International Trade Theory Chapter 1: Introduction Hyun-Hoon Lee

slide 1 OUTLINE  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

slide 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?.

slide International Trade and the Nation ’ s Standard 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, FIGURE 1-3 Rising Importance of International Trade FIGURE Trade as a Percentage of GDP, FIGURE U.S. Imports and Exports as a Percentage of GDP, FIGURE Japan’s Imports and Exports as a Percentage of GDP, FIGURE Korea’s Imports and Exports as a Percentage of GDP, FIGURE China’s Imports and Exports as a Percentage of GDP,

slide 4 FIGURE 1-1 Imports and Exports as a Percentage of GDP in Various Countries in 2001.

slide 5 FIGURE 1-2 Growth of World Production and Trade, (annual percentage changes).

slide 6 FIGURE Trade as a Percentage of GDP,

slide 7 FIGURE U.S. Imports and Exports as a Percentage of GDP,

slide 8 FIGURE Japan’s Imports and Exports as a Percentage of GDP,

slide 9 FIGURE Korea’s Imports and Exports as a Percentage of GDP,

slide 10 FIGURE China’s Imports and Exports as a Percentage of GDP,

slide The Major Trading Partners of the U.S., 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

slide 12 Table 1.2b. The Major Trade partners of Korea

slide The Subject Matter of International 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

slide Purpose of International Economic Theories and Policies  Assumptions and merits of economic models  Examples

slide Current International Economic Problems  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

slide Current International Economic Problems  Sustainable Development and Environment (Instructor ’ s addition)  Regionalism and Faltering Multilateralism (Instructor ’ s addition)

slide The Globalization Challenge  Globalization: Increasing integration of economies around the world, particularly through trade and financial flows.  Pros vs Cons

slide Organization and Methodology of the Text  Organization (See table of contents.)  Methodology of the Text

slide 19Appendix  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