Feenstra ch 1

International Economics
Professor Ivar Bredesen
Room PI-536
[email protected]
International Economics
• Specific subjects
 International trade theory. The basis for trade and the
gains from trade
 International trade policy. The reasons for and the
effects of trade restrictions
 Balance of payments. A nations total receipts and total
payments to the rest of the world
 Foreign exchange markets. Exchange of one national
currency for another
 Open economy macroeconomics. Stabilisation policies
in the open economy
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International Economics
• Basically, the course is divided into two parts
 International trade theory and trade policy
 International Macroeconomics
• It will be assumed that students master basic
microeconomics and macroeconomics
• We will mostly explore theory using graphical
analysis with little use of mathematics
• 4-hour closed book exam in December
 Choice of 4 among 6 questions
 No continous assessment
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International Economics
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International Economics
• Required reading
 Feenstra and Taylor: International Economics, 3rd
ed. 2014
 Chapter 1 – 6, 8, 9, 19, 21
 Baldwin/Wyplosz, ch. 15
 A study guide by Stephen Yeaple is also available
for the Feenstra/Taylor book
• Textbook web:
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Recommended reading
• Excellent non technical
book written by one of
the leading trade
economists in the world,
Elhanan Helpman
• Recommended as a
supplement, but cannot
replace textbook
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International Economics
• International Economics - economic
interdependence among nations
• Globalisation
Flow of goods and services across borders
Movement of people and firms
Spread of culture and ideas between countries
Tight integration of financial markets
• Kofi Annan, former secretary general of the
United Nations (2000)
 The main losers in today`s very unequal world are not
those who are too much exposed to globalization. They
are the ones who have been left out.
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Worlds largest exporters
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Trade in a Global Economy
• Why do countries trade?
 They can get products from abroad cheaper or of
higher-quality than those obtained domestically.
 The fact that Germany is among he largest exporter of goods
shows its technology for producing high-quality manufactured
 China produces goods more cheaply than most industrialized
• In the first part of the course, we will examine several models
explaining international trade
• How do we measure the volume of trade?
 Bilateral trade flows can be hard to interpret
 Another way to measure trade is by looking at its ratio to GDP.
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Trade vs. GDP
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Trade and the financial crisis
Change in the Value of
Trade, 2007–2009
As a result of a
worldwide financial
crisis and economic
recession, the value
of trade plummeted
between early 2008
and early 2009.
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International Trade
• The First “Golden Age” of Trade was from 18901913, and the second one in the period after
• Trade had a setback in the interwar period, partly due to
trade barriers. This decline in the world economy lead the
Allied countries to meet after WWII to develop policies to
keep tariffs low. General Agreement on Tariffs and Trade
(GATT) which became the World Trade Organization
• Trade barriers refer to all factors that influence the
amount of goods and services shipped across
international borders.
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Barriers to Trade
Figure 1.4 Average Worldwide Tariffs, 1860–2000
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