International Economics

1. International Economics Professor Ivar Bredesen Room PI-536 ivar.bredesen@hioa.no

2. International Economics • Specific subjects • International trade theory. The basis for trade and the gains from trade • International trade policy. The reasons for and the effects of trade restrictions • Balance of payments. A nations total receipts and total payments to the rest of the world • Foreign exchange markets. Exchange of one national currency for another • Open economy macroeconomics. Stabilisation policies in the open economy

3. International Economics • Basically, thecourse is dividedintotwo parts • International trade theory and trade policy • International Macroeconomics • It will be assumedthat students master basicmicroeconomics and macroeconomics • Wewillmostlyexploretheoryusinggraphicalanalysiswithlittleuseofmathematics • 5-hour closed book exam in December

4. International Economics

5. International Economics • Required reading • Feenstra and Taylor: International Economics, 2nd ed. 2012 • Chapter 1 – 6, 8, 9, 19, 21 • Baldwin/Wyplosz, ch. 15 • A study guide by Stephen Yeaple is also available for the Feenstra/Taylor book • Textbook web:http://bcs.worthpublishers.com/feenstrataylor2_intlecon/#t_667533____

6. Recommended reading • Excellent non technical book written by oneoftheleading trade economists in theworld, ElhananHelpman • Recommended as a supplement, butcannotreplacetextbook

7. International Economics • International Economics - economic interdependence among nations • Globalisation • Flow of goods and services across borders • Movement of people and firms • Spread of culture and ideas between countries • Tight integration of financial markets • Kofi Annan, former secretary general of the United Nations (2000) • The main losers in today`s very unequal world are not those who are too much exposed to globalization. They are the ones who have been left out.

8. Trade in a Global Economy • Why do countries trade? • They can get products from abroad cheaper or of higher-quality than those obtained domestically. • The fact that Germany was the largest exporter of goods in 2005 shows its technology for producing high-quality manufactured goods. • China produces goods more cheaply than most industrialized countries. • In the first part of the course, we will examine several models explaining international trade • How do we measure the volume of trade? • Bilateral trade flows can be hard to interpret • Another way to measure trade is by looking at its ratio to GDP.

9. Trade Compared to GDP TABLE 1-2 Trade/GDP Ratio in 2008 Countries with the highest ratios of trade to GDP tend to be small in economic size. Countries with the lowest ratios of trade to GDP tend to be very large in economic size.

10. Trade Compared to GDP FIGURE 1-3 Trade in Goods and Services Relative to GDP This diagram shows total trade in merchandise goods and services for each country divided by GDP. There was a considerable increase in the ratio of trade to GDP between 1890 and 1913. This trend was ended by World War I and the Great Depression Most of the industrial countries shown did not reach the level of trade prevailing in 1913 until the 1970s.

11. Trade and the financial crisis FIGURE 1-5 Change in the Value of Trade, 2007–2009 (percent) As a result of a worldwide financial crisis and economic recession, the value of trade plummeted between early 2008 and early 2009.

12. International Trade • The First “Golden Age” of Trade was from 1890-1913, and the second one in the period after WW2 • Trade had a setback in the interwar period, partly due to trade barriers. This decline in the world economy lead the Allied countries to meet after WWII to develop policies to keep tariffs low. General Agreement on Tariffs and Trade (GATT) which became the World Trade Organization (WTO) • Trade barriers refer to all factors that influence the amount of goods and services shipped across international borders.

13. Barriers to Trade Figure 1.4 Average Worldwide Tariffs, 1860–2000