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7EC503 International Economics For Business and Finance: 01 - Introduction

The document provides an overview of international economics and business. It discusses how nations interact through trade, financial flows, and investment. It also examines the differences between domestic and international business operations. Key factors like currencies, legal systems, and cultures are addressed. The gains from international trade and patterns of trade are summarized. Government policies can both promote and restrict trade, and international coordination is important. Exchange rates, balance of payments, and globalization trends are also covered at a high level.

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Wahab Nurudeen Opeyemi
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199 views20 pages

7EC503 International Economics For Business and Finance: 01 - Introduction

The document provides an overview of international economics and business. It discusses how nations interact through trade, financial flows, and investment. It also examines the differences between domestic and international business operations. Key factors like currencies, legal systems, and cultures are addressed. The gains from international trade and patterns of trade are summarized. Government policies can both promote and restrict trade, and international coordination is important. Exchange rates, balance of payments, and globalization trends are also covered at a high level.

Uploaded by

Wahab Nurudeen Opeyemi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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7EC503 International

Economics for Business and


Finance
01 - Introduction
Core textbook
• Krugman, P.R.,
Obstfeld, M. and
Melitz, M.J. (2018)
International
Economics: Theory
and Policy, Global
Edition, 11th Edition,
Harlow: Pearson
Education
Overview
• International economics is about how nations interact through the
trade of goods and services, flows of money, and investment.
• International business consists of transactions between parties from
more than one country - individuals, companies, and/or governmental
agencies.
conducted in numerous forms
• International business and economics continues to grow in
importance as countries become tied more to the international
economy.
Domestic Business v. International Business

Boundaries Currencies

Legal Systems Cultures

Resources Skills and Knowledge


Why do business internationally?

Strategic Imperatives

Core competencies Resources and Supplies

New Markets Industry Rivals


Gains from Trade
• Trade benefits countries by allowing them to export goods made with
relatively abundant resources and imports goods made with relatively
scarce resources.
• When countries specialize, they may be more efficient due to larger-
scale production.
• Countries may also gain by trading current resources for future
resources (international borrowing and lending) and due to
international migration.
• Exchanging risky assets such as stocks and bonds can benefit all
countries by diversification that reduces the variability of income
Patterns of Trade
• Differences in climate and resources
• Differences in labour productivity, relative supplies of capital, labour
and land and their use in the production of different goods and
services
• Policy makers affect the amount of trade (i.e. foreign products)
through
Tariffs
Quotas
Export subsidies
Regulations (ex., product specifications)
The Effects of Government Policies on Trade
• Trade benefits countries as a whole, but trade may harm particular
groups within a country.
International trade can harm the owners of resources that are used relatively
intensively in industries that compete with imports.
Trade may therefore affect the distribution of income within a country.
• Trade policies are often chosen to cater to special interest groups, rather
than to maximize national welfare.
How much should government restrict trade? costs and benefits, risk of
retaliation
• Governments tend to adopt tariffs, then negotiate them down in
exchange for reduction in trade barriers of other countries.
International Policy Coordination
• An integrated global economy = one country’s economic policies
usually affect other countries as well = need for some policy
coordination
• Capital markets, where money is exchanged for promises to pay in the
future, have special concerns in an international setting:
Currency fluctuations can alter the value paid.
Countries, especially developing ones, might default on debt
Exchange Rate Determination
• Exchange rates measure how much domestic currency can be
exchanged for foreign currency and thus affect:
• how much goods denominated in foreign currency (imports) cost in
the domestic country.
• how much goods denominated in domestic currency (exports) cost in
foreign markets.
• Some exchange rates change continually (float) while others are fixed.
Balance of Payments
• Governments measure the value of exports and imports, as well as
the value of financial assets that flow into and out of their countries.
• Trade deficits, where countries import more than they export in value,
may be offset by net inflows of financial assets.
• The balance of payments measures the balance of funds that central
banks use for official international payments.
Globalisation
• “the inexorable integration of markets, nation-states, and
technologies . . . in a way that is enabling individuals, corporations
and nation-states to reach around the world farther, faster, deeper,
and cheaper than ever before.” (Friedman, 2000:9)

• “the freer movement of goods, services, ideas and people around the
world” (SustainAbility, 2007:10)
Waves of globalisation
• Early waves
• 1850-1914 – British empire dominance, industrial revolution
• 1950-1989 – the Cold war, US dominant and keystone of global
institutions
• 1990-2008 – WTO, EU, NAFTA, China, Russia
• 2010-2019 – “slowbalisation”, backlash against globalisation
• 2020-….. – covid-19, “decoupling” China
Source: WTO data
Drivers of in ‘golden era’ of Globalisation
• The opening up of markets around the world following
successive waves of liberalization, deregulation, and
privatization
• Technology, esp. computing and communications
• Rise of developing countries, esp. large ones (China, India,
Brazil)
• Rise of multinational businesses
Source: WTO and WorldBank data
The Globalisation Paradox

Rodrik (2011:201)
References
• Friedman, T. L. (2000) The Lexus and the Olive Tree, Anchor Books:
New York
• Rodrik, D. (2011) The Globalization Paradox. Why Global Markets,
States and Democracy Can’t Coexist, Oxford University Press: Oxford
• SustainAbility (2007) Raising Our Game. Can We Sustain
Globalization?, London

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