M01_Krugman_46657_09_IE_C01_F_GE_JH.ppt

Chapter1,Introduction,1-2,Preview,Whatisinternationaleconomicsabout?InternationaltradetopicsGainsfromtrade,explainingpatternsoftrade,effectsofgovernmentpoliciesontradeInternationalfinancetopicsBalanceofpayments,exchangeratedetermination,internationalpolicycoordinationandcapitalmarketsInternationaltradeversusfinance,1-3,WhatIsInternationalEconomicsAbout?,Internationaleconomicsisabouthownationsinteractthrough:tradeofgoodsandservices,flowsofmoney,andinvestment.Internationaleconomicsisanoldsubject,butcontinuestogrowinimportanceascountriesbecometiedmoretotheinternationaleconomy.Nationsarenowmorecloselylinkedthaneverbefore.,1-4,WhatIsInternationalEconomicsAbout?(cont.),InternationaltradeasafractionofthenationaleconomyhastripledfortheU.S.inthepast40years.Bothimportsandexportsfellin2009.ComparedtotheU.S.,othercountriesareevenmoretiedtointernationaltrade.,1-5,Fig.1-1:ExportsandImportsasaPercentageofU.S.NationalIncome,Source:U.S.BureauofEconomicAnalysis,1-6,Fig.1-2:ExportsandImportsasPercentageofNationalIncomein2007,Source:OrganizationforEconomicCooperationandDevelopment,1-7,GainsfromTrade,Severalideasunderliethegainsfromtrade.Whenabuyerandasellerengageinavoluntarytransaction,bothcanbemadebetteroff.Norwegianconsumersimportorangesthattheywouldhaveahardtimeproducing.Theproduceroftheorangesreceivesincomethatitcanusetobuyotherthingsthatitdesires.,1-8,GainsfromTrade(cont.),Howcouldacountrythatisthemost(least)efficientproducerofeverythinggainfromtrade?Countriesusefiniteresourcestoproducewhattheyaremostproductiveat(comparedtotheirotherproductionchoices),thentradethoseproductsforgoodsandservicesthattheywanttoconsume.Countriescanspecializeinproduction,whileconsumingmanygoodsandservicesthroughtrade.,1-9,GainsfromTrade(cont.),Tradebenefitscountriesbyallowingthemtoexportgoodsmadewithrelativelyabundantresourcesandimportsgoodsmadewithrelativelyscarceresources.Whencountriesspecialize,theymaybemoreefficientduetolarger-scaleproduction.Countriesmayalsogainbytradingcurrentresourcesforfutureresources(internationalborrowingandlending)andduetointernationalmigration.,1-10,GainsfromTrade(cont.),Tradeispredictedtobenefitcountriesasawholeinseveralways,buttrademayharmparticulargroupswithinacountry.Internationaltradecanharmtheownersofresourcesthatareusedrelativelyintensivelyinindustriesthatcompetewithimports.(e.g.fishermenwithspecializedskillsandimportedseafood)(decliningrealwagesoflessskilledworkersinadvancedcountriessuchastheUS)Trademaythereforeaffectthedistributionofincomewithinacountry.,1-11,PatternsofTrade,DifferencesinclimateandresourcescanexplainwhyBrazilexportscoffeeandAustraliaexportsironore.ButwhydoesJapanexportautomobiles,whiletheU.S.exportsaircraft?Whysomecountriesexportcertainproductscanstemfromdifferencesin:Laborproductivity(TheRicardianmodel)Relativesuppliesofcapital,laborandlandandtheiruseintheproductionofdifferentgoodsandservices(TheHeckscher-Ohlinmodel),1-12,EffectsofGovernmentPoliciesonTrade,Policymakersaffecttheamountoftradethroughtariffs:ataxonimportsorexports,quotas:aquantityrestrictiononimportsorexports,exportsubsidies:apaymenttoproducersthatexport,orthroughotherregulations(ex.,productspecifications)thatexcludeforeignproductsfromthemarket,butstillallowdomesticproducts.Whatarethecostsandbenefitsofthesepolicies?,1-13,TheEffectsofGovernmentPoliciesonTrade(cont.),Ifagovernmentmustrestricttrade,whichpolicyshouldituseandhowmuchshoulditrestricttrade?Ifagovernmentrestrictstrade,whatarethecostsifforeigngovernmentsrespondlikewise?Tradepoliciesareoftenchosentocatertospecialinterestgroups,ratherthantomaximizenationalwelfare.Governmentstendtoadopttariffs,thennegotiatethemdowninexchangeforreductionintradebarriersofothercountries.,1-14,InternationalFinanceTopics,Exchangingriskyassetssuchasstocksandbondscanbenefitallcountriesbydiversificationthatreducesthevariabilityofincomeanothersourceofgainsfromtrade.Mostinternationaltradeinvolvesmonetarytransactions.Manymonetaryeventshaveimportantconsequencesforinternationaltrade.,1-15,BalanceofPayments,Governmentsmeasurethevalueofexportsandimports,aswellasthevalueoffinancialassetsthatflowintoandoutoftheircountries.Tradedeficits,wherecountriesimportmorethantheyexportinvalue,maybeoffsetbynetinflowsoffinancialassets.Theofficialsettlementsbalance,orthebalanceofpayments,measuresthebalanceoffundsthatcentralbanksuseforofficialinternationalpayments.Allthreevaluesaremeasuredinthegovernmentsnationalincomeaccounts.,16,Source:McKinseyGlobalInstitute(2009),Source:McKinseyGlobalInstitute(2009),17,Source:McKinseyGlobalInstitute(2009),18,1-19,ExchangeRateDetermination,Exchangeratesareanimportantfinancialissueformostgovernments.Exchangeratesmeasurehowmuchdomesticcurrencycanbeexchangedforforeigncurrencyandthusaffect:howmuchgoodsdenominatedinforeigncurrency(imports)costinthedomesticcountry.howmuchgoodsdenominatedindomesticcurrency(exports)costinforeignmarkets.Someexchangerateschangecontinually(float)whileothersarefixedforperiodsoftime.,20,Source:ADB,AsianCapitalMarketsMonitor,2011.8,1-21,InternationalPolicyCoordination,Inanintegratedeconomy,onecountryseconomicpoliciesusuallyaffectothercountriesaswell,leadingtotheneedforsomedegreeofpolicycoordination.Dependsontypeofexchangerateregime.Capitalmarkets,wheremoneyisexchangedforpromisestopayinthefuture,havespecialconcernsinaninternationalsetting:Currencyfluctuationscanalterthevaluepaid.Countries,especiallydevelopingones,mightdefaultondebt.,1-22,InternationalTradeVersusFinance,I