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(INTERNATIONAL ECONOMICS) CHAPTER 1 INTRODUCTION, THIRD WAVE (1980 –…
(INTERNATIONAL
ECONOMICS) CHAPTER 1
INTRODUCTION
INTERNATIONAL
ECONOMICS
DEFINITION
how nations interact through; trade of goodsand services,
flows of money, and investment
study of the production, distribution and consumption of goods and services on a global basis
GLOBALIZATION OF THE WORLD
ECONOMY
Globalization
worldwide economic integration
process that removes the barriers
enabling free
trade
movement of capital & diffusion of
knowledge & information among countries
Integration of global economies through trade and
financial flows & movement of ideas and people (facilitated by the revolution in
telecommunication & transportation)
lead to an increase in interdependence of
national, regional, & local economies across world
THREE PERIODS OF
RAPID GLOBALIZATION
FIRST WAVE (1870 - 1914)
-ended with First World
War-
Important drivers behind this
wave: fall in transportation costs
19th century, pound
sterling was generally accepted
currency for international
business
Countries that actively
participated in globalization
became the richest countries in
the world
SECOND WAVE (1945 – 1980)
-World Bank, IMF & GATT was
established-
during WWII realised
International regulations &
organisations to support economic
integration were created
US the leading economy & dollar
became the monetary basis of the
financial system
trade liberalization was selective
no barriers in
manufactured goods
increased the exchange of goods
raises income
ANTI-GLOBALIZATION
MOVEMENT
sacrifices human &
environmental well-being to corporate
profits of the MNCs
Globalization is blamed for
World poverty & child labor in poor
countries
Job losses & lower wages
Environmental pollution & climate change
GRAVITY MODEL
Predicts that the volume of trade is directly
related to the GDP of each trading partner &
inversely related to distance between them
The greater the distance between the two countries, the smaller is their bilateral trade.
The larger & the
closer the two countries, the larger volume
of trade between them is expected.
GRAVITY MODEL
REASONS
Distance between markets influences
transportation costs
therefore the cost of imports & exports.
personal contact
communication
Crossing borders
involves formalities that take time & costs
existence of different languages &
currencies
Cultural affinity
if two countries have cultural ties it is likely that they
also have strong economic ties
Geography
ocean harbors and a lack of mountain barriers make
transportation and trade easier
INTERNATIONAL ECONOMIC
PROBLEMS & CHALLENGES
•Economic & financial crisis
Trade protectionism
•Excessive fluctuations & misalignments in
exchange rates
•Deep poverty in many developing countries
•Resource scarcity, environmental
degradation, climate change & sustainable development
BENEFITS OF TRADE
Varieties of goods and services
Increase world output
•Generate higher income & economic growth
Improve relationship between countries
•Sharing knowledge & technology
Trading current resources for future
resources
THIRD WAVE (1980 – PRESENT)
Many developing countries
broke into the global markets
reduce barriers to foreign
investment
major trade liberalization reforms
improvements in
transport & communications
Information age – digitization,
internet & high-speed data
networks around the world