International Economics Overview

Global Trade Increase

• Between 1975 and 2002, global trade in goods increased 266%
• Companies recognized international transactions as being equally or more important than domestic transactions
• International Economics helps explain the patterns of international transactions.

Microeconomics and Macroeconomics

• Microeconomics focuses on the production and consumption of goods and services, studying individual industries and markets.
• Macroeconomics analyzes the operation of the entire economy, including factors influencing overall economic output.

International Economics

• It examines the allocation of resources to production, distribution, and consumption of goods and services globally.
• International economics combines elements of microeconomics and macroeconomics.
• It extends microeconomic study by examining the differences between domestic and international trade.
• It extends macroeconomics by allowing foreign economic conditions to influence the domestic economy and considering how government policies can affect international trade sectors.

Scope of International Economics

• Covers the production, distribution, and consumption of goods, services, and capital worldwide.
• National and political boundaries create legal, linguistic, social, currency barriers to trade, and different economic policies.
• Requires both micro and macro economic analysis.

Economics Concept and Distribution of World Output

• Economics is the study of how societies allocate scarce resources to satisfy unlimited human wants.
• High-income countries produce approximately 81% of the world’s output.
• Middle-income countries produce approximately 16% of the world’s output.
• Low-income countries produce approximately 3% of the world’s output.
• The distribution of merchandise trade reflects the distribution of world output.
• High-income countries account for 76% of world imports and 77% of world exports.
• Middle-income countries account for 21% of world imports and 23% of world exports.
• Low-income countries provide approximately 3% of world exports and imports.
• There is a difference between output and trade figures for middle-income and high-income countries, primarily due to oil exports from middle-income countries.

Imports and Exports of Goods

• Exports are goods and services produced domestically but sold to residents of other countries.
• Imports are goods and services produced or invested in foreign countries, but purchased by residents of a specific country.

International Trade

• A critical component of the global economy.
• International trade in services is growing faster than trade in goods.
• Many careers are influenced by international trade in services.

International Trade in Services

• Visible trade refers to the exchange of goods.
• Service trade (invisible trade) includes transportation, insurance, and tourism.
• Measuring service trade is more challenging compared to goods trade.

World's Largest Economies

• The United States, Japan, and Germany are the world’s three largest economies.
• The U.S. economy is more than twice the size of Japan’s and more than four times the size of Germany’s.

Capital Flows

• Multinational Corporations (MNCs) operate production and distribution facilities in several countries.
• Portfolio Capital (investment) involves purchasing foreign financial assets like stocks and bonds.
• Foreign Direct Investment (FDI) occurs when domestic corporations acquire real assets in foreign countries, like plants and equipment.

Foreign Exchange Market

• The foreign exchange market enables the buying and selling of currencies.
• The exchange rate reflects the price of one currency in terms of another.

Trends in International Production and Trade

• Globalization signifies the growing influence of international factors on the world economy.
• The ratio of exports to GDP is a simple measure of globalization.
• Countries with a high ratio of exports to GDP are more open to international trade.

Globalization Index

• The Foreign Policy Magazine Globalization Index incorporates 16 key indicators of global integration.
• It quantifies economic integration by considering trade, foreign direct investment, portfolio capital flow, tourism, income earned and paid abroad, and other factors.