International Economics and the Global Economy To most economists, the evidence is impressively persuasive that the dramatic increase in world competition–a consequence of broadening trade flows–has fostered markedly higher standards of living for almost all countries that have participated in cross-border trade. (Alan Greenspan)

The Goals of This Chapter Explain why economists use models Define globalization Describe the current level of globalization Encourage curiosity about why globalization occurs Encourage students to think about the future course of globalization Introduce the remainder of the book

The Three Components of Globalization International trade International investment International migration

What Is an Economic Model? Simplified representation of reality Logical representation of economic activity Focuses on relationships that are important for a particular issue Omits details deemed less relevant to the issue at hand Models are sometimes referred to as theories or paradigms

Types of Models The textbook will use four categories of models General equilibrium models Partial equilibrium models Static models Dynamic models These four categories are not mutually exclusive General and partial equilibrium models can be static or dynamic

The Analytical Approach of the Textbook Examine globalization’s partial and general equilibrium effects Examine globalization’s domestic and foreign effects Examine globalization’s static and the dynamic effects

The Extent of Globalization Fewer than 2 out of 100 people immigrate during their lifetimes

The Extent of Globalization Trade is less than 20% of world GDP

Figure 1.2 U.S. Exports/Production: Source: U.S. Bureau of the Census

How Will Globalization Evolve in the Future? The world has achieved unprecedented levels of international economic integration The effects of international trade, investment, and migration are easily recognizable throughout nearly all economies It is still not clear, however, whether people will continue to support globalization Will people support the policymakers who offer to restrict or reverse international economic integration?

Previous Globalization Episodes Were Reversed The Roman Empire split into isolated regions China closed its borders in 1200 after achieving world technological superiority Most countries intentionally cut international trade and investment after World War I Many developing countries instituted protectionist trade policies during the latter half of the 20 th century

Some of the Textbook’s Unique Features A full chapter on the relationship between international trade and economic growth Thorough analysis of international migration and immigration policy Frequent extensions to other fields such as business, political science, and history Case studies are spread throughout the textbook to illustrate and emphasize key conclusions Full chapters examine economic policies that address issues related to the three components of globalization

Figure 1.9 Globalization: The Complete Picture

Every economic event is related to other economic activities occurring elsewhere in the domestic economy Every economic event is linked to past economic events Through expectations, every event is linked to the future In summary, in an open economy, every event is linked to other past, present, and future economic events in the rest of the world