Chương 1: International Economics Is Different potx

Chapter 1Introduction International Economics Is Different... Showing why international economics is different from domestic economics.. Relationship between international trade and fin

Chapter 1

Introduction

International Economics Is

Different

The objectives of this introduction

1 Showing that international economics

addresses important and interesting current events and issues

2 Showing why international economics is

different from domestic economics

3 Relationship between international trade and

finance

1 International economics addresses important

and interesting current events and issues

1) Why the US pressured the Chinese

government to let RMB appreciate?

2) What are the potential effects of RMB

appreciation on the Chinese domestic

economy?

-Chinese imports increase, exports

decrease, some industries are difficult to survive

3) Sub-prime mortgage crisis : problems of USD, p

ressure other countries to devalue, anti-dumpi ng,etc.

4) The protest against economic globalization in

1999

-in the Seattle ministerial meeting of the

World Trade Organization

-one of the largest protests about

issues related to globalization

a Claims include:

 The US employees lost jobs and their

wages are lowered (senior managemen

t earn 420 times the salary of the comm

on employees)

some developing countries (True?):

International competition leads to weake

r regulations about labor standards and w

ork conditions

b Should globalization be stopped?

 Poverty is worse in places that have been little

touched by globalization

c.f countries that are more open to

international trade tend to grow faster

(e.g regions like coastal areas in China)

 Only 5 % of children work in export industry

c Solutions to the lower labor standard:

(The effects of globalization)

Long-run: Economic growth and rising income

Higher labor standard is a normal good of

income (True?)

-Heavy child labor existed in the US into the

early 20th century When average per-

capita income reaches $5,000, child labor

nearly disappears

Short-run solutions:

(Workers also need education and better health

to raise their productivity)

Pay the poor families to send their children to

go to school—Mexico and Brazil

In Pakistan and Bangladesh, children are

shifted from work to school with s stipend

China: Think about the recent campaign in

China about migrant worker’s conditions

5) The euro example:

In early 2002, 12 European countries started

to use a single new currency, the euro

a Controversial:

Each country no longer has the ability to use

its own national monetary policy

b Attractive:

 Convenient: No need to change money

when crossing a border within the union

 Increasing the trade: No exchange risk

c Challenging

How 25 or more countries can make decisions

about common EU policies as otherwise

independent economic entities

Common money policy

Limitation about fiscal policy: Sovereign debt crisis in Greece

2 What makes international economics different

from domestic economics?

Nations are sovereign:

No court can enforce its order on them with

a global police force

What about a provincial policy within a country?

1) National government policies matter to other

countries

Why?

a National governments adopt policies directly

toward international transactions

e.g tariff policy

b Different domestic macroeconomic policies:

-Direct impacts: national interests

- Indirect impacts: international interests

Example : Bahamas imposed lower tax rate on c

apital gains

- Many Banks set up branches in Bahamas

because of lower tax rate

→ This tax policy may cause large flow

of international funds

c Nations are mostly selfish

Ignoring the interests of other nations

e.g

In the 1999 protest at Seattle:

How much American protesters speak about the jobs lost if the US government protect the

US jobs?

2) Second major difference:

Some resources do not move freely between

countries (labor, land, capital)

Within a country: the factors of production are

mobile in the sense that they could be put to different productive uses

e.g.: Land could be used for cattle or crop

farming, or construction.

Between countries

 land is essentially immobile except in war

 Labor usually migrate within the country more

readily than they will emigrate abroad

(cost, government restriction)

 Capital moves more freely, but:

International capital movements can be

disruptive

3 Relationship between international trade and finance 1) International trade can exist without international

financing arrangement

e.g direct exchange or barter, cash payments in gold

2) International finance cannot exist without international

trade

-No reason for borrowing , lending or

investing between countries if nothing

could be bought with the loan or

investment

3) Then what’s the role of international finance?

a Facilitating and expanding international trade

b A more efficient allocation of international finan

cial resources

c Smoothing consumption