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Chapter 1
Introduction
and
Institutions
Copyright © 2011 Pearson Addison-Wesley. All rights reserved.
Chapter Objectives
• Provide a general overview of the growth of
globalization since World War II
• Identify the major issues facing the
international economy today
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Introduction:
International Economic Integration
• International integration of national
economies has brought many benefits to
many nations
-Technological innovation
-Less expensive products
-Greater investments in scarce resource regions
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Elements of
International Economic Integration
• Today’s major economies are more
integrated than they’ve been at any time in
history
- Instantaneous communications
- Modern transportation
- Relatively open trading systems
• This allows most goods to move across
boundaries without major obstacles and low
relative costs
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Elements of
International Economic Integration (cont.)
• There are four criteria or measures for
judging the degree of integration:
1.Trade flows
2.Capital flows
3.People flows
4.Similarity of prices in separate markets
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The Growth of World Trade
• Since the end of World War II, world trade
has grown much faster than world output
• In 1950, total world exports were estimated
to be 5.5% of world gross domestic
product (GDP)
• By 2005, total world exports were 20.5% of
world GDP
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The Index of Openness
• The index of openness is the ratio of trade to
GDP
Index of Openness = (Exports +Imports)/GDP
• Openness does not reveal a country’s trade
policies or define its barriers to trade
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FIGURE 1.1 Openness Index for Six Countries, 1913–2000
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Capital and Labor Mobility
• Factor movements are indicators of
economic integration
• As national economies become more
interdependent, labor and capital generally
move more easily across international
borders
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Capital and Labor Mobility (cont.)
• Two important points regarding international
capital flows:
1. Savings and investment are highly
correlated
2. Technology improvements increase capital
flows
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Contemporary International
Economic Relations
• There are three features of
contemporary international economic
relations:
-Deeper integration
-Multilateral organizations
-Regional trade agreements
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Twelve Themes in
International Economics
1. The Gains from Trade
2. Wages, Jobs and Protection
3. Trade Deficits
4. Regional Trade Agreements
5. The Resolution of Trade Conflicts
6. The Role of International Institutions
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Twelve Themes in International
Economics (cont.)
7. Exchange Rates and the Macroeconomy
8. Financial Crisis and Global Contagion
9. Capital Flows and the Debt of Developing
Countries
10. Latin America and the World Economy
11. Export-Led Growth in East Asia
12. The Integration of India and China into the World
Economy
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