Introduction to International

Economics

Chapter 1
 Lesson Objectives
Meaning, nature, scope and importance
01 Meaning, nature, scope and importance of International Economics

Inter-regional Trade & International Trade

02 Understanding the features and distinction between both

Role of International Trade in Economic Development

03 Trade as an engine of growth and international trade flows

Trade problems facing the LDCs

04

Prof. Bandita S Nikam

 Understanding
International
Economics

Prof. Bandita S Nikam

 International Economics
What is International Economics
International Economics is the study of economic
interactions between countries.

Broadly speaking, the field is split between the study

of International Trade, which extends microeconomics
to open economies, and International Finance, which
employs macroeconomic analysis.

Prof. Marshall’s definition of Economics

Economics is the study of humans, in relation to the
International Economics is the study of ordinary business of life. It studies that portion of
the personal and social activities, which are closely
economic interactions between countries. It
related to the attainment of material resources,
addresses many topical issues, such as: ... related to welfare and its utilization.
International Trade describes and predicts
patterns of production, trade and investment
across countries.

Prof. Bandita S Nikam

 Nature of International Economics
Geographical,
Differences Different Problem of
Immobility climatic & natural Higher Different Different
in Market currency Balance of
of FOP endowment transfer Political Trade
Conditions systems Payment
differences cost System Policies

Factors of Price at which related Trade policies differ

Varying market
Production are parties transact with for each country
characteristics
not completely each other Trade policy refers to the
mobile Weights &
regulations and
measures, Distance, transport cost,
agreements that control
Wage and interest languages, fashion, documentations etc.
imports and exports to
rate disparities among taste, trends, results in higher transfer
foreign countries.
countries population impact cost
Each country has the demand No uniform Political International trade
unique climatic & currency system scenario differ may create
geographic Additional cost, risks, not Political framework, unfavorable BOP
conditions easily convertible, legal systems and Deficit BOP
Factor endowment currencies subject to interest differ from situations may be
also differs from variations country to country created for
country to country developing nations

Prof. Bandita S Nikam

 Features of International Trade

Immobility of Heterogeneous Different State Differences in Different Different Degree of Specific

Factors of Market National Intervention Socio- Political Units Currencies Competition Problems
Production
• There is lack Policies • Government economic • While • Different •Within the • International
• This reason was Environment country, prices
given by the of • Laws and interferes with domestic monetary liquidity,
classical homogeneity rules relating the normal • There is more trade takes units prevail in both the international
economists on the products as well
in the world to taxation, trade through or less place within in different as in the factor monetary co-
assumption that market due to labor its tariff policy, uniformity in the same countries. operation,
labor was the only markets are
factor of differences in standards, import quota, the socio- political unit, This results in determined evolution of
production. language, trade unions, subsidies and economic international the problem under international
Ricardo preference, education and similar government trade occurs of exchange competitive organizations
emphasized a customs, factory controls. within between rates and conditions. like the
separate theory of weights and legislation are Such state countries but politically foreign Every firm works European
international trade at its optimum
on the ground that measures. more or less intervention it differs different units. exchange. common
factors of The behavior uniform in will cause between Each Hence each scale. But in markets are
production are of the buyers different different countries. government is country has to international issues which
immobile between trade rather than
too differs regions of a problems in Fredrick interested in follow its own optimum
never arise in
nations and accordingly. country. On international states its own policy internal trade.
mobile within allocation of
nations. For example: the contrary, trade. that “domesti welfare and regarding resources, the
• It is factor cars in India there is vast c trade is tries to see its exchange theory
immobility which have right difference in among us, own interest rates and of dumping and
leads to hand driving such laws in international at the cost of foreign protection are
comparative while in different trade is the other exchange. considered to be
differences in the of great
cost of production.
foreign countries. between us country.
countries they and them” . importance.
have left hand
driving.

Prof. Bandita S Nikam

 Scope of International
Economics

Descriptive
International
Economics
Get a modern
PowerPoint
Presentation that is Theoretical
beautifully International
designed.
Economics

• Pure Theory of International

Economics

• Monetary Theory of International

Economics

Prof. Bandita S Nikam

 Pure Theory of International
Economics: The pure theory of
international economics deals
with trade patterns, impact of
trade on production, rate of
Theoretical International consumption, and income
Economics: Deals with the distribution.
explanation of international
economic transactions as
they take place in the
institutional environment.
Monetary Theory of
International Economics: The
monetary theory of international
Scope of economics is concerned with
International issues related to balance of
payments and international
Economics monetary system.

Descriptive International
Economics: Descriptive
international economics
also studies issues related
to international flow of
goods and services and
financial and other
resources.

Prof. Bandita S Nikam

 Pure Theory of trade

Prof. Bandita S Nikam

International Trade Policy

Foreign Exchange Market

Balance of Payment

International Monetary System

International Financial Market

International Banking System

Broadly, international economics can be divided into the following categories:

Global Organizations
Importance of International Economics

Broadens outlook

Trade and accelerated growth

Importance of global economic growth

Global Policy Options

Co-operation to prevent tensions

Effective solutions to problems of inefficiency

Social Benefits

Prof. Bandita S Nikam

 Meaning of TRADE
Trade involves the
transfer of goods
and services from
one person or
entity to another,
often in exchange
for money

Prof. Bandita S Nikam

 Inter-regional and International Trade

Prof. Bandita S Nikam

 Inter-regional Trade
Inter-regional trade refers
to trade that takes place
within the geographical
boundaries of the nation
between different regions
which may be divided into
local areas or states but
essentially come under the
same national government
and more or less follow the
same policies.
Prof. Bandita S Nikam
International trade is
essentially trade between
the residents of two
different nations. These
nations have distinct
International Trade
political boundaries and are
governed by different
governments and therefore
have to follow the policies
laid down by their
respective governments
 Inter-regional Trade Factor Immobility: Freely mobile
within regions.
Social Barriers: Differences in socio-
cultural patterns may exist but not
accentuated
Economic Barriers: Tariff & non tariff
barriers do not exist
Currency Systems: Domestic currency
used in trade
Economic Conditions: Marco
economic policies minimize such
situations.
Disequilibrium in the BOP: The BOP
is not impacted by inter-regional trade
Political Identity: Political situations
within the nation may not impact trade.
Geographical Factors: Geographical
and climatic condition may not have
much impact.
International Demand conditions:
Demand conditions may not differ
much.
Prof. Bandita S Nikam
Factor Immobility: Labor and capital are
immobile between countries.
Social Barriers: Such barriers may
accentuate due to political and economic
barriers.
Economic Barriers: Tariff, non-tariff,
‘protectionism’ exist
Currency Systems: Currencies and foreign
exchange rates vary.
Economic Conditions: Disparity in
International Trade
economic conditions between two nations.
Disequilibrium in the BOP: Nations may
face trade deficits due to import & export
situations
Political Identity: It influences the flow of
goods & services.
Geographical Factors: Natural barriers,
such as oceans & mountain ranges &
climatic conditions may impact trade.
International Demand conditions: Nature
of internationally traded & consumed goods
may differ. Customization may be needed
Prof. Bandita S Nikam
Role of International
Trade in Economic Expansion of market

Development Reallocation of Production Activities

Ancillary Production
Encouragement by International Institutions
Reduction in Monopoly Power
Increased Productivity
Spread effect
National Income

Prof. Bandita S Nikam

 Trade problems facing LDCs

Mounting Depleting
Develop Foreign
Un- Higher Internatio
mental Higher Lack of Exchange Steep
Primary Favorable BOP Prices of nal
and Import Co- Reserve Depreciat
Exporting Terms of Crisis POL Liquidity
Maintena Intensity ordination and ion
Trade imports Problem
nce Import
Imports Cover

Prof. Bandita S Nikam

 International Trade Flows
Prof. Bandita S Nikam
 Factors affecting Foreign Trade Flows
1) Impact of Inflation:
2) Impact of National Income:
3) Impact of Government Policies:
4) Subsidies for Exporters:
5) Restrictions on Imports:
6) Lack of Restrictions on Piracy:
7) Impact of Exchange Rates

Prof. Bandita S Nikam

A tariff is a tax imposed by one country on the goods and services imported from
another country.

Nontariff barriers include quotas, embargoes, sanctions, and levies. As part of their
political or economic strategy, some countries frequently use nontariff barriers to restrict the
amount of trade they conduct with other countries.

A quota permits the import of a certain quantity of a commodity duty-free or at a lower

duty rate, while quantities exceeding the quota are subject to a higher duty rate.

Dumping is said to occur when the goods are exported by a country to another country at a
price lower than its normal value. This is an unfair trade practice which can have a distortive
effect on international trade. Anti dumping is a measure to rectify the situation arising out of
the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is
to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti
dumping measure as an instrument of fair competition is permitted by the WTO.

Prof. Bandita S Nikam

Prof. Bandita S Nikam
Prof. Bandita S Nikam
Prof. Bandita S Nikam
Thank you