has become very difficult to live without being knowledgeable about the fundamentals of international economics. The course is designed to introduce you to the key issues related to international economic relations between countries and regions, and the processes of economic globalization and regional economic integration in the world. We will concentrate on the four subsystems of the world economy: international trade, international finance, international production and international development.

These also includes topics such as international migration, international financial institutions such as the IMF, regional economic integration institutions etc. 9 Why is this course useful for you? The course is useful for students who wish to work in international and regional organizations, ministries of foreign trade, chambers of commerce, business associations, customs, consultants, and multinational companies. 10 ReviewQuestions

a) Whatis“internationaleconomicrelations”?b) Whatisthedifferencebetweeninternationaleconomicsanddomestic

economics?c) Whatarethefourcomponentsofinternationaleconomy?d) Whyisitimportanttostudyinternationaleconomicrelations?