1. Chapter 1: Windows on the World Economy
An Introduction to International Economics: New Perspectives on the World Economy
© Kenneth A. Reinert, Cambridge University Press 2012

2. © Kenneth A. Reinert, Cambridge University Press 2012
Introduction
Task we take up in this book—discovering the nuances of globalization
Will try to explore the world economy and globalization in as balanced a manner as possible
Will help us develop informed views and opinions
© Kenneth A. Reinert, Cambridge University Press 2012

3. Windows on the World Economy
Will explore four windows on the world economy
International trade
International production
International finance
International development
© Kenneth A. Reinert, Cambridge University Press 2012

4. © Kenneth A. Reinert, Cambridge University Press 2012
International Trade
The exchange of goods (merchandise) and services among the countries of the world.
Goods: tangible and storable (something you can drop on your toe).
Services: intangible and non-storable (something you cannot drop on your toe).
Trade in services accounts for approximately one quarter of global trade.
© Kenneth A. Reinert, Cambridge University Press 2012

5. © Kenneth A. Reinert, Cambridge University Press 2012
Figure 1.1 Gross Domestic Product and Exports in the World Economy, 1980 to 2013 (1980=100). Source: World Bank, World Development Indicators
© Kenneth A. Reinert, Cambridge University Press 2012

6. International Production
Production of a product in multiple countries
Can take place through
Contracts
International licensing and franchising
Foreign direct investment (FDI) undertaken by multinational enterprises (MNEs)
Involves firms based in one country owning at least a 10 percent of firms producing in another country
© Kenneth A. Reinert, Cambridge University Press 2012

7. International Production
MNEs account for approximately one fourth of world gross domestic product (GDP) or aggregate output.
The sales of foreign affiliates of MNEs now exceed the volume of world trade.
MNEs are involved in approximately three fourths of all world trade.
Approximately one third of world trade takes place within MNEs.
MNEs account for approximately three fourths of worldwide civilian research and development.
© Kenneth A. Reinert, Cambridge University Press 2012

8. © Kenneth A. Reinert, Cambridge University Press 2012
Figure 1.2 Nominal FDI Inflows to Low, Middle and High Income Countries, 1980 to Source: World Bank, World Development Indicators.
© Kenneth A. Reinert, Cambridge University Press 2012

9. International Finance
Refers to the exchange of assets among countries
Individuals and firms around the world conduct international transactions in
Currencies
Equities
Government bonds
Corporate bonds (commercial paper)
Real estate
Plays increasingly important role in the world economy
© Kenneth A. Reinert, Cambridge University Press 2012

10. © Kenneth A. Reinert, Cambridge University Press 2012
Figure 1.3. Daily Foreign Exchange Market Turnover and Annualized Multiple of Exports. Sources: Bank of International Settlements and World Bank, World Development Indicators
© Kenneth A. Reinert, Cambridge University Press 2012

11. International Development
Hoped that the processes of international trade, production and finance will contribute to improved levels of welfare and standards of living throughout the world
Major issues involved
How we conceptualize levels of welfare or standards of living
How the processes help to determine international development
© Kenneth A. Reinert, Cambridge University Press 2012

12. International Development
Measure of these differences in living standards is the human development index (HDI)
Per capita income
Average life expectancy
Average levels of education
© Kenneth A. Reinert, Cambridge University Press 2012

13. © Kenneth A. Reinert, Cambridge University Press 2012
Table 1.1. Measures of Living Standards (2010). Sources: World Bank, World Development Indicators and United Nations Development Program
Country
PPP GDP per capita (U.S. dollars)
Life Expectancy (years)
Mean Years of Schooling
Human Development Index (0 to 1)
Ethiopia
358 59
1.5
0.358
India
1,375 65
4.4
0.542
China
4,433 73
7.5
0.682
Costa Rica
7,774 79
8.3
0.742
South Korea
20,540 81
11.6
0.894
United States
46,702 78
12.4
0.908
© Kenneth A. Reinert, Cambridge University Press 2012

14. © Kenneth A. Reinert, Cambridge University Press 2012
Connecting Windows
Each offers a view, but each has a frame
Each offers some insight into the world economy
An insight that needs to be supplemented by one or more of the other windows
© Kenneth A. Reinert, Cambridge University Press 2012

15. Figure 1.4. Connecting Windows
International Trade
International
Development
International
Production
International Finance
© Kenneth A. Reinert, Cambridge University Press 2012

16. © Kenneth A. Reinert, Cambridge University Press 2012
Analytical Elements
Countries
Sectors
Tasks
Firms
Factors of production
Currencies
Financial assets
© Kenneth A. Reinert, Cambridge University Press 2012