Elements of International Economics
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The exercise comprises readings on basic principles in international economics and finance and gives the opportunity for questions related to the lectures. No overlaps are known. The course also gives a broad overview of empirical facts and introduces a number of readings concerning current issues and developments in international finance and international economics. The student should be able to link empirical facts with theories. Methodenwissen methodic competence : Lectures: The student should learn and use methods of descriptive statistics to analyse empirical facts.
Theoretical models and tools are introduced to consistently analyse topics of international economics and international finance. The student should understand how models can be used to understand economic phenomena. The student should also be able to develop a critical view of models. Exercise: The student will develop competences in reading and methods of research to evaluate topics in international economics on his own and learn how to apply theories to current issues.
He will also develop skills in scientific discussion and scientific writing. Transferkompetenz transfer competence : The most important competence the student is expected to learn is the ability to apply a suitable theory to a real world phenomenon. Applying the theory will take place on with an adequate methodology as well as using intuitive economic explanations.
Normativbewertendes Wissen normative competence : The student will be able to evaluate theories and research work. With the ability to apply theories to real world phenomena acquired competences will enable the student to develop strategies for real world problems.
International Economic Relations
Methodische Umsetzung methodic implementation : 30 h lecture 40 h preparation and reflection of lecture 20 h reading 30 h lecture 40 h preparation and reflection of lecture 20 h reading 30 h exercise 60 h preparation and reflection of exercise and question sets 30 h reading Unterrichtssprache teaching language : English Ablaufinformationen, Terminplan, etc. Bemerkungen remarks : Lernmaterialien, Literaturangaben learning material, literature : Krugman P.
International Economics, Pearson, latest edition. This is known as specialization in international trade. Let's take a simple example. Country A and Country B both produce cotton sweaters and wine. Country A produces ten sweaters and six bottles of wine a year while Country B produces six sweaters and ten bottles of wine a year. Both can produce a total of 16 units. Country A, however, takes three hours to produce the ten sweaters and two hours to produce the six bottles of wine total of five hours. Country B, on the other hand, takes one hour to produce ten sweaters and three hours to produce six bottles of wine a total of four hours.
But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage. Country A then begins to produce only wine, and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products. As such, each country now has access to 20 units of both products. We can see then that for both countries, the opportunity cost of producing both products is greater than the cost of specializing. More specifically, for each country, the opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products after trading.
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Specialization reduces their opportunity cost and therefore maximizes their efficiency in acquiring the goods they need. With the greater supply, the price of each product would decrease, thus giving an advantage to the end consumer as well. Note that, in the example above, Country B could produce both wine and cotton more efficiently than Country A less time. This is called an absolute advantage, and Country B may have it because of a higher level of technology. According to the international trade theory, even if a country has an absolute advantage over another, it can still benefit from specialization.
David Ricardo famously showed how England and Portugal both benefit by specializing and trading according to their comparative advantages. In this case, Portugal was able to make wine at a low cost, while England was able to cheaply manufacture cloth.
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Ricardo predicted that each country would eventually recognize these facts and stop attempting to make the product that was more costly to generate. Indeed, as time went on, England stopped producing wine, and Portugal stopped manufacturing cloth.
Features of Current International Relations
Both countries saw that it was to their advantage to stop their efforts at producing these items at home and, instead, to trade with each other. Some scholars have recently argued that Ricardo did not actually come up with comparative advantage. Instead, the idea may have been inserted by his editor, the political economist and moral philosopher James Mill. Chinese workers produce simple consumer goods at a much lower opportunity cost.
American workers produce sophisticated goods or investment opportunities at lower opportunity costs. Specializing and trading along these lines benefits each. The theory of comparative advantage helps to explain why protectionism has been traditionally unsuccessful. If a country removes itself from an international trade agreement, or if a government imposes tariffs, it may produce an immediate local benefit in the form of new jobs and industry. However, this is often not a long-term solution to a trade problem.
Eventually, that country will grow to be at a disadvantage relative to its neighbors: countries that were already better able to produce these items at a lower opportunity cost. Why doesn't the world have open trading between countries? When there is free trade, why do some countries remain poor at the expense of others? Say, for example, the producers of American shoes understand and agree with the free-trade argument—but they also know that their narrow interests would be negatively impacted by cheaper foreign shoes.
Appeals to save American jobs and preserve a time-honored American craft abound—even though, in the long run, American laborers would be made relatively less productive and American consumers relatively poorer by such protectionist tactics. International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity for foreign direct investment FDI , which is the amount of money that individuals invest into foreign companies and assets.
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In theory, economies can therefore grow more efficiently and can more easily become competitive economic participants. For the receiving government, FDI is a means by which foreign currency and expertise can enter the country.
It raises employment levels, and theoretically, leads to a growth in gross domestic product. For the investor, FDI offers company expansion and growth, which means higher revenues. As with all theories, there are opposing views. International trade has two contrasting views regarding the level of control placed on trade: free trade and protectionism. Free trade is the simpler of the two theories: a laissez-faire approach, with no restrictions on trade.
The main idea is that supply and demand factors, operating on a global scale, will ensure that production happens efficiently. Therefore, nothing needs to be done to protect or promote trade and growth, because market forces will do so automatically. In contrast, protectionism holds that regulation of international trade is important to ensure that markets function properly.
Advocates of this theory believe that market inefficiencies may hamper the benefits of international trade, and they aim to guide the market accordingly. Protectionism exists in many different forms, but the most common are tariffs , subsidies , and quotas.
rindifitubeam.cf These strategies attempt to correct any inefficiency in the international market.