International-Economics-(By-Robert-J.-Carbaugh)-(9th-Edition).ppt

1、International EconomicsBy Robert J. Carbaugh9th Edition,International EconomicsBy Robert J. Carbaugh9th Edition,Chapter 1: The International Economy,4,Elements of interdependence,Trade: goods, services, raw materials, energy Finance: foreign debt, foreign investment, exchange rates Business: multina

2、tional corporations, global production,Economic interdependence,5,Forces driving globalization,Technological change: Production Communication those displaced find lower-paying jobs Millions of other Americans fear getting laid off Workers face pressure for wage concessions under threat of having the

3、 jobs move abroad Service and white-collar jobs are joining blue-collar ones in being vulnerable to moving overseas US workers can lose their competitiveness when firms build state-of-the-art factories in low-wage countries, making them as productive as plants in the US,Economic interdependence: glo

4、balization,International EconomicsBy Robert J. Carbaugh9th Edition,Chapter 2: Foundations of Modern Trade Theory,17,Historical development of trade theory,Mercantilism Regulation to ensure a positive trade balance Critics: possible only for short term; assumes static world economy Absolute advantage

5、 (Adam Smith) Countries benefit from exporting what they make cheaper than anyone else But: nations without absolute advantage do not gain from trade Comparative advantage (David Ricardo) Nations can gain from specialization, even if they lack an absolute advantage,Foundations of trade theory,18,Abs

6、olute other explanations are also important,Factor endowment model,56,Does trade worsen inequality?,Trade theory suggests that countries with abundant skilled labor will import goods which are made with unskilled labor Equilibrium wage ratios for skilled/unskilled labor are affected by trade and tec

7、hnology change, immigration, and education better education and training are potential solutions,Distribution of income,57,Economies of scale focus on tariff cuts Tokyo Round (1973-79) - focus on lowering non-tariff barriers Uruguay Round (1986-93) - covered new issue areas (intellectual property, s

8、ervices, agriculture), included developing nations,Trade regulation,103,GATT becomes WTO,GATT agreement became World Trade Organization in January 1995 WTO members must adhere to all agreements negotiated under GATT (not pick and choose) Covers trade in goods, services, intellectual property and inv

9、estment WTO strengthens GATTs dispute-settlement mechanisms,Trade regulation,104,Controversy over WTO,Worries about infringement on national sovereignty Concern about trade liberalization undermining environmental protection WTO became a target for broader opposition to globalization,Trade regulatio

10、n,105,US trade remedy laws,Escape clause Countervailing duties Anti-dumping duties Unfair trade practices (Section 301) Protection of intellectual property Trade adjustment assistance,Trade regulation,106,Effects of dumping, subsidies, and remedies,Trade regulation,107,Effects of dumping, subsidies,

11、 and remedies,Trade regulation,108,US “industrial policy”,Broad policies to foster economic growth Aid to targeted sectors Agriculture, ship-building, energy, technology, manufacturing (autos, for example), etc. Tariff protection of declining sectors Export promotion and financing Export-Import Bank

12、 Commodity Credit Corporation Knowledge based growth policy,Industrial policy,109,Japans industrial policy,Trade protection and subsidies (especially early on) Assistance to targeted sectors Shipbuilding, steel, autos, machine tools, high-technology Ministry of International Trade and Industry (MITI

13、) to target aid to promising sectors It is unclear how much of Japans success can be attributed to government assistance,Industrial policy,110,Strategic trade policy,Response to competition in sectors with imperfect competition - small number of producers, each large enough to affect market price Su

14、bsidies can give the advantage to domestic manufacturers over foreign ones Critics argue that it is too difficult to determine where assistance makes economic sense,Industrial policy,111,Welfare effects of strategic trade policy,Industrial policy,112,Economic sanctions,Trade sanctions Financial sanc

15、tions Success of sanctions depends on: Number of nations imposing sanctions Nature of ties between target and imposing nations Extent of political opposition in target nation Cultural factors in target nation,Trade regulation,International EconomicsBy Robert J. Carbaugh9th Edition,Chapter 8: Trade P

16、olicies for the Developing Nations,114,Developing nations trade,Very dependent on the developed industrial countries as export markets and source of imports Exports are heavily weighted toward primary products (agricultural goods, raw materials, fuels) and labor-intensive manufactures Share of manuf

17、actured exports is increasing, but mainly in a small number of newly industrialized nations (such as South Korea, Hong Kong),Developing nations and trade,115,Developing nations: dependence on primary products (2000),Developing nations and trade,Major exportAs % of Countryproducttotal exports Nigeria

18、Oil96 Saudi ArabiaOil86 VenezuelaOil86 BurundiCoffee79 Mauritania Iron ore56 ZambiaCopper56 EthiopiaCoffee54 ChadCotton40,116,Developing nations concerns,Question whether gains from trade with industrial countries have been fairly distributed Face problems of unstable export markets Concentration on

19、 one or a few primary-product exports combined with inelastic supply and demand conditions Argue that they face worsening terms of trade as relative value of primary products has fallen compared to manufactured goods they import Face limited market access for exports because of protectionism Especia

20、lly for agricultural and labor-intensive goods,Developing nations and trade,117,Export price instability for a developing nation,Developing nations and trade,118,Remedies for developing nation problems,Stabilizing commodity prices - international commodity agreements Production and export controls B

21、uffer stocks Multilateral contracts Generalized system of preferences (GSP) But experience with commodity agreements has been mixed, at best, and application of the GSP is spotty,Developing nations and trade,119,Production and export controls,Developing nations and trade,120,Buffer stocks: price cei

22、ling and price support,Developing nations and trade,121,Cartels,Attempt to restrict competition among producers and support higher prices for their product Face obstacles: Incentive to cheat Number of sellers Cost and demand differences Potential competition Economic downturns Substitute goods,Devel

23、oping nations and trade,122,Growth strategies,Import substitution Trade barriers protect emerging domestic industries Popular in 1950s and 1960s Export-led growth Focus on export of manufactures as engine of growth Became more common starting in 1970s,Developing nations and trade,123,Import substitu

24、tion: pros,Risk of establishing home import-replacing industry is low because home market already exists Easier for developing nations to protect their own markets than to force industrial nations to open theirs Gives foreign firms an incentive to locate production in developing country, providing j

25、obs,Growth strategies,124,Import substitution: cons,Trade restrictions shelter home industry from competition, giving no incentive for efficiency Small size of most developing country markets makes it difficult to benefit from economies of scale Protection of import-competing industries draws resour

26、ces away from all other sectors, including potential exporters,Growth strategies,125,Export-led growth: pros,Encourages industries in which developing countries are likely to have a comparative advantage - such as labor-intensive manufactures Export markets allow domestic producers to utilize econom

27、ies of scale Low level of trade restrictions forces domestic firms to remain competitive,Growth strategies,126,Export-led growth: cons,Main disadvantage to export-led growth is that it depends on the ability and willingness of industrial nations to absorb large quantities of manufactures from develo

28、ping countries In other words, it is sensitive to economic cycles and protectionist pressures in the export markets,Growth strategies,127,Economic performance of developing nations by trade orientation, 1963-92 (World Bank, 1987; OECD, 1998),Growth strategies,128,Growth strategies: case studies,Braz

29、il - import substitution in computers Policy backfired, and was abandoned by 1991 East Asian newly industrialized countries - export-led growth Generally very successful, until 1997 crisis High rates of investment and building human capital Problems overlooked: pollution, income distribution Vulnera

30、ble to protectionist reactions elsewhere,Growth strategies,129,Growth strategies: case studies,China - transformation from extreme import-substitution to focus on exports Dramatic change in Chinas role in the world economy has accompanied rapid growth in its domestic economy Heavy state role in econ

31、omy (legacy of central planning) raises issues of fairness Political issues, lack of enforcement of some agreements (intellectual property) complicate economic relations Accession to the WTO will mean adherence to global trade rules - and coping with the dislocations that will involve,Growth strateg

32、ies,International EconomicsBy Robert J. Carbaugh9th Edition,Chapter 9: Regional Trading Arrangements,131,Regional trade agreements,Types of regional trade arrangements,Free trade areas (NAFTA, for example) Customs unions (Benelux) Common markets (EU) Economic/monetary union,132,Regional trade agreem

33、ents,Effects of regional trade agreements,Static effects Trade creation effect (consumption effect, production effect) Trade diversion effect Dynamic effects Economies of scale Greater competition Investment stimulus,133,Static effects of a customs union,Regional trade agreements,134,Regional trade

34、agreements: case studies,The European Union,Created by the Treaty of Rome (1957) Policy aims included: Abolition of tariffs, quotas and other restrictions Common external tariff Free movement of capital, labor and business Common policies on transport, agriculture, and competition and business condu

35、ct Coordination of monetary and fiscal policies,135,Regional trade agreements: case studies,The European Union (contd),Lowering of barriers caused within-region trade to grow much more quickly than overall world trade in the 1960s Steps to remove remaining barriers (1985-92) further increased integr

36、ation Maastricht Summit (1991) began process of economic and monetary union (EMU) EMU came into full effect in 2002 with the introduction of a common currency, the euro,136,Regional trade agreements: case studies,EU Economic but the benefits were modest,145,Regional trade agreements: case studies,Co

37、ncerns about NAFTA,Main US losers from NAFTA would be import-protected industries competing with Mexican producers, and unskilled workers US industrial workers also worried about lower pay scale in Mexico and plant relocations Concerns Mexico would not enforce environmental protection measures Side

38、agreements on environment and labor law were concluded to address those concerns,146,Regional trade agreements: case studies,NAFTAs impact so far,Trilateral trade increased significantly Some US jobs were lost to Mexico, but the numbers were small compared to job creation that came with US growth Ch

39、anges in investment flows were small (in relation to total US foreign investment) Closer political ties were built among the three nations, and they refrained from building new trade barriers even during recession,147,Regional trade agreements: case studies,Special case: economies in transition,Nati

40、ons of eastern Europe and the former Soviet Union have been making a transition from a non-market (planned) economy to a market economy since the early 1990s - which has been very disruptive These nations planned economies required them to be largely isolated from world trade - instead, set up their

41、 own trading bloc, the Council for Mutual Economic Assistance (CMEA) with only limited trade with the West,148,Regional trade agreements: case studies,Economies in transition (contd),Even after the collapse of the central planning system, the nations remained tied together because of historical trad

42、e links inside CMEA and their common legacy as non-market economies There is an ongoing debate over the best pace for economic reform (including trade and financial liberalization) - “shock therapy” vs. gradualism,149,Regional trade agreements: case studies,Economies in transition (contd),Barriers t

43、o trade with the West used to make strategies such as countertrade, co-production agreements, joint R source country worries about losing jobs Technology transfer MNEs are reluctant to share technology with host nations; source country worries about giving away advantage,161,Multinational enterprise

44、s,Controversy over multinationals (Contd),National sovereignty Host country worries about power of MNE to influence affairs; source country worries about ability to regulate MNE activities elsewhere Balance of payments MNE investments and profits (internal transfers) have impacts on the payments sta

45、tus of both source and host nations,162,Multinational enterprises,Controversy over multinationals (Contd),Taxation Source countries may have difficulty taxing MNE income stemming from foreign operations Tax rate differences may discourage investment at home Transfer pricing Both host and source gove

46、rnments worry that MNEs may illegally manipulate prices paid between subsidiaries to avoid taxes,163,Transfer pricing illustrated,Multinational enterprises,Germany (tax rate 48%) Computer produced by parent firm for $2000. Sold to Irish subsidiary for $2000. German tax paid: $0.,Ireland (tax rate 4%

47、) Irish subsidiary resells the same computer to US subsidiary for $2500, earning $500 profit. Irish tax paid: $20.,United States (tax rate 34%) US subsidiary sells computer at cost, for $2500. No profit is earned. US tax paid: $0. Irish subsidiary then lends money to US subsidiary for expansion,164,

48、International factor movements,Migration,Tends to equalize wage rates between countries Shifts distribution of income between capital and labor Other concerns: Fiscal drain from immigration Brain drain from developing countries Impact of illegal migration Wider gulf between skilled and unskilled wor

49、kers,165,Effects of labor migration,International factor movements,United States,Mexico,International EconomicsBy Robert J. Carbaugh9th Edition,Chapter 11: The Balance of Payments,167,The Balance of Payments,Balance of Payments,A record of international transactions between residents of one country

50、and the rest of the world International transactions include exchanges of goods, services or assets “Residents” means businesses, individuals and government agencies, including citizens temporarily living abroad but excluding local subsidiaries of foreign corporations,168,The Balance of Payments,Dou

51、ble-entry accounting in the BOP,All transactions are either debit or credit transactions Credit transactions result in receipt of payment from abroad Merchandise exports Transportation and travel receipts Income received from investments abroad Gifts received from foreign residents Aid received from

52、 foreign governments Local investments by overseas residents,169,The Balance of Payments,Double-entry accounting (contd),Debit transactions lead to payments to foreigners Merchandise imports Transportation and travel expenditures Income paid on investments of foreigners Gifts to foreign residents Ai

53、d given by home government Overseas investments by home country residents Each credit transaction has a balancing debit transaction, and vice versa, so the overall balance of payments is always in balance,170,Structure of the Balance of Payments,Current account,Goods and services balance Merchandise

54、 trade balance Services balance Investment income (net) Unilateral transfers Private transfer payments Governmental transfers,171,Structure of the Balance of Payments,Capital and financial account,All purchases or sales of assets, including: Direct investment Securities (debt) Bank claims and liabil

55、ities Official settlements transactions,172,Current account,Current account surplus and deficit,Current account and capital must be financed by borrowing (capital account inflows),173,US Balance of Payments, 2001 ($ bill.),Balance of Payments,Current account Merchandise trade exports$720.8 imports-1

56、,147.4 Net-426.6 Services Travel the amount of currency and the date are set by the agreement,185,Foreign exchange markets,Forward markets, futures speculative bubbles can start without any real information but can become self sustaining - for a while,207,Alternative approaches to exchange rates,Mon

57、etary approach,Focus on exchange rates as the result of supply and demand for money at home and abroad Demand depends on real income, prices, interest rates Supply is controlled by central banks Exchange rates seen as returning domestic money supply to equilibrium after a change,208,Alternative appr

58、oaches to exchange rates,Asset-markets approach,Investors (firms and individuals) balance their portfolios among domestic money, stocks and bonds and foreign stocks and bonds Short run exchange rate changes are caused by shifts in the kind and location of financial assets investors want to hold Inve

59、stors shift between assets based on market expectations for expected returns,209,Short, long run equilibrium: overshooting,Exchange rate markets,210,Exchange rate markets,Forecasting exchange rates,Judgmental forecasts Subjective forecasts based on economic, political and other data for a country Technical analysis Uses historical exchange rate trends to project short-run future movements Fundamental analysis Includes macroeconomic and policy information in a predictive model,211,Equilibrium in asset-markets approach,Alternative approaches to exchange rates,212,Asset-markets approach: