International    Economics    theory  and  policy

Chapter1  Introduction

Japan  has  been  in  long  stagnation.

What  should  we  do?

Abenomics??

What  is  a  resource  to  economic  growth?

Capital  Accumulation

Human  Resource

Human  Resource

Natural  Resource

Why  is  trade  so  important?

Trade  is  almost  the  same  as  Innovation

quantity  of  goods  A  produced

quantity  of  goods  B  produced

The  production    Possibility  Frontier

What  image  do  you  have  about  Micro,  Macro  and  International  Economics

What  is  Economics?

!   Economics is a study of mankind in the ordinary business of life.(Alfred Marshall)

!   Economics is a study of how society manages its resources.(N.Gregory Mankiw)

!   The science that deals with the production,distribution,and consumption of goods and services,or the material welfare of mankind. (Random House Dictionary)

MicroEconomics and MacroEconomics !   Microeconomics  

!   the study of how individual households and firms makedecisions and how they interact with one another in markets.

!   Macroeconomics:

!   the study of economy as a whole. and economy wide phenomena including inflation,unemployment,and economic growth.

Paul Krugman John Forbes Nash

Amartya Sen

Ben Bernanke John Maynard Keynes Milton Friedman

Micro,  Macro  and  International  Economics

household household

household

household

company

company company

company

Microeocnomics  analyzes  the  behavior  of  consumer  and  company  

Macroeconomics  analyzes  the  whole  economy  and  policy  for  stabilizing  the  economy  conducted  by  the  government

Microeconomics  versus  Macroeconomics  questions  

Micro  Economics

!   Should  I  go  to  business  school  or  take  a  job  right  now?  

!   What  determines  the  salary  offered  by  Citi  Bank  to  Cherie  Camajo,  a  new  MBA?  

!   What  determines  a  university  or  college  of  offering  a  new  course?  

Macro  Economics

!   How  many  people  employ　in  the  economy  as  a  whole  this  year?  

!   What  determines  the  over  roll  salary  levels  paid  to  workers  in  a  given  year?  

!   What  determines  the  overrall  level  of  prices  in  the  economy  as  a  whole?  

Micro  and  Macro  Economics

household household

household

household

company

company company

company

Microeconomics  analyzes  the  behavior  of  consumer  and  company  

Macroeconomics  analyzes  mechanism  of  the  whole  economy  and  the  policy  for  stabilizing  the  economy  conducted  by  the  government

International  Economics

household household

household

household

company

company company

company

household household

household

household

company

company company

company

Nation Nation

International  Economics  analyzes  international  trade  and  investment  

occur  between  independent  nations.

Trade  of  goods  and  services

Capital  flow

Contents

!   Part1  International  trade  theory  

!   Part2  International  trade  policy  

!   Part3  Exchange  rates  and  open  economy  macroeconomics  

!   Part4  International  macroeconomic  policy  

Part1  International  trade  theory

!   2World  trade:  An  overview  

!   3Labor  productivity  and  comparative  advantage:  The  Ricardian  model  

!   4Specific  factors  and  income  distribution  

!   5Resources  and  Trade:  The  Heckscher-­‐Ohlin  Model  

!   6The  Standard  trade  model  

!   7External  Economies  of  scale  and  the  international  location  of  production  

!   8Firms  in  the  global  economy:  Export  decisions,  outsourcing,  and  multinational  enterprises  

Part2  International  trade  policy

!   9The  instruments  of  trade  policy  

!   10The  political  economy  of  trade  policy    

!   11Trade  policy  in  developing  countries  

!   12Contriversies  in  trade  policy  

 

Part3  Exchange  rates  and  open  economy  macroeconomics

!   13National  income  accounting  and  the  balance  of  payments    

!   14Exchange  rates  and  the  foreign  exchange  market:  An  asset  approach  

!   15Money  interest  rates,  and  exchange  rates  

!   16Price  level  and  the  exchange  rate  in  the  long  run  

!   17Output  and  the  exchange  rate  in  the  short  run  

!   18Fixed  rates  and  foreign  exchange  intervention  

Part4  International  macroeconomic  policy

!   19International  monetary  systems:  An  historical  overview    

!   20Optimum  currency  area  and  the  European  experience  

!   21Financial  globalization  :  opportunity  and  crisis  

!   22Developing  countries  :  Growth,  crisis,  and  reform  

Learning  Goals  in  Introduction

!   Distinguish  between  international  and  domestic  economic  issues.  

!   Explain  why  seven  themes  recur  in  international  economics,  and  discuss  their  significance  

!   Distinguish  between  the  trade  and  monetary  aspects  of  international  economics

What  type  of  issues  can  you  image  regarding  international  economics?

7  themes    recur  throughout  the  study  of  international  economics

1.  The  gains  from  trade  

2.  The  pattern  of  trade  

3.  How  much  trade?  

4.  Balance  of  payments  

5.  Exchange  rate  determination  

6.  International  policy  coordination  

7.  The  international  capital  markets  

1.The  gains  from  trade

!   【Chap3】The  two  countries  can  trade  to  their  mutual  benefit.  

!   International  migration  and  international  borrowing  and  lending  are  also  forms  of  mutually  beneficial  trade  !   【Chap4】Labor  for  goods  and  services.  !   【Chap6】Current  goods  for  the  promise  of  future  goods.  

!   【Chap21】International  exchanges  of  risky  assets  such  as  stocks  and  bonds.  

 

 

!   International  trade  may  hurt  particular  groups  within  nations.  !   International  trade  will  have  strong  effects  on  the  distribution  

income.

Ten Principles of Economics from Mankiw

!   Ⅰ.  How  People  Make  Decisions.  !   1:People  Face  Trade-­‐offs.  !   2:The  Cost  of  Something  Is  What  You  Give  Up    to  Get  It.  !   3:Rational    People  Think  at  the  Margin.  !   4:People  Respond  to  Incentives.    

!   Ⅱ.  How  People  Interact.  !   5:Trade  Can  Make  Everyone  Better  Off.  !   6:Markets  Are  Usually  a  Good  way  to  Organize  Economic  Activity.  !   7:Governments  Can  Sometimes  Improve  Market  Outcomes.  

!   Ⅲ.  How  the  Economy  as  a  Whole  Works  !   8:A  Country's  Standard  of  Living  Depends  on  its  Ability  to  Produce  Goods  

and  Services.  !   9:Prices  Rise  When  the  Government  Prints  Too  Much  Money.  !   10:Society  Faces  a  Short-­‐Run  Trade-­‐off  between  Inflation  and  

Unemployment.  

2.The  pattern  of  trade

!   Who  sells  what  to  whom?  !   Climate  and  resources  clearly  explain  why  Brazil  exports  

coffee  and  Saudi  Arabia  exports  oil.  !   Why  does  Japan  exports  automobiles,  while  the  United  

States  exports  aircraft?  

!   One  of  the  most  influential  explanations  links  trade  patterns  to  an  interaction  between  the  relative  supplies  of  national  resources  such  as  capital,  labor,  and  land  on  one  side  and  the  relative  use  of  these  factors  in  the  production  of  different  goods  on  the  other.  

Theories  in  the  pattern  of  trade

!   【Chap2】The  trade  between  any  two  countries  is  proportial  to  the  products  of  their  GDP  and  diminishes  with  distance.  

!   【Chap3】International  differences  in  labor  productivity.  

!   【Chap5】Interaction  between  the  relative  supplies  of  national  resources  and  the  relative  use  of  these  factors  in  the  production  of  different  goods  on  the  other.  

!   【Chap7&8】Substantial  random  components  in  the  pattern  of  international  trade.  

3.How  much  trade?

!   The  seemingly  eternal  debate  over  how  much  trade  allow  is  the  most  important  policy  theme.  

-­‐100  

-­‐80  

-­‐60  

-­‐40  

-­‐20  

0  

20  

40  

60  

80  

100  

1979

 1980

 1981  

1982

 1983

 1984

 1985

 1986

 1987

 1988

 1989

 1990

 1991  

1992

 1993

 1994

 1995

 1996

 1997

 1998

 1999

 20

00  

2001  

2002

 20

03  

2004

 20

05  

2006

 20

07  

2008

 20

09  

2010  

2011  

exports   import   net  exports  

(Trillion  yen)

Imports  of  goods  and  services    (%  of  GDP)

16   18  27  

34  

54   54  

182  

0  

20  

40  

60  

80  

100  

120  

140  

160  

180  

200  

Japan   U.S   China   United  Kingdom  

Germany   Korea   Singapore  

(Source)The  world  Bank  http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS

%

Trade  policy

!   【Chap4  and  5】Strong  effects  on  income  distribution  within  countries  of  trade.  

!   【Chap9  and  10】A  analytical  framework  for  determining  the  effects  of  government  policies  that  affect  international  trade.  

!   【Chap10  and  Chap12】The  relative  power  of  different  interest  groups  within  countries  is  often  the  main  determining  factors  in  government  policies  toward  international  trade.

4.Balance  of  payments

!   The  issue  of  a  countries  balance  of  payments  emerges  in  a  variety  of  specific  contexts.  !   【Chap8】In  discussing  foreign  direct  investment  by  multinational  

corporations.  

!   【Chap13】In  relating  international  transactions  to  national  income  accounting.  

!   【Chap17  through  22】In  discussing  virtually  every  aspect  of  international  monetary  policy.

5.Exchange  rate  determination

!   【Chap14-­‐17】Focusing  on  the  modern  theory  of  floating  exchange  rates.  

!   【Chap18】The  working  of  fixed-­‐rate  systems.  

!   【Chap19】The  historical  performance  of  alternative  exchange-­‐rate  systems.  

!   【Chap20】The  economics  of  currency  areas  such  as  the  European  monetary  union.  

6.International  policy  coordination  

!   【Chap9】Discussing  the  Rationale  for  an  international  treaty  such  as  GATT  and  WTO  and  looking  at  whether  the  current  rule  of  the  game  for  international  trade  in  the  world  economy  can  or  should  survive.  

!   【Chap19】The  theory  of  international  macroeconomic  condition  and  the  developing  experience.

7.Internatinal  Capital  Markets

!   Some  special  risks  are  associated  with  international  capital  markets.  !   Currency  fluctuations  !   National  default  

!   The  growing  importance  of  international  capital  markets  and  their  new  problems  demand  greater  attention  than  ever  before  !   【Chap21】The  functioning  of  global  asset  markets  !   【Chap22】Foreign  borrowing  by  developing  countries  

 

Trade  and  Money

focus

Trade(Part1&2)  

Money(Part3&4)

issue

The  real  transactions  (a  physical  movements  of  goods  and  tangible  commitment  of  economic  resources)

The  financial  transactions  (such  as  foreign  purchase  of  U.S  dollars)

The  conflict  between  US  and  Europe  over  Europe’s  subsidized  exports  of  agriculture  products.

The  dispute  over  whether  the  foreign  exchange  value  of  the  dollar  should  be  allowed  to  float  freely  or  be  stabilized  by  government  action.

International  Economics

household household

household

household

company

company company

company

household household

household

household

company

company company

company

Nation Nation

International  Economics  analyzes  international  trade  and  investment  

occur  between  independent  nations.

Trade  of  goods  and  services

Capital  flow

7  themes    recur  throughout  the  study  of  international  economics

1.  The  gains  from  trade  

2.  The  pattern  of  trade  

3.  How  much  trade?  

4.  Balance  of  payments  

5.  Exchange  rate  determination  

6.  International  policy  coordination  

7.  The  international  capital  markets