International Economics Course Introduction (Lecture) PDF

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AmpleJasper2130

Uploaded by AmpleJasper2130

Rhine-Waal University of Applied Sciences

2024

Arslan Austin

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international economics globalization trade economics

Summary

This document provides an introduction to international economics, including course instructions, and thematic introduction for the summer term 2024. The lecture notes cover the relevance of international economics for businesses, structure and tools of the course, and learning objectives. The summary also highlights the importance of topics like globalization and trade, as well as related issues such as exchange rates and international business.

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International Economics Course instructions and thematic introduction (Lecture) Summer term 2024 Content from: Prof. Dr. Torsten Niechoj Teaching this semester: Arslan Austin (MASt | MSc) | [email protected] Consultation: write me a short email (happy to help)...

International Economics Course instructions and thematic introduction (Lecture) Summer term 2024 Content from: Prof. Dr. Torsten Niechoj Teaching this semester: Arslan Austin (MASt | MSc) | [email protected] Consultation: write me a short email (happy to help) 1 MY INTRODUCTION https://www.hochschule-rhein-waal.de/de/fakultaeten/kommunikation-und- umwelt/organisation/lehrkraefte-fuer-besondere-aufgaben/arslan-austin 2 Arslan Austin – Rhein Waal University M-IMP_1.01 Economic Behaviour– SS2024 16/04/2024 2 Why this module is interesting for you Often managers in multi- or international firms have to answer questions like: − Should we export our product to country X? − Do we have to face barriers to entry that increase our cost? − Should we outsource production? To what country? − Should we rely on foreign subcontractors? − Should we hedge against exchange rate volatility? − Is it important that we live in a monetary union (euro area), which is part of a customs union (EU)? Lecture 01 Introduction 3 Relevance of international economics for businesses Global value chains in production Foreign Competitors, product innovations markets and and foreign technologies demand Businesses Access to Regulation of financial trade, markets and production foreign direct and prices investment Lecture 01 Introduction 4 Structure & tools of the course Lecture Exercise Theoretical building blocks Check your knowledge Empirical overview (single choice, true/false Economic tools questions, interpretation of texts & figures) Apply your knowledge (model-based reasoning, calculations, cases) Lecture 01 Introduction 5 Learning objectives of the course ▪ Use economic models to understand gains from trade, patterns of trade and negative aspects of globalisation ▪ Understand barriers to trade and their impact on trade and welfare ▪ Become familiar with concepts of international statistics and stylised facts as a basis of analysis ▪ Compare determinants of exchange rates and understand how this affects international businesses ▪ Know the institutions that shape world trade and economic integration ▪ Make use of models for policy recommendations to reduce current account imbalances and exchange rate fluctuations ▪ Learn what managers have to observe in an international context Lecture 01 Introduction 6 Written exam ▪ exam is offered in July 2024 and Jan/Feb 2025 (same conditions and content) ▪ 90 minutes ▪ questions are a combination of: − single choice − brief explanation of terms and concepts − short answers to questions − analyses of graphs and tables − calculations − paraphrase and discussion of statements − application of your knowledge to new cases ▪ a formulary is attached to the exam papers ▪ post-exam review in September and March Lecture 01 Introduction 7 Preparation for course and exams Slides, hand-outs for exercises and additional resources will be made available via Moodle Mainly use: Salvatore, D. (2012): Introduction to International Economics (International Student Version, 3rd ed.), Singapore: Wiley & Sons Additionally: ❖ Hill, C.W.L. (2012): International Business. Competing in the Global Marketplace (Global Edition), New York: McGraw-Hill [or newer edition] ❖ Gerber, J. (2011): International Economics (International Edition), Boston et al.: Addison-Wesley [or newer edition] Copies are available in the library Lecture 01 Introduction 8 Outline of the course # Theme 1 Course instructions & thematic introduction 2 Comparative advantage 3 Modelling gains from trade 4 Barriers to entry and trade policies 5 Balance of payments 6 Flexible exchange rates 7 Exchange rate determination 8 Adjustment in flexible and fixed exchange rate systems 9 Income determination and macroeconomic policies 10 Voluntary online test 11 Economic integration and cooperation 12 Exam preparation Lecture 01 Introduction 9 Learning objectives for today Become familiar with the phenomenon of globalisation Analyse globalisation with the help of indicators Get an idea of negative and positive consequences of globalisation Apply the concept of absolute advantages to understand whether international trade is a zero-sum or win-win game Lecture 01 Introduction 10 A globalised world Globalisation describes the development of rising economic (and other sorts of) integration & interdependencies between countries Drivers of globalisation: Trade o innovations in information and communication technology Resources & o Decrease (and ease) of transportation costs Migration environment o reduction of tariff and non-tariff barriers to trade o abolishment of capital controls & establishment of worldwide financial markets Supply It covers: Culture(s) chains & outsourcing a) goods and services flow b) financial flows c) labour migration Commu- nication & Financial Promoted and regulated by markets internet o international organisations (e.g. World Spill-over of Bank, IMF, WTO) crises o treaties & actors of regional integration Source: own depiction (e.g. USMCA, EU) Lecture 01 Introduction 11 A new phenomenon? What do you think? ▪ opening up of new territories (migration to/colonisation of North & South America, Australia, Africa, Asia) ▪ exchange of agricultural products and raw material for manufactured goods 1870-1913 ▪ gold standard (fixed-exchange rates) ▪ rise in protectionism and two world wars ▪ collapse of gold standard 1914-1945 ▪ reduction of trade barriers and capital controls ▪ Bretton Woods regime (fixed-exchange rates) 1945-1980 ▪ improvements in telecommunication and transportation ▪ increase of international capital flows and liberalised financial markets 1980-2008 ▪ internationalised supply chains ▪ flexible exchange rate systems ▪ slowdown of lending and trade after the financial market crisis 2009-today ▪ deglobalisation (resilience of global value chains, political tensions, green transition)? Lecture 01 Introduction 12 Trade openness as an indicator to characterise eras With indicators we may try to measure of globalisation globalisation: o trade flows: development of imports, exports, composition of traded goods o capital flows: asset ownership, foreign direct investment, number & complexity of financial instruments o people flows: number of migrants, qualification exports + imports Trade openness = ∗ 100 GDP Source of this figure: IMF (https://www.imf.org/en/Blogs/Articles/2023/02/08/charting-globalizations-turn-to-slowbalization-after-global-financial-crisis, accessed on 2023/03/30) Lecture 01 Introduction 13 Average tariff rates, unweighted in % (1981–2010) Note: Data for high income OECD countries since 1988 Source: World Bank, URL: http://go.worldbank.org/LGOXFTV550, accessed on 2022/04/24, own depiction Lecture 01 Introduction 15 World exports of goods as a percentage of world GDP (1820-2011) Source: CORE team (2018), URL: http://www.core-econ.org/the-economy/book/text/18.html#181-globalization-and-deglobalization-in-the- long-run, accessed on 2022/04/24. Lecture 01 Introduction 16 Source: Atlas of Economic Complexity (accessed on 2022/03/23) Data Provide URL Eurostat https://ec.europa.eu/eurostat/data/database IMF https://www.imf.org/en/Data OECD https://data.oecd.org/ World Bank https://data.worldbank.org/ WTO https://data.wto.org/en UN https://data.un.org/ Atlas of Economic https://atlas.cid.harvard.edu/ Complexity Lecture 01 Introduction 17 Globalisation: good or bad? In international economics, positive and negative aspects of globalisation are analysed: o more competition: cheaper consumer prices vs. lower incomes & loss of employment o harmonisation of available goods: previously unknown products vs. same products all over the world o interdependent production processes: more efficient and growth- enhancing vs. spread of crises o free flow of factors: foreign direct investment, complex supply chains, export of pollution, capital flight, immobile labour Lecture 01 Introduction 18 Any gains from trade? Mercantilism: − dominant doctrine of merchants & rulers in 16th-17th century − no surplus for all nations (zero-sum game→ Economic nationalism) − measurement of wealth in stock of metal − policy recommendation: restrict imports (tariffs), maximise exports  drain of metal from other countries If voluntary trade takes place can it be a zero-sum game? How then can we explain gains from trade (win-win situation)? What do you think? Lecture 01 Introduction 19 Smith on trade Comprehensive discussion of mercantilism– and its failure: tariffs that limit trade Textbooks stress (only) invention of idea of absolute advantages by Smith: − you can grow papaya in Egypt or in a greenhouse in the Netherlands − you can mine raw materials or synthesise them  different amount of resources required Picture source: https://pixabay.com/en/papaya-fruit-juicy-food-ripe-178279/  country with lowest amount of resources required to produce has an absolute advantage  countries specialise and export those good for which they have an absolute advantage in production  total world production rises, gains from trade Lecture 01 Introduction 20 Absolute advantage Are all factors exogenous, i.e. cannot be influenced by a country? Causes of absolute advantages are partly exogeneous but also partly endogenous: o better endowments (natural resources including climate, labour, capital) o higher labour productivity (available technology, education) Lecture 01 Introduction 21 In a nutshell o Globalisation describes the development of rising economic integration and interdependencies between countries. o There were different phases of (de)globalisation due to structural changes. o Indicators help us to describe and analyse globalisation and trade. o Absolute advantage means that a country can produce with lower resource input (costs) than all other countries. o A country gains from trade if it has an absolute advantage in the production of a good or service and specialises in this product. Lecture 01 Introduction 22 International Economics Course instructions and thematic introduction (EXERCISE) Summer term 2024 Content from: Prof. Dr. Torsten Niechoj Teaching this semester: Arslan Austin (MASt | MSc) | [email protected] Consultation: write me a short email (happy to help) 23 Key figures o Globalisation describes the development of rising economic integration and interdependencies between countries. o There were different phases of (de)globalisation due to structural changes. o Indicators help us to describe and analyse globalisation and trade. o Absolute advantage means that a country can produce with lower resource input (costs) than all other countries. o A country gains from trade if it has an absolute advantage in the production of a good or service and specialises in this product. Exercise 1 Gains from trade (Exercises) 24 Who produced your computer? Read the hand-out ‘The Dell and Other PCs Sold…’ and answer the following questions: 1) What is a global production network? 2) Why do American producers not produce everything on their own? Where does the profit come from? Exercise 1 Gains from trade (Exercises) 25 Law of one price? Price gaps of different commodities between USA & UK (1) Can you think of a reason why price gaps for meat and animal fats such as butter did not start to fall until 1895? (2) Propose an explanation for the smaller price gaps and the more rapid fall for copper as compared with iron ore. (3) What might account for the increase in the price gap for sugar? Source: CORE project, URL: http://www.core-econ.org/the-economy/book/text/18.html#181-globalization-and-deglobalization-in-the-long-run, based on Kevin O’Rourke and Jeffrey G. Williamson. 1994. ‘Late Nineteenth-Century Anglo-American Factor-Price Convergence: Were Heckscher and Ohlin Right?’ The Journal of Economic History 54 (04) (December): pp. 892–916. Exercise 1 Gains from trade (Exercises) 26 Sample solution (1) Meat and animal fat: transport technology for perishable goods over long distances not available (at reasonable costs) before 1895 (2) Copper and iron ore: copper is lighter than iron, thus transport costs are lower (3) Sugar: increase in market power of sugar producers Exercise 1 Gains from trade (Exercises) 27 Main export product (2021) 2022/03/23) Source: UNCTAD, URL: https://hbs.unctad.org/merchandise-trade-by-product/ (accessed on Who exports what? Who gains most? Exercise 1 Gains from trade (Exercises) 28 Understanding statistics Read the box ‘Major net exporters…’ in your handouts and answer the following questions: 1. What does capital export (and import) mean? 2. What does ‘net’ mean? 3. Why do countries export and/or import capital? 4. Who is the third largest capital exporter? Exercise 1 Gains from trade (Exercises) 29 A numerical example of absolute advantages Ghana South Korea Required inputs per ton of cocoa: 10 units of input 40 units Required inputs per sack of rice: 20 units 10 units Note: o 1 unit of input consists of a fixed combination of land, labour and capital o 200 units are available in each country Which country needs less inputs to produce 1t of cocoa? Ghana And in the case of rice? South Korea Definition of ‘absolute advantage’? A country has an absolute advantage in the production of a good if it is more productive, i.e. it can produce it with the lowest resource input of all countries. Do both countries benefit if they export rice from SK to G in exchange for cocoa? Exercise 1 Gains from trade (Exercises) 30 Graphical depiction as production possibility frontiers Ghana South Korea Cocoa (required 10 units of input 40 units inputs per ton) Rice (required inputs 20 units 10 units per sack) Recall: 200 units available per country Exercise 1 Gains from trade (Exercises) 31 Ghana South Korea (No) trade (1) Initial output without specialisation and trade 100 units for 10t coca 2.5t cocoa each sector 5s rice 10s rice (2) Output after specialisation 20t cocoa 0t cocoa All units for 0s rice 20s rice one sector (3) Trade 6t cocoa  SK Ghana  6s rice (4) Final consumption after trade 14t cocoa 6t cocoa 6s rice 14s rice (5) Gains from trade (positive-sum game) 14t – 10 t cocoa = 4t cocoa 6t – 2.5t = 3.5t cocoa After trade – before trade 6s – 5s rice = 1s rice 14s – 10s rice = 4s rice Exercise 1 Gains from trade (Exercises) 32 Transfer question In the examples of Ghana and South Korea, specialising in cocoa in Ghana increased the wealth of the nation measured in the amount of commodities available for consumption. What is the impact of this specialisation on the workers formerly employed in rice cultivation? In the model world and in reality? Exercise 1 Gains from trade (Exercises) 33 True or false? True The mercantilists believed that a nation (or his ruler) could gain in international trade only at the expense of other nations. True If two economies have different absolute advantages and specialise in the production of the good of its absolute advantage and exchange with each other then both nations end up consuming more of one or both commodities. Exercise 1 Gains from trade (Exercises) 34 Thank you for your attention! Q&A See you next week. Lecture 01 Course instructions and thematic introduction 35

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