International Trade TheoryInternational Trade Theory

Chapter 1: IntroductionChapter 1: Introduction

Hyun-Hoon Lee

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OUTLINEOUTLINE

1.1 Importance of International Economics

1.2 International Trade and the Nation’s Standard of Living

1.3 The Major U.S. Trade Partners: The Gravity Model

1.4 The Subject Matter of International Economics

1.5 Purpose of International Economic Theories and Policies

1.6 Current International Economic Problems

1.7 The Globalization Challenge

1.8 Organization and Methodology of the Text

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1.1 Importance of International Economics1.1 Importance of International Economics

International trade is crucial to the well-being of nations

Some knowledge of international economics is necessary to understand what goes on in the world of today and to be informed consumers, citizens, and voters. 

On a more practical level, the study of international economics is required for numerous jobs in international banking, various government agencies, and international organizations. 

- Case Study 1-1 The Dell and Other PCs Sold in the US are All but American

- Case Study 1-2 What is an “American” Car?.

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1.2 International Trade and the Nation1.2 International Trade and the Nation’’s s Standard of LivingStandard of Living

International trade is crucial to the well-being of nations

FIGURE 1.1. Imports and Exports as a Percentage of GDP in Various countries

FIGURE 1.2. Growth of World Production and Trade, 1994-2004 

FIGURE 1-3 Rising Importance of International Trade

FIGURE 1-3-1 Trade as a Percentage of GDP, 1965-2003

FIGURE 1-3-2 U.S. Imports and Exports as a Percentage of GDP, 1965-2001.

FIGURE 1-3-3 Japan’s Imports and Exports as a Percentage of GDP, 1965-2003.

FIGURE 1-3-4 Korea’s Imports and Exports as a Percentage of GDP, 1965-2003.

FIGURE 1-3-5 China’s Imports and Exports as a Percentage of GDP, 1970-2003.

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FIGURE 1-1 Imports and Exports as a Percentage of GDP in Various Countries in 2001.

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FIGURE 1-2 Growth of World Production and Trade, 1990-2001 (annual percentage

changes).

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FIGURE 1-3-1 Trade as a Percentage of GDP, 1965-2003.

ChinaJ apan

Korea, Rep.

U.S.

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10

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1965 1970 1975 1980 1985 1990 1995 2000Year

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de a

s a

perc

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f G

DP

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FIGURE 1-3-2 U.S. Imports and Exports as a Percentage of GDP, 1965-2001.

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FIGURE 1-3-3 Japan’s Imports and Exports as a Percentage of GDP, 1965-2003.

Imports

Exports

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1965 1970 1975 1980 1985 1990 1995 2000

Year

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FIGURE 1-3-4 Korea’s Imports and Exports as a Percentage of GDP, 1965-2003.

Imports Exports

0

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10

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1965 1970 1975 1980 1985 1990 1995 2000

Year

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FIGURE 1-3-5 China’s Imports and Exports as a Percentage of GDP, 1970-2003.

Imports

Exports

0

5

10

15

20

25

30

35

40

1970 1975 1980 1985 1990 1995 2000

Year

Perc

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of

GD

P

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1.3 The Major Trading Partners of the U.S., 1.3 The Major Trading Partners of the U.S., and Korea: The Gravity Model and Korea: The Gravity Model

The Gravity Model postulates that the bilateral trade between countries is positively related to the product of the two countries’ GDP and negatively related to the distance between them.

Table 1.2a. Major Treading Partners of the U.S. in 2005

Table 1.2b. Major Treading Partners of Korea in 2005

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Table 1.2b. The Major Trade partners of KoreaTable 1.2b. The Major Trade partners of Korea

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1.4 The Subject Matter of International 1.4 The Subject Matter of International Economics Economics

International economics deals with the economic interdependence among nations. 

The microeconomic aspects (international trade)

- Part One (Chapters 2-7): pure trade theory

- Part Two (Chapters 8-12): trade (commercial) policies 

The macroeconomic aspects (international finance)

- Part Three (Chapters 13-15): balance of payments and foreign exchange markets

- Part Four (Chapters 16-21): open-economy macroeconomics

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1.5 Purpose of International Economic 1.5 Purpose of International Economic Theories and PoliciesTheories and Policies

Assumptions and merits of economic models

Examples

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1.6.1 Current International Economic 1.6.1 Current International Economic ProblemsProblems

Trade Protectionism in Advanced Countries

Excessive Fluctuations and Large Disequilibria in Exchange Rates

Increasing International Competition from China

High Structural Unemployment and Slow Grow in Europe

Financial Crises in Emerging Market Economies

Restructuring Challenge of Transition Economies

Deep Poverty in Many Developing Countries

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1.6.2 Current International Economic 1.6.2 Current International Economic ProblemsProblems

Sustainable Development and Environment (Instructor’s addition)

Regionalism and Faltering Multilateralism (Instructor’s addition)

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1.7 The Globalization Challenge 1.7 The Globalization Challenge

Globalization: Increasing integration of economies around the world, particularly through trade and financial flows.

 

Pros vs Cons

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1.8 Organization and Methodology of the Text 1.8 Organization and Methodology of the Text

Organization (See table of contents.)

 

Methodology of the Text

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Appendix Appendix

Table 1.3 Commodity Composition of World Merchandise Trade, 2004

Table 1.4 Geographical Composition of World Merchandise Trade, 2004

Table 1.5 Geographical Destination of Merchandise Exports, 2001

Table 1.6 Leading Exporters and Importers of Merchandise, 2001

Table 1.7 Leading Exporters and Importers of Commodity Services