International Economics ▫. Feenstra/Taylor. Map of World Trade. • European and
U.S. Trade. – Europe and the U.S. together account for 35% of world trade flows ...
Introduction to International Economics Exports as % of GDP 40 35 30 25 20 15 10
Map of World Trade • Other Regions – Oil and natural gas are exported from the Middle East and Russia. • Exports from these two areas totaled another 10% of world trade.
Several ideas underlie the gains from trade 1. When a buyer and a seller engage in a voluntary transaction, both receive something that they want and both can be made better off. • •
Norwegian consumers could buy oranges through international trade that they otherwise would have a difficult time producing. The producer of the oranges receives income that it can use to buy the things that it desires.
Gains from Trade (cont.) 2. How could a country that is the most (least) efficient producer of everything gain from trade? –
With a finite amount of resources, countries can use those resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume.
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Countries can specialize in production, while consuming many goods and services through trade.
Labor and Capital Greater interdependence typically leads to more movement of the factors of production between nations.
o mobility of labor into the U.S. declined from the 1920s to the 1960s due to more stringent immigration policies o capital flows have increased substantially as other nations invested in U.S. assets
International Trade Versus International Finance • International trade focuses on transactions of real goods and services across nations. – These transactions usually involve a physical movement of goods or a commitment of tangible resources like labor services.
• International finance focuses on financial or monetary transactions across nations. – For example, purchases of US dollars or financial assets by Europeans.
U.S. Balance of Payments: 1980-2008
o trade deficits can decrease value of dollar decreasing U.S. purchasing power abroad o trade deficits can also decrease employment in domestic industries but are offset by capital inflows generating employment in other industries
U.S. as Debtor Nation net debtor – foreign claims on U.S. exceed U.S. claims on foreigners