International Economics

Introduction

By Le Thi Mai Anh.Phd

Faculty of International Finance
What is international economics
about?

• When America sneezed, Japan and Europe used to

catch a cold.
• No nation is immune to economic events that occur
in far away places
• Surely there is no closed economy in the real world,
except the World economy.
 Course Materials
Recommended books are:
•Vu Thi Bach Tuyet and Nguyen Tien Thuan, International
Economics, 2010.
•Hoang Thi Phuong Lan and Le Thi Mai Anh, International
Economics, 1st edition, Finance Pulishing, 2019.
•Krugman P. and M.Obstfeld, International Economics, Theory
and Policy, 6th edition, Addison-Wesley,2003.
•Thomas A. Pugel and Peter H. Lindert, International Economics,
2000.
 Additional readings

• Microeconomics
• Macroeconomics
• The economist magazine
• World Trade Organization
• International Trade Center
 Course Grading

• Grades will be based on the final exam, a course

(group) paper and class participation.
• Final Exam will account for a total of 70% of your
grade
• Paper is worth 20% of your grade
• Class participation: 10%. This includes exercises to
do in class, presentations, among other things.
• Chapter 1: Overview of international economic relations
• Chapter 2: The wold economy
• Chapter 3: International trade
• Chapter 4: International investment
• Chapter 5: International integration
 CHAPTER 1
OVERVIEW OF INTERNATIONAL ECONOMIC
SUBJECT
1. The formation and development of international
economic relation

1.1 What is International economics

Economic relations involve the exchange of goods or services, and
other factors of production, such as labor and capital among
economic entities.
- Economic entities: at least 2 parties such as: consumers,
corporations, economic organizations, government.
- Economic objects:
+ Goods: tangible goods, intangible goods (know-how, brands,etc).
+ Services: intangible products such as accounting, banking,
consultancy, education, insurance, medical treatment.
• Domestic economic relations are economic relations
between economic entities within a country or a
territory.
- Economic entities: at least 2 parties such as: consumers,
corporations, economic organizations, government.
- Economic objects:
+ Goods: tangible goods, intangible goods.
+ Services: intangible products such as accounting, banking,
consultancy, education, insurance, medical treatment, etc.
- Scope: within a country or a territory.
• External economic relations are the economic
relations of a country with other countries or with
international economic organizations, which are
studied from the perspective of the economy.

Vietnam Laos

US

EU

IMF, WB
• International economic relations are economic
relations between countries and between countries
and international economic organizations, which are
studied from the perspective of the world economy.

Vietnam Laos

IMF, WB

EU US
• Compare external economic relations with international
economic relations
1.2 Types of international economic
relations

• International exchange of goods and services: International

trade
• International exchange of factors of production: capital,
labor, technology.
Factors of production in international exchange
1.3 The formation of international
economic relations (IER)
• The formation of IER are based on:
 The international division of labor

• IDL means different countries or regions specialize in

the production of different products according to the
resources that they have.
E.g.
- Production of Cars in Japan
- Production of electronic goods in China
- Production of fruits in Pakistan
- Production of Boeing in US.
 1.4 The development of international
economic relations
• At large – scale:
There are more and more countries involving in
international economic relations.
Forms of international economic relations are
increasing
In every nation, more and more entities participate in
international economic relations.
 1.4 The development of international
economic relations

• At comprehensive scale
 International division of labor is increasing significantly
 Intensification of the interdependencies of states and
their economic entities is the main trend of the world
economy.
2. Learning objective

• Study of the international movement of factors of

production (capital, labor, technology)
• Study of the development trend of the world
economy and economic market
• Study of the international trade
• Study of international economic integration
 Theory of Absolute Advantage:
Adam Smith 1776
• Market forces, not government controls, determine
the direction, volume and composition of
international trade
• A country will export goods in which it has an
absolute advantage over other countries
The proceeds from exports will allow the country to
import other goods
 Theory of Absolute Advantage:
Adam Smith 1776
• To have an absolute advantage a country must be
able to produce
A large amount of a good or service for the same
amount of inputs as can another country
The same amount of a good or service using fewer
inputs than can another country
• In classic economics a “unit of input” is measured in:
land, labor, capital.
Discussion: Vietnam export

• Pls show the name of Vietnamese export goods in 2018

• Why does Vietnam export the rice so much?
 Theory of Comparative Advantage:
David Ricardo 1817
• A nation may have absolute disadvantages in the
production of two goods with respect to another
nation
• Yet this nation has a comparative advantage or
relative advantage in the production of the good
in which its absolute disadvantage is lower
• By specializing in the production of the good in
which the country has lower comparative
disadvantage, and importing other goods, the
total goods available will increase
Exercise:
Analyze and evaluate the current
comparative advantages of Vietnam in
terms of natural resources, capital,
technology, and labor!
 Theory of Comparative Advantage:
Example

 Each has two “units of input” and uses one to

produce tons of rice and tea
 The quantities have changed from the prior example
 China has the absolute advantage producing both
rice and tea
 Theory of Comparative Advantage:
Example
 Each has two “units of input” and uses one to produce
tons of rice and tea
 The quantities have changed from the prior example
 China has the absolute advantage producing both rice
and tea

China USA
1 labor make 1 ton Rice 1/6 ton rice
1 labor make 1/2 ton tea 1/3 ton tea

LO1
 Comparative Advantage: Example
Event USA has no absolute advantage but it compares himself
he can get extra benefit of saving ½ labor if exchange goods
in international market.

China: 1 labor
make 1 ton of
rice and trade USA : 1 labor
off 1 ton of tea make 1/3 ton of
tea and trade off
Get extra benefit 1/3 ton of rice
of ½
Get extra benefit
of 1/6
1/2 ton of tea
If make himself 1/6 ton of rice
If make himself
 Theory of Comparative Advantage:
Example

 The U.S. specializes in black tea and China in rice

 There are ½ rice and tea more
 If the U.S. exports to China and the U.S. consumer has
imported goods from china, both of them get more
benefit…
 China and USA still keep international business and trade
off commodities together

LO1
3. Related subjects
• Micro economics
• Macro economics
• Theory of monetary and finance
• Development economics
• Environmental economics
• Marketing
• And so on.