Trade in the Global Economy Readings: Chapter 1 1 International Trade 2 Migration and Foreign Direct 3 Conclusion 1

Chapter 2 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Outline Globalization  Trade: Flow of goods and services across borders  What do countries trade?  Who trade with whom?  How does trade compare with GDP?  What are the key events in world trade in the past 150 years?  Migration: Movement of people  Foreign Direct Investment (FDI): Flow of capital between countries

Chapter 4 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Map of World Trade. Fig. 1-2 Figure 1.2

Chapter 5 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Breakdown of World Trade Table 1.1

Chapter 6 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Trade Compared to GDP. Table 1.2

Chapter 7 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Questions we ask and answer Why do countries trade with each other?  South Africa has diamonds and we don’t  Why does U.S. import cars from Germany?  Germany is better in making cars than we do  Why does U.S. import textile from China?  Comparative advantage How does trade affect the U.S.?  Specific factors model (short-run perspective)  Heckscher-Ohlin model (long-run perspective)

Chapter 8 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor What types of mfg. goods are traded? Figure 1-1

Chapter 9 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor What types of mfg. goods are traded? Figure 1-1

Chapter 10 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Trade in Intermediate Goods the iPhone Bilateral Trade Surplus or deficit Is a slippery concept!

Chapter 11 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor offshoring Wipro remotely accesses Microsoft computers for regular maintenance.

Chapter 12 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor offshoring What’s next? Whose jobs go overseas? Lou Dobbs

Chapter 13 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Questions we ask and answer What kinds of jobs get outsourced/offshored?  Blue collar or white collar?  College degree or non-college degree?  What kinds of college degree? How does offshoring affect wage and transition?  Heckscher-Ohlin model (resourced-based trade)  Specific topic for offshoring

Chapter 14 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor History of World Trade Figure 1.3

Chapter 15 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Questions we ask and answer Why do policy makers put trade barriers in use?  Import tariffs  Export subsidies  Free trade agreements Are they “good” or “bad”? i.e. how do they affect consumers and producers?

Chapter 16 of 72 1 Summary: Movement of Goods and Services Most trade is for goods, especially mfg. goods, and highly processed capital and consumer goods Most trade takes place between developed (industrialized) countries Trade/GDP can exceed 1. This ratio is low for the countries with large GDP. There is a lot of trade in intermediate goods (parts and components). Bilateral trade deficit/surplus is a slippery concept! Trade was as prominent in early 20 th century as it is today. © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor

Chapter 17 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Map of Migration. Figure 1-6

Chapter 18 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Migration Unlike trade, there are much more significant regulations on migration  Flow of people between countries is much less free than the flow of goods.  Wealthier countries typically have greater immigration restrictions  In 2005 it was estimated that 12 million Mexicans were living in the US  This is more than 10 percent of Mexico’s population Policy makers fear that immigrants from low- wage countries will drive down wages

Chapter 19 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Foreign Direct Investment Fig. 1-7

Chapter 20 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Horizontal and Vertical FDI Horizontal FDI occurs when a firm from one country owns a company in another industrial country  Purchase of Rockefeller Center in New York by Japanese investor Vertical FDI occurs when a firm from an industrial country owns a plant in a developing country  When Intel opens a chips factory in Ireland

Chapter 21 of 72 1 © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor Questions we ask and answer Why do immigration and FDI take place? Why do so many immigrate to the U.S.? Does the U.S. benefit from immigration? Who in the U.S. benefit the most from immigration? How about FDI?

Chapter 22 of 72 1 Summary: Migration and FDI Most of migration happens among developing countries There is horizontal FDI (between developed countries) and vertical FDI (from developed to developing countries). Most of FDI is horizontal; i.e. between developed countries (industrialized) countries. © 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor