Chapter Two The Global Economy
Copyright © Houghton Mifflin Company. All rights reserved * Source: “Imports and Exports as a Percentage of GDP, 1998 Estimates” adapted from WTO Report 2000, and the U.S. Embassy, Riyadh, Key Economic Data
Copyright © Houghton Mifflin Company. All rights reserved Figure 2.1: Growth of World Trade and GNP Source: From “World Trade: Runaway Success” The Economist, October 3, 1998, Survey, p. 4. Copyright © 1998 The Economist Newspaper Ltd. Reprinted with permission. Further reproduction prohibited.
Copyright © Houghton Mifflin Company. All rights reserved The Basis for Trade: Absolute vs. Comparative Advantage Absolute Advantage Comparative Advantage
Copyright © Houghton Mifflin Company. All rights reserved.2 - 5
Copyright © Houghton Mifflin Company. All rights reserved.2 - 6
Copyright © Houghton Mifflin Company. All rights reserved Balance of Payments (cont’d) Balance of Payments Measures Exchange Rates –The Foreign Exchange Market
Copyright © Houghton Mifflin Company. All rights reserved Balance of Payments Record of all economic transactions between the residents of a country and the rest of the world –Current account – record of all recurring trade in merchandise and services, private gifts, and public aid between countries trade deficit trade surplus –Capital account – record of all long-term direct investment, portfolio investment, and capital flows
Copyright © Houghton Mifflin Company. All rights reserved.2 - 9
Copyright © Houghton Mifflin Company. All rights reserved Balance of Payments U.S. balance of payments statistics for the period 1999 to 2003
Copyright © Houghton Mifflin Company. All rights reserved Figure 2.2: Structure of the Foreign Exchange Market
Copyright © Houghton Mifflin Company. All rights reserved Balance of Payments (cont’d) –Causes of Exchange Rate Movements Traders Speculators Investors Governments
Copyright © Houghton Mifflin Company. All rights reserved International Agencies for Promoting Economic and Monetary Stability International Monetary Fund World Bank (International Bank for Reconstruction and Development)
Copyright © Houghton Mifflin Company. All rights reserved International Agencies for Promoting Economic and Monetary Stability (cont’d) Group of Seven European Monetary System
Copyright © Houghton Mifflin Company. All rights reserved International Trade: Does It Deserve Special Treatment? Comparative Advantage Can Be Applied to Any Type of Trade –International –Intranational –Interpersonal
Copyright © Houghton Mifflin Company. All rights reserved International Trade: Does It Deserve Special Treatment? (cont’d) International Trade Has Varying –Currencies –Culture –Language –Traditions
Copyright © Houghton Mifflin Company. All rights reserved Protectionism and Trade Restrictions Tariffs Quotas Orderly Marketing Arrangements and Voluntary Export Restrictions
Copyright © Houghton Mifflin Company. All rights reserved Protectionism and Trade Restrictions (cont’d) Formal and Administrative Nontariff Trade Barriers General Agreement on Tariffs and Trade (GATT) World Trade Organization
Copyright © Houghton Mifflin Company. All rights reserved Economic Integration as a Means of Promoting Trade Free Trade Areas Customs Unions Common Markets Monetary Unions
Copyright © Houghton Mifflin Company. All rights reserved The Global Economy Recent Acceleration World is Moving Toward a Single Global Economy World Economies Are Becoming Increasingly Interlinked