Download PowerPoint Presentation

Introduction
ITRN 504: Microeconomics and Trade
Syllabus
See handout
 Consult online version periodically
 http://reinert.gmu.edu

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 is about one quarter of total
global trade.
Gross Domestic Product and Exports in the
World Economy
600
500
400
300
200
100
0
Exports of Goods and Services
GDP
Exports as a Percent of GDP, China and
Germany
50
45
40
35
percent
30
25
20
15
10
5
0
2001
2002
2003
2004
2005
2006
2007
China
2008
2009
Germany
2010
2011
2012
2013
2014
2015
International Production


International 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
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 (intra-firm trade).
MNEs account for approximately three fourths of
worldwide civilian research and development.
Foreign Direct Investment


A firm from one country owning at least 10
percent of a firm in another country.
Direct investment contrasts with indirect or
portfolio investment.
Low income
Middle income
-500
High income
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
US$ billions
Nominal FDI Inflows
3,500
3,000
2,500
2,000
1,500
1,000
500
0
International Finance




Not a subject covered in this course.
Covered in ITRN 503 and ITRN 602 among
other courses.
International finance matters; we ignore it at
our peril.
Assess overall magnitudes of trade and
finance.
Daily Foreign Exchange Market Turnover and
Annualized Multiple of Exports
6,000
120
5,300
5,100
5,000
100
3,981
80
3,324
3,000
60
1,934
2,000
40
1,527
1,239
1,190
1,000
820
20
620
0
0
1989
1992
1995
1998
2001
Turnover
2004
2007
Multiple of Exports
2010
2013
2016
percent
US$ billioins
4,000
International Development



Development is conceived of as an
improvement in well-being.
Different conceptions of well-being lead to
different definitions of development.
Options



Income per capita (standard economic view)
Capabilities (Sen and Nussbaum)
Basic goods (Reinert)
Measures of Living Standards, 2014
Country
PPP GDP
per capita
(U.S.
dollars)
Life
Expectancy
(years)
Mean Years Human
of Schooling Development
Index (0 to 1)
and Rank
Ethiopia
1,431
64
2.4
0.442 / 174
India
5,392
68
5.4
0.609 / 130
China
12,599
76
7.5
0.727 / 90
Costa Rica
14,232
79
8.4
0.766 / 69
South Korea
33,640
82
11.9
0.879 / 17
United
States
51,708
79
12.9
0.915 /
8
Connecting Windows
International
Trade
International
International
Development
Production
International
Finance
The Microeconomics Framework

Resource scarcity
 Opportunity costs
  Individual and social choices
  Marginal (incremental) thinking
  Role of private vs. public decisions
  Allocative efficiency, market failure,

government failure
Definitions




Opportunity Costs: What is given up to obtain
an item.
Marginal: Incremental.
Economic Efficiency: Economic choices that
balance marginal social benefits and
marginal social costs.
Market Failure: A situation in which markets
fail to make economic choices efficiently.
Microeconomics

The study of how individuals and
societies use scarce resources to
attempt to provide (the materials of)
well-being.
Types of Scarce Resources





Natural resources: Gifts of nature
Physical capital: Produced goods used as
fixed resources to produce other goods
Human capital: Persons with their education,
training, and skills
Knowledge capital: Scientific, technical, and
market knowledge residing in organizations
Social capital: Relationships used to obtain
information and knowledge and to develop
trust
Per Capita Resources from Inclusive Wealth
Report, 2008 (thousand 2000 US$)
500
450
400
thousands of 2000 US$
350
300
250
200
150
100
50
0
Physical Capital
Human Capital
Natural Capital
Types of Economic Decisions




Ownership Decision: who owns what scarce
resource.
Resource Allocation Decision: how scare
productive resources are allocated among
productive units (firms)
Product Output and Mix Decision: what and how
much productive units (firms) will produce
Product Distribution Decision: distributing
produced goods and services among
households.
Perspectives (Biases)




Microeconomics
Standard measure of economic welfare
Quantitative
Multilateral