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CHAPTER O N E
1
International Economics Tenth Edition
Introduction Dominick Salvatore John Wiley & Sons, Inc.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
In this chapter: The Globalization of the World Economy International Trade and the Nation’s
Standard of living The International Flow of Goods, Services, Labor and Capital International Economic Theories and Policies Current International Economic Problems Organization and Methodology of the Text
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy A globalizing world provides opportunities
and challenges to nations and people in the world.
Flow of goods and services Flow of labor and jobs Flow of financial instruments, currency
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1870-1914
Resulted from industrial revolution, opening up of new resource sources in “regions of recent settlement” Millions of immigrants, vast amounts of foreign investments, increased production Ended with breakout of World War I in 1914.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1945-1980
Dismantling of heavy trade protection led to rapid increase in international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1980 to present
Most pervasive and dramatic period of globalization Fueled by improvements in telecommunications and transportation Elimination of restrictions on capital flows led to massive international capital movements Most countries in the world participated
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Anti-Globalization Movement
Claims globalization sacrifices human and environmental well-being to corporate profits of mutinationals
Globalization is blamed for:
World poverty and child labor in poor countries Job losses and lower wages in rich countries Environmental pollution and climate change
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Trade and the Nation’s Standard of Living Interdependence
Economic relationship among nations Roughly measured as ratio of a nation’s imports and exports of goods and services to GDP Much larger for smaller industrial and developing countries than for United States
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
FIGURE 1-1 Imports and Exports as a Percentage of GDP in Various Countries in 2001. Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Trade and the Nation’s Standard of Living Sources of potential gain for United States: Access to items with limited availability domestically (such as coffee, bananas, cognac, tin, tungsten, petroleum and copper)
Access to lower cost products Access to greater product variety
Economic interdependence has been
increasing over the years.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
FIGURE 1-2 Growth of World Production and Trade, 1990-2001 (annual percentage changes). Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Trade as a percentage of GDP
120 100 80
Korea, Rep.
60
China
40
Japan U.S.
20 0
1965
1970
1975
1980
1985 1990 Year
1995
2000
2005
FIGURE 1-3-1 Trade as a Percentage of GDP, 1965-2008. slide 12
FIGURE 1-3 Imports and Exports as a Percentage of U.S. GDP, 1965-2001. Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
60
P ercent of GDP
50 Imports
Exports
40 30 20 10 0 1965
1970
1975
1980
1985 1990 Year
1995
2000
2005
FIGURE 1-3-4 Korea’s Imports and Exports as a Percentage of GDP, 1965-2008.
slide 14
50 45 Pe rcent of GDP
40 35 30
Exports
25 20 15
Imports
10 5 0 1970
1975
1980
1985
Year 1990
1995
2000
2005
FIGURE 1-3-5 China’s Imports and Exports as a Percentage of GDP, 1970-2008. slide 15
20 18
P ercent of GDP
16 14 12
Exports
10 8 6
Imports
4 2 0 1965
1970
1975
1980
1985 Year
1990
1995
2000
2005
FIGURE 1-3-3 Japan’s Imports and Exports as a Percentage of GDP, 1965-2007. slide 16
The International Flow of Goods, Services, Labor and Capital Gravity Model
Other things equal, the bilateral trade between two countries is proportional, or at least positively related, to the product of the two countries’ GDPs, and the greater the distance between the two countries, the smaller is their bilateral trade.
That is, the larger (and more equal in size) and the closer two countries are, the larger the volume of trade between them is expected to be.
Table 1.3. The Major Trade Partners of the U.S. in 2009
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Table 1.3b. The Major Trade partners of Korea
1970
1980
1990
2000
2005
Rank Country
%
Country
%
Country
%
Country
%
Country
%
1
U.S.
47.3
U.S.
26.3
U.S.
29.8
U.S.
21.8
China
21.8
2
Japan
28.1
Japan
17.4
Japan
19.4
Japan
11.9
U.S.
14.5
3
HongKong
3.3
SaudiArabia
5.4
HongKong
5.8
China
10.7
Japan
8.4
4
Germany
3.3
Germany
5.0
Germany
4.4
HongKong
6.2
HongKong
5.5
5
Canada
2.3
Hong Kong
4.7
Singapore
2.8
Taiwan
4.7
Taiwan
3.8
6
Netherlands
1.6
Iran
3.5
U.K.
2.7
Singapore
3.3
3.6
7
U.K.
1.6
U.K.
3.3
Canada
2.7
U.K.
3.1
Germany Singapore
3.0
U.K.
1.9 1.7 1.6
8 9 10 Total
Vietnam
1.5
Indonesia
2.1
Taiwan
1.9
Germany
Singapore
1.3
Netherlands
2.0
France
1.7
Malaysia
2.0
Indonesia
Sweden
0.9
Canada
2.0
Indonesia
1.7
Indonesia
2.0
Malaysia
91.4
71.6
72.9
68.8
2.6
65.5
Table 1.3c. The Major Trade partners of Korea in 2008
Rank
Country
Export
Import
Total Trade
%
1
China
91,389
76,930
168,319
19.63
2
Japan
28,252
60,956
89,208
10.41
3
U.S
46,377
38,365
84,742
9.88
4
Saudiarabia
5,253
33,781
39,034
4.55
5
Germany
10,523
14,769
25,292
2.95
6
United Arab Emirates
5,749
19,248
24,997
2.92
7
Singapore
16,293
8,362
24,655
2.88
8
Australia
5,171
18,000
23,171
2.70
9
Taiwan
11,462
10,643
22,105
2.58
10
Hong Koong
19,772
2,223
21,995
2.57
International Economic Theories and Policies International Trade Theory
Analyzes the basis of and the gains from international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy
Examines the reasons for and the effects of restrictions on international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Measures a nation’s total receipts from and total payments to rest of the world.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Foreign Exchange Markets
The institutional framework for the exchange of one national currency into another.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Foreign Exchange Markets Adjustments in the Balance of Payments
Focuses on the relationship between internal and external aspects of the economy of a nation, and their interdependence with rest of the world economy under different international monetary systems.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Current International Economic Problems Deep financial and economic crisis Trade protectionism in advanced countries Excessive fluctuations and misalignments in exchange
rates and financial crises Structural imbalances in US, slow growth in Europe and
Japan, and insufficient restructuring in transition economies Deep poverty in many developing countries Resource scarcity, environmental degradation, climate
change and sustainable development 25
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Organization and Methodology of the Text Part One (Chapters 2-7) International Trade Theory Part Two (Chapters 8-12) International Trade Policies Part Three (Chapters 13-15) Balance of Payments, Foreign Exchange Part Four (Chapters 16-21) Adjusting Balance of Payments Equilibria Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Appendix Table
Composition
of
World
Table
Composition
of
World
1.5 Commodity Merchandise Trade, 2007
1.6 Geographic Merchandise Trade, 2007
Table 1.7 Geographical Destination of Merchandise Exports, 2007
Table 1.8 Leading Exporters and Importers of Merchandise, 2007
Table 1.9 Leading Exporters and Importers of Commodity Services
Appendix
Korea in the World Economy
1
International Economics Tenth Edition
Introduction Dominick Salvatore John Wiley & Sons, Inc.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
In this chapter: The Globalization of the World Economy International Trade and the Nation’s
Standard of living The International Flow of Goods, Services, Labor and Capital International Economic Theories and Policies Current International Economic Problems Organization and Methodology of the Text
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy A globalizing world provides opportunities
and challenges to nations and people in the world.
Flow of goods and services Flow of labor and jobs Flow of financial instruments, currency
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1870-1914
Resulted from industrial revolution, opening up of new resource sources in “regions of recent settlement” Millions of immigrants, vast amounts of foreign investments, increased production Ended with breakout of World War I in 1914.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1945-1980
Dismantling of heavy trade protection led to rapid increase in international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Three periods of rapid globalization
1980 to present
Most pervasive and dramatic period of globalization Fueled by improvements in telecommunications and transportation Elimination of restrictions on capital flows led to massive international capital movements Most countries in the world participated
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
The Globalization of the World Economy Anti-Globalization Movement
Claims globalization sacrifices human and environmental well-being to corporate profits of mutinationals
Globalization is blamed for:
World poverty and child labor in poor countries Job losses and lower wages in rich countries Environmental pollution and climate change
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Trade and the Nation’s Standard of Living Interdependence
Economic relationship among nations Roughly measured as ratio of a nation’s imports and exports of goods and services to GDP Much larger for smaller industrial and developing countries than for United States
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
FIGURE 1-1 Imports and Exports as a Percentage of GDP in Various Countries in 2001. Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Trade and the Nation’s Standard of Living Sources of potential gain for United States: Access to items with limited availability domestically (such as coffee, bananas, cognac, tin, tungsten, petroleum and copper)
Access to lower cost products Access to greater product variety
Economic interdependence has been
increasing over the years.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
FIGURE 1-2 Growth of World Production and Trade, 1990-2001 (annual percentage changes). Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Trade as a percentage of GDP
120 100 80
Korea, Rep.
60
China
40
Japan U.S.
20 0
1965
1970
1975
1980
1985 1990 Year
1995
2000
2005
FIGURE 1-3-1 Trade as a Percentage of GDP, 1965-2008. slide 12
FIGURE 1-3 Imports and Exports as a Percentage of U.S. GDP, 1965-2001. Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
60
P ercent of GDP
50 Imports
Exports
40 30 20 10 0 1965
1970
1975
1980
1985 1990 Year
1995
2000
2005
FIGURE 1-3-4 Korea’s Imports and Exports as a Percentage of GDP, 1965-2008.
slide 14
50 45 Pe rcent of GDP
40 35 30
Exports
25 20 15
Imports
10 5 0 1970
1975
1980
1985
Year 1990
1995
2000
2005
FIGURE 1-3-5 China’s Imports and Exports as a Percentage of GDP, 1970-2008. slide 15
20 18
P ercent of GDP
16 14 12
Exports
10 8 6
Imports
4 2 0 1965
1970
1975
1980
1985 Year
1990
1995
2000
2005
FIGURE 1-3-3 Japan’s Imports and Exports as a Percentage of GDP, 1965-2007. slide 16
The International Flow of Goods, Services, Labor and Capital Gravity Model
Other things equal, the bilateral trade between two countries is proportional, or at least positively related, to the product of the two countries’ GDPs, and the greater the distance between the two countries, the smaller is their bilateral trade.
That is, the larger (and more equal in size) and the closer two countries are, the larger the volume of trade between them is expected to be.
Table 1.3. The Major Trade Partners of the U.S. in 2009
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Table 1.3b. The Major Trade partners of Korea
1970
1980
1990
2000
2005
Rank Country
%
Country
%
Country
%
Country
%
Country
%
1
U.S.
47.3
U.S.
26.3
U.S.
29.8
U.S.
21.8
China
21.8
2
Japan
28.1
Japan
17.4
Japan
19.4
Japan
11.9
U.S.
14.5
3
HongKong
3.3
SaudiArabia
5.4
HongKong
5.8
China
10.7
Japan
8.4
4
Germany
3.3
Germany
5.0
Germany
4.4
HongKong
6.2
HongKong
5.5
5
Canada
2.3
Hong Kong
4.7
Singapore
2.8
Taiwan
4.7
Taiwan
3.8
6
Netherlands
1.6
Iran
3.5
U.K.
2.7
Singapore
3.3
3.6
7
U.K.
1.6
U.K.
3.3
Canada
2.7
U.K.
3.1
Germany Singapore
3.0
U.K.
1.9 1.7 1.6
8 9 10 Total
Vietnam
1.5
Indonesia
2.1
Taiwan
1.9
Germany
Singapore
1.3
Netherlands
2.0
France
1.7
Malaysia
2.0
Indonesia
Sweden
0.9
Canada
2.0
Indonesia
1.7
Indonesia
2.0
Malaysia
91.4
71.6
72.9
68.8
2.6
65.5
Table 1.3c. The Major Trade partners of Korea in 2008
Rank
Country
Export
Import
Total Trade
%
1
China
91,389
76,930
168,319
19.63
2
Japan
28,252
60,956
89,208
10.41
3
U.S
46,377
38,365
84,742
9.88
4
Saudiarabia
5,253
33,781
39,034
4.55
5
Germany
10,523
14,769
25,292
2.95
6
United Arab Emirates
5,749
19,248
24,997
2.92
7
Singapore
16,293
8,362
24,655
2.88
8
Australia
5,171
18,000
23,171
2.70
9
Taiwan
11,462
10,643
22,105
2.58
10
Hong Koong
19,772
2,223
21,995
2.57
International Economic Theories and Policies International Trade Theory
Analyzes the basis of and the gains from international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy
Examines the reasons for and the effects of restrictions on international trade.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Measures a nation’s total receipts from and total payments to rest of the world.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Foreign Exchange Markets
The institutional framework for the exchange of one national currency into another.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
International Economic Theories and Policies International Trade Theory International Trade Policy Balance of Payments
Foreign Exchange Markets Adjustments in the Balance of Payments
Focuses on the relationship between internal and external aspects of the economy of a nation, and their interdependence with rest of the world economy under different international monetary systems.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Current International Economic Problems Deep financial and economic crisis Trade protectionism in advanced countries Excessive fluctuations and misalignments in exchange
rates and financial crises Structural imbalances in US, slow growth in Europe and
Japan, and insufficient restructuring in transition economies Deep poverty in many developing countries Resource scarcity, environmental degradation, climate
change and sustainable development 25
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Organization and Methodology of the Text Part One (Chapters 2-7) International Trade Theory Part Two (Chapters 8-12) International Trade Policies Part Three (Chapters 13-15) Balance of Payments, Foreign Exchange Part Four (Chapters 16-21) Adjusting Balance of Payments Equilibria Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
Appendix Table
Composition
of
World
Table
Composition
of
World
1.5 Commodity Merchandise Trade, 2007
1.6 Geographic Merchandise Trade, 2007
Table 1.7 Geographical Destination of Merchandise Exports, 2007
Table 1.8 Leading Exporters and Importers of Merchandise, 2007
Table 1.9 Leading Exporters and Importers of Commodity Services
Appendix
Korea in the World Economy
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