1. International Economics: Introduction Lecture
(Week 1)
Ast.Prof.Dr. Özgür Ömer Ersin
Room no: 35, Tel
Beykent University, Dept. of Economics

3. INTRODUCTION
Historians of the economic thought quote the essay “Of the Balance of Trade” by David Hume as the first real exposition of an economic model. Hume published his essay in 1758, almost 20 years before Adam Smith’s “Wealth of Nations”.
Today, nations are more closely linked through trade in goods and services, flows of money, investments in another country than ever before.
For some basic statistics, see Figure 1.1 in your book.

4. Think of a day in your life.
Today, international trade theories are more effectively help us understand the concepts faced by developing nations such as:
Globalization
Crisis
Depression;
And their global relevance.
Think of a day in your life.
Or even we can discuss the goods and services you consume in the first hour after you woke up.

5. Policies towards imports. Quotas and Tariffs. Subsidies.
What are the main topics that we remember regarding the international trade?
Policies towards imports.
Quotas and Tariffs.
Subsidies.
Which policies? Towards which industries/sectors? At what quantities and with which formulas?

6. David Hume, OF THE BALANCE OF TRADE, II.V.1
Let’s have a look at the following phrases. First one is taken from David Hume. PHRASE 1:
“It is very usual, in nations ignorant of the nature of commerce, to prohibit the exportation of commodities, and to preserve among themselves whatever they think valuable and useful. They do not consider, that, in this prohibition, they act directly contrary to their intention; and that the more is exported of any commodity, the more will be raised at home, of which they themselves will always have the first offer.”
David Hume, OF THE BALANCE OF TRADE, II.V.1

7. Let’s discuss the following four phrases., PHRASE 1:
“Integration into the world economy has proven a powerful instrument for countries to promote economic growth […] These trends point to the need to liberalize trade further.”
Staff Reports of World Bank and IMF, Market Access for Developing Countries’ Exports, 2001.

8. PHRASE 2:
“However misguided the old model of blanket protection intended to nurture import substitute industries, it would be a mistake to go to the other extreme and deny the developing countries the opportunity of actively nurturing the development of an industrial sector.”
Report of the High Level Panel on Financing for Development (Zedillo Commission), 2001.

9. PHRASE 3:
“The upshot is an agricultural trading system in which success depends less on comparative advantage than on comparative access to subsidies”
Report of the High Level Panel on Financing for Development (Zedillo Commission), 2001.

10. PHRASE 4:
“Made in one or more of the following countries: China, Korea, Hong Kong, Thailand, Indonesia, Mexico, Phillipines. The exact country of the origin is unknown.”
McDonnell, Caudron, “The Power of Global Markets.”

11. Discussion Question 1.
Consider the two of the phrases; phrase 1 and 2 given above. Discuss each considering the impact of international trade on economic development.

12. Discussion Question 2
The international trade has strong impacts on the economic development of a country. The success in economic development achieved by benefiting from international trade is related to the following economic concepts: efficiency, growth, equity and stability. Explain each briefly and discuss them by relating to economic development and international trade.

13. An overlook on international trade
Week I Lecture Part II.
An overlook on international trade

14. Preview of the Lecture What is international economics about?
Gains from trade
Explaining patterns of trade
The effects of government policies on trade
International finance topics
International trade versus international finance

15. What Is International Economics About?
International economics is about how nations interact through trade of goods and services, through flows of money and through investment.
International economics is an old subject, but it continues to grow in importance as countries become tied to the international economy.
Nations are more closely linked through trade in goods and services, through flows of money, and through investment than ever before.

16. What Is International Economics About? (cont.)
International trade as a fraction of the national economy has tripled for the U.S. in the past 40 years.
Compared to the U.S., other countries are even more tied to international trade.

17. Fig. 1-1: Exports and Imports as a Percentage of U.S. National Income
Source: U.S. Bureau of Economic Analysis

18. Figure 1.2 Exports and Imports in Turkey (million dollars)

19. Exports, Imports, (billion TL), 2006:12-2012:10

20. Current Account in Turkey, Period: 2006:12-2012:09
Red line: Current account
Blue line: Financial account

23. Source: Wallstreet Journal, 11. 10. 2012 http://online. wsj
Source: Wallstreet Journal, SB html [ ]

24. Homework 1.
A recent article discusses the current account of Turkey. By using macroeconomic concepts, write an essay to evaluate the points drawn attention to in the article. What are your opinions? How is the current account of Turkey related to the economic downturn in the Europe? What about the central bank policies?

25. sources for international trade statistics: 1. turkstat.gov.tr

26. sources for international trade statistics: data.worldbank.org

27. WTO, World Trade Organization http://www. wto

28. Fig. 1-3: Exports and Imports as Percentage of National Income in 2005
Source: Organization for Economic Cooperation and Development

29. Gains from Trade Several ideas underlie the gains from trade
When a buyer and a seller engage in a voluntary transaction, both receive something that they want and both can be made better off.
Norwegian consumers could buy oranges through international trade that they otherwise would have a difficult time producing.
The producer of the oranges receives income that it can use to buy the things that it desires.

30. Gains from Trade (cont.)
How could a country that is the most (least) efficient producer of everything gain from trade?
With a finite amount of resources, countries can use those resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume.
Countries can specialize in production, while consuming many goods and services through trade.

31. Gains from Trade (cont.)
Trade is predicted to benefit a country by making it more efficient when it exports goods which use abundant resources and imports goods which use scarce resources.
When countries specialize, they may also be more efficient due to large scale production.
Countries may also gain by trading current resources for future resources (lending and borrowing).

32. Gains from Trade (cont.)
Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country.
International trade can adversely affect the owners of resources that are used intensively in industries that compete with imports.
Trade may therefore have effects on the distribution of income within a country.
Conflicts about trade should occur between groups within countries rather than between countries.

33. Patterns of Trade
Differences in climate and resources can explain why Brazil exports coffee and Australia exports iron ore.
But why does Japan export automobiles, while the U.S. exports aircraft?
Differences in labor productivity may explain why some countries export certain products.
How relative supplies of capital, labor and land are used in the production of different goods and services may also explain why some countries export certain products.

34. The Effects of Government Policies on Trade
Policy makers affect the amount of trade through
tariffs: a tax on imports or exports,
quotas: a quantity restriction on imports or exports,
export subsidies: a payment to producers that export,
or through other regulations (ex., product specifications) that exclude foreign products from the market, but still allow domestic products.
What are the costs and benefits of these policies?

35. The Effects of Government Policies on Trade (cont.)
Economists design models that try to measure the effects of different trade policies.
If a government must restrict trade, which policy should it use?
If a government must restrict trade, how much should it restrict trade?
If a government restricts trade, what are the costs if foreign governments respond likewise?

36. International Finance Topics
Governments measure the value of exports and imports, as well as the value of financial assets that flow into and out of their countries.
Related to these two measures is the measure of official settlements balance, or the balance of payments: the balance of funds that central banks use for official international payments.
All three values are measured in the government’s national income accounts.

37. In the next slide, you will see the main indicators collected by the Central Bank related to international trade policies.

38. Merkez Bankası Ödemeler Dengesi Hesapları

39. International Finance Topics (cont.)
Besides financial asset flows and the official settlements balance, exchange rates are also an important financial issue for most governments.
Exchange rates measure how much domestic currency can be exchanged for foreign currency.
They also affect how much goods that are denominated in foreign currency (imports) cost.
And they affect how much goods denominated in domestic currency (exports) cost in foreign markets.

40. International Trade Versus International Finance
International trade focuses on transactions of goods and services across nations.
These transactions usually involve a physical movement of goods or a commitment of tangible resources like labor services.
International finance focuses on financial or monetary transactions across nations.
For example, purchases of U.S. dollars or financial assets by Europeans.

41. A Road Map International trade topics
International trade theory (chapters 2–7)
International trade policy (chapters 8–11)
International finance topics
Exchange rates and open economy macroeconomics (chapters 12–17)
International macroeconomic policy (chapters 18–22)

42. A reading assignment you should do:
Read Ch 1 and 2.
Answer the question: In what themes are the researchers of international economics focus on? How can you rank them according to their importance? What is your reasoning? Discuss.
(Note: there are 7.  )