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International Economics

To be published July 2018
Dr. Aaron Tan
University of Huddersfield Business School, UK
Summary

International trade benefits consumers of all countries by ensuring lower prices and more product choices. It also plays an important role in promoting the efficient allocation of resources as well as improving the efficiency of firms throughout the world. In addition, international trade contributes significantly to the economic growth of... read morenearly every country in the world. The pattern of trade, that is what commodities are traded and which commodities are exported and imported by each nation, is determined by both absolute advantage as well as comparative advantage.
The basis for mutually beneficial trade between different countries derived from comparative advantage lies in the fact that different nations differ in their relative commodity prices. What is the reason for this? In other words, what is the cause of the differences in relative commodity prices and comparative advantage between two countries? This question will be answered through the explanation and discussion of factor endowment and Hechscher-Ohlin theory.
Although absolute advantage, comparative advantage, factor endowments as well as Hechscher-Ohlin theory explain some issues in international trade from the perspective of efficiency, opportunity cost as well as abundant resource, these theories, leave a significant portion of today’s international trade unexplained. In this series, we will talk about quite a few issues which complement the above mentioned determinants, such as economies of scale, imperfect competition and technology improvements as well as their impact on international trade.
It has been argued that free trade maximizes world output and benefits all nations. However, in the real world all countries impose certain types/amounts of restrictions on the free flow of international trade. What types of restrictions are imposed by different nations? And what impacts do these restrictions have on consumers, producers and governments? These questions will be answered in lecture 4 as well as lecture 5 of the series.
The comparative advantage of a nation is mainly determined by three factors, which are: factor endowments, technology and tastes. However, the factor endowments cannot be consistent all the time, while technology improves over time and tastes of consumers will change as well. What are the impacts of the changes in factor endowments, technology and tastes on the volume and terms of trade will be discussed in this series.
All the transactions of the residents of a nation with the residents of all other nations are recorded during a particular period of time; the statement which summarizes the transactions is the balance of payments. The balance of payments is very important for a government to monitor. It must be aware of its international position and its implications for monetary, fiscal and trade policies. The information provided by the balance of payments is indispensable for banks, other commercial companies and individuals engaging in international trade.
Because different countries may have their own currencies international trade often involves transferring one currency into another. The foreign exchange market provides a place for individuals and businesses to buy and sell foreign currencies. The foreign exchange market for any currency, e.g. the English pound, includes all the locations around the world where Sterling is bought and sold for other currencies. These different locations connect with each other in an electronic network.
Foreign exchange rates are very important influencers on the volume of international trade. Currently, some countries adopt the policy that the value of the country’s currency will automatically track a strong currency (e.g. the U.S dollar) through using foreign reserves to buy and sell currencies. On the other hand, some other countries around the world have the policy of freeing the value of their currencies according to market demand and supply. What are the benefits and problems of these two types of exchange rate regimes and what impact they have will be discussed in the lecture on “Flexible and fixed exchange rates”.
Finally, this series discusses the issue of international trade from a macroeconomic standpoint. To be more specific, the last lecture will discuss aggregate demand and aggregate supply and the impact of international transactions on aggregate demand and aggregate supply will be covered. In addition, what is the impact of real and monetary shocks as well as changes in fiscal and monetary variables on the nation’s aggregate demand will be explained. The lecture will also discuss the issue of how to use monetary and fiscal policies to stimulate long-run growth.
The speakers of this series are all highly regarded scholars from leading universities around the world, they have experience in teaching specific topics in international economics and, more importantly, an excellent research record in the area of international trade and international economics. The series is designed to significantly improve the understanding of international economics of studemts, government policy makers and regulators as well as all those in commerce and industry engaging in international trade on a daily basis.