International Economics: International Economics Unveiled, Navigating the Global Marketplace

By Fouad Sabry

What is International Economics

The field of international economics is concerned with the impacts that international disparities in consumer preferences and productive resources have on economic activity, as well as the international institutions that have an impact on these factors. The goal is to provide an explanation for the patterns and effects of contacts and transactions that take place between people living in various countries. These interactions and transactions include trade, investment, and transaction.The study of international trade examines the movement of commodities and services over international borders, taking into account supply-and-demand dynamics, economic integration, international factor movements, and policy variables such as tariff rates and trade quotas.The study of international finance focuses on the movement of capital across international financial markets as well as the impact that variations in exchange rates have on these movement patterns.Both international monetary economics and international macroeconomics are fields of study that investigate the movement of money between nations and the consequences that this movement has on the economy of those nations as a whole.The study of issues and repercussions resulting from international hostilities, international negotiations, and international sanctions; national security and economic nationalism; and international agreements and observance are all examples of topics that fall under the umbrella of international political economy, which is a sub-category of international relations.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: International economics

Chapter 2: Balance of trade

Chapter 3: International Monetary Fund

Chapter 4: Keynesian economics

Chapter 5: Free trade

Chapter 6: Joseph Stiglitz

Chapter 7: Index of economics articles

Chapter 8: Protectionism

Chapter 9: Global financial system

Chapter 10: Balance of payments

Chapter 11: International political economy

Chapter 12: Globalization and Its Discontents

Chapter 13: Foreign exchange reserves

Chapter 14: Structural adjustment

Chapter 15: Heckscher-Ohlin model

Chapter 16: Capital control

Chapter 17: Gains from trade

Chapter 18: Spillover (economics)

Chapter 19: International trade theory

Chapter 20: First globalization

Chapter 21: Glossary of economics

(II) Answering the public top questions about international economics.

(III) Real world examples for the usage of international economics in many fields.

(IV) Rich glossary featuring over 1200 terms to unlock a comprehensive understanding of international economics. (eBook only).

Who will benefit

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of international economics.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Dec 18, 2023
• ISBN: 9791222074993

Book preview

Chapter 1: International economics

The field of international economics analyzes how regional and national variations in productive resources, consumer preferences, and international institutions all influence economic activity. It aims to shed light on the reasons behind and effects of cross-border trade, investment, and other forms of interaction between people of different nations.

Supply and demand, economic integration, international factor movements, and policy variables like tariff rates and trade quotas are all studied in the context of international trade.

The field of international finance analyzes the effects of capital movements across international financial markets on currency exchange rates.

The fields of international monetary economics and international macroeconomics investigate the effects of cross-border monetary flows on national economies.

Conflicts, negotiations, and sanctions; national security and economic nationalism; international agreements and their observance are all topics that fall under the purview of international political economy, a branch of international relations.

The relatively low international mobility of capital and labor is a key distinguishing feature of the economic theory of international trade. In that regard, it appears to differ from trade between distant regions within a single country more in degree than in principle. Thus, international trade economics employs a methodology not drastically different from that of mainstream economics. The fact that governments have frequently sought to impose restrictions upon international trade, however, has influenced the course of academic research on the topic, and has frequently been the motivation for the development of trade theory.

Conventional classical trade theory, which can be traced its roots back to Ricardo's Theory of Comparative Advantage, is based on a set of theorems whose usefulness is contingent on the plausibility of their underlying postulates. However, empirical analysis is the backbone of modern approaches to trade.

Regardless of the causes of regional differences, the theory of comparative advantage provides a reasonable explanation for international trade as the logical result of the comparative advantages that arise from them. Since David Ricardo first presented it, With the advent of new technologies and economies of scale, modern trade analysis has expanded beyond the narrow assumptions of the H-O theorem. It heavily employs econometrics to isolate, from the available data, the contribution of specific factors among the many that influence trade. The gravity equation is an illustrative econometric model. Several analyses have quantified the effects of technological variation. One study attributes this phenomenon in part to a country's temporary technological advantage. The research also indicated that there are three distinct groups of traded goods, each with its own unique comparative advantage:

Ricardo goods are those that can be mass-produced simply by extracting and routinely processing readily available natural resources, such as coal, oil, and wheat, an area in which developing countries often have a comparative advantage; goods with a low level of technological complexity (e.g., textiles and steel) that are more likely to move to countries with more favorable factor endowments (sometimes called Heckscher-Ohlin goods); and, products in the high-tech and high-scale economy sectors, such as computers and airplanes, for which a region's competitive advantage stems from its ready access to research and development (R&D) resources and specialized labor forces, as well as its proximity to large, well-developed markets.

In general, it is safe to assume that any voluntarily entered into transaction will result in positive outcomes for all parties involved. But Paul Samuelson has shown that the winners from international trade can always compensate the losers (under assumptions including constant returns and competitive conditions). have bolstered the widespread agreement among economists that trade is beneficial and that trade restrictions are counterproductive.

But there are widespread concerns about how international trade affects workers' incomes in advanced economies. If productivity were the same in both countries, factor price equalization theorem by Samuelson would predict that trade would lead to wage parity. Trade between an industrialized country and a developing country is often interpreted as a threat to the wages of unskilled workers in the industrialized country, as mentioned above. To assume, however, that low-wage developing countries would be as productive as high-wage developed countries is a huge leap in logic. According to research conducted in 1999, the disparities between national wage rates and international productivity are roughly proportional.

The potential for international trade to work against the interests of developing countries has also been raised as a source of concern. According to influential research published in 1950 by Argentine economist Raul Prebisch, agricultural product prices tend to fall relative to manufactured product prices, which can negatively affect the terms of trade and lead to an unintentional transfer of wealth from developing countries to developed countries.

Multiple subsequent studies have corroborated their results, although quality bias in the indices used or manufacturer monopoly on the market have been proposed as explanations for the effect.

There is still debate over the Prebisch/Singer results, but they were used at the time—and have been used subsequently—to suggest that the developing countries should erect barriers against manufactured imports in order to nurture their own infant industries and so reduce their need to export agricultural products.

Pros and cons of such a policy are comparable to debates over the need to foster new businesses.

A new industry with potential for long-term comparative advantage is said to be in its infancy., However, would be doomed to failure in the face of imported goods competition.

Time is of the essence in this case when either potential economies of scale, or to acquire potential economies of the learning curve.

Identifying such an instance with success, followed by the short-term imposition of an import barrier, in principle, produce substantial benefits to the country that applies it—a policy known as import substitution industrialization.

Whether such policies succeed depends upon the governments’ skills in picking winners, with reasonable anticipation of potential triumphs and setbacks.

The automobile industry in South Korea is often credited to the initial protection against imports, Economists’ findings about the benefits of trade have often been rejected by government policy-makers, who have frequently tried to erect barriers in the way of foreign competition in order to protect domestic industries, such as import quotas and tariffs, against imports.

The average level of tariffs increased from about 15% in the late 19th century to about 30% in the 1930s, subsequently to the passing of the Smoot-Hawley Tariff Act in the United States.

In large part because of treaties negotiated at the international level and implemented by GATT and its successor, the World Trade Organization (WTO), During the second half of the twentieth century, average tariff levels were reduced to around 7 percent, as well as the elimination of other trade barriers.

However, the remaining constraints are crucial to the economy: estimated variously, In 2004, the World Bank predicted that by 2015, eliminating all trade barriers would increase global GDP by more than $500 billion.

The precautionary principle has recently been used as an excuse to keep novel products off the market.

Although there is no fundamental difference between international finance economics and international trade economics, the two fields place very different emphasis. Because the assets traded in international finance are claims to flows of returns that often extend many years into the future, the practice tends to involve greater uncertainties and risks. Because decisions are revised and put into effect at a faster rate in the financial sector, the market for financial assets is typically more volatile than the market for goods and services. A freely entered into transaction has equal odds of benefiting both parties and significantly greater odds of harming third parties.

Examples of such causes include the 2008 financial crisis, which was precipitated by the United States' poor handling of mortgage lending, and the frequent occurrence of damaging financial crises in developing countries as a result of the sudden reversal of international flows of capital. In addition, rapid change means that empirical analysis, rather than the comparative statics method used in international trade theory, is the preferred method. In addition, the consensus among economists on its main issues is less widespread and more debated than that on international trade.

In the twilight of the twentieth century, there was a dramatic shift in the structure of global finance, and the ramifications are still being discussed by economists.

When World War II finally ended, All nations that signed the Bretton Woods Agreement committed to keeping their currencies pegged to the US dollar at a predetermined rate, and the US government had promised to buy gold at a set price of $35 per ounce, whenever it was needed.

To back up those promises, most signatory nations had maintained strict control over their nationals’ use of foreign exchange and upon their dealings in international financial assets.

In 1971, however, the United States government announced that it would no longer allow the dollar to be converted into other currencies. This marked the beginning of a gradual shift toward the current regime of floating exchange rates, in which governments no longer attempt to regulate their currencies' value against others'. The international monetary system altered its behavior. There was a prolonged string of damaging financial crises, and exchange rates became extremely unstable. An overwhelming number of banking crises were reported at the end of the twentieth century, with one study estimating 112 across 93 countries.

As part of his persuasive case for flexible exchange rates in the 1950s, Milton Friedman argued that any resulting instability would be due primarily to macroeconomic instability, Because of the higher expected returns on investment in developing countries, neoclassical theory predicted that money would flow from these countries' wealthy developed economies to their impoverished developing ones. Direct investment of physical capital tends to promote specialization and the transfer of skills and technology, while inflows of financial capital would increase the level of investment in the developing countries by lowering their costs of capital. The results of these policies, however, were unexpected. Because theoretical considerations alone are insufficient to weigh the benefits against the costs of volatility, this issue has been tackled through empirical research.

The empirical evidence is summarized in a working paper published by the International Monetary Fund in 2006. Neither the benefits of freer capital flows nor the claims that it is to blame for the recent wave of financial crises were supported by the authors' research. They imply that countries with sufficient financial resources will reap the most benefits, while those with less will see their gains slowed and their susceptibility to disruptions in capital flows increase.

Despite the fact that most developed nations now employ exchange rates that are floating,, Some of them, along with many developing countries, keep fixed exchange rates at the paper level only, commonly using dollars or euros.

When a country adopts a fixed rate, the central bank must intervene in the currency exchange market, and is usually accompanied by a degree of control over its citizens’ access to international markets.

Some countries have done away with their own currencies in favor of a regional currency like the Euro, while others like Denmark have kept their own currencies but set them to a fixed exchange rate with a neighboring regional currency. The International Monetary Fund's (IMF) economic policies have had a significant impact around the world, especially in developing nations.

The International Monetary Fund (IMF) was established in 1944 with the goals of promoting international monetary cooperation, stabilizing exchange rates, and establishing a global payment system. Its primary function is to replenish depleted foreign exchange reserves in member countries through the provision of loans. However, the IMF will only lend money to countries that they believe will take economic steps that will help the economy recover, as determined by the IMF's economists.

Their recommended economic policies are generally those adopted by the United States and the other major developed countries (collectively referred to as the Washington Consensus), which often involve lifting all restrictions on foreign investment. Joseph Stiglitz and others have harshly criticized the Fund for what they see as the organization's inappropriate enforcement of those policies and for failing to warn recipient countries of the dangers that can result from the volatility of capital movements.

Financial and economic crises can quickly spread from one country to another, and their effects can be felt for years afterward, as was seen during the Great Depression and since. For decades in response to this knowledge, governments imposed strict controls on the activities and conduct of banks and other credit agencies. However, beginning in the 1980s, many governments adopted a policy of deregulation, betting that the efficiency gains would outweigh the risks to the financial system. The article on financial economics details the subsequent extensive financial innovations.

One result has been a global financial system with complex-interactive characteristics, as defined by the field of control theory, and a corresponding increase in the degree to which financial markets around the world are linked to one another. Since there are so many potential paths of failure, analyzing the stability of such a system is challenging. The October 1987 stock market crash was one of the subsequent international systemic crises, Simply put, it is assumed for simplicity's sake that economic welfare increases as a result of international migration. Emigration of unskilled and semi-skilled workers is generally beneficial to countries of origin because it reduces pressure for employment creation and helps explain wage differences between developed and developing countries. When a large percentage of a highly skilled workforce leaves a country, as happens when half or more of a country's trained doctors leave, the results can be disastrous. With the OECD's recent recognition that migrants' return and reinvestment in their home countries is a key issue, European governments are increasingly prioritizing the facilitation of temporary skilled migration and migrant