Chap001.ppt

The World of International Economics Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 1 Introduction International trade and finance have never been more important. Signs of globalization are everywhere. International Trade: Questions We?ll explore these questions: What are the effects of trade? What determines the basis of trade? What determines the value and volume of trade? What factors impede the flow of trade? What happens when policies impede the flow of trade? International Monetary Economics: Questions We?ll explore these questions: What is a country?s balance of payments? How are exchange rates determined? What macroeconomic effects does trade cause? What makes capital flow between countries? What policies should countries pursue? The Nature of Merchandise Trade The volume and value of world exports have grown tremendously. The value of global exports was $15.8 trillion in 2008; it was $2 trillion in 1985. Over the past 40 years, global trade has grown faster than global production. Geographical Composition of Trade North America, Europe, and Asia dominate global exporting and importing. These regions tend to trade with other countries in the same region. Commodity Composition of Trade Manufactures comprise 69.8% of trade, with agricultural and mining-related products making up the balance. Trade and the U.S. The U.S. trades the most with our NAFTA partners (Canada and Mexico), followed by the European Union. Trade with Asia is also very important. China is the second largest trading partner of the United States. Commodity Composition of U.S. Trade The U.S. tends to export capital goods and industrial supplies. The U.S. tends to import consumer goods and industrial supplies. Trade in Services Over $3 trillion annually (2007). About 20% of total trade (closer to 30% for U.S.). Leading Exporters of Commercial Services, 2007 Country Value (billions of $) Share U.S. $456.4 13.9% United Kingdom 273.0 8.3% Germany 205.8 6.3% France 136.7 4.2% Spain 128.3 3.9% Japan 127.1 3.9% China 121.7 3.7% Italy 110.5 3.4% India 89.7 2.7% Ireland 89.0 2.7% Leading Importers of Commercial Services, 2007 Country Value (billions of $) Share U.S. $335.9 10.9% Germany 250.5 8.1% United Kingdom 194.1 6.3% Japan 148.7 4.8% China 129.3 4.2% France 124.1 4.0% Italy 118.3 3.8% Spain 98.4 3.2% Ireland 94.5 3.1% Netherlands 86.8 2.8% The Changing Degree on Economic Interdependence The relative importance of trade has grown for most countries. The relative importance of trade for all countries together has also grown.