Chương 1: International Economics Is Different potx

Chapter Introduction International Economics Is Different The objectives of this introduction Showing that international economics addresses important and interesting current events and issues Showing why international economics is different from domestic economics Relationship between international trade and finance International economics addresses important and interesting current events and issues 1) Why the US pressured the Chinese government to let RMB appreciate? 2) What are the potential effects of RMB appreciation on the Chinese domestic economy? -Chinese imports increase, exports decrease, some industries are difficult to survive 3) Sub-prime mortgage crisis : problems of USD, pressure other countries to devalue, anti-dumping,etc 4) The protest against economic globalization in 1999 -in the Seattle ministerial meeting of the World Trade Organization -one of the largest protests about issues related to globalization a Claims include: The US employees lost jobs and their wages are lowered (senior management earn 420 times the salary of the common employees) Child labor and bad work conditions in some developing countries (True?): International competition leads to weaker regulations about labor standards and work conditions b Should globalization be stopped?  Poverty is worse in places that have been little touched by globalization c.f countries that are more open to international trade tend to grow faster (e.g regions like coastal areas in China)  Only % of children work in export industry c Solutions to the lower labor standard: (The effects of globalization) Long-run: Economic growth and rising income Higher labor standard is a normal good of income (True?) -Heavy child labor existed in the US into the early 20th century When average percapita income reaches $5,000, child labor nearly disappears Short-run solutions: (Workers also need education and better health to raise their productivity)  Pay the poor families to send their children to go to school—Mexico and Brazil  In Pakistan and Bangladesh, children are shifted from work to school with s stipend  China: Think about the recent campaign in China about migrant worker’s conditions 5) The euro example: In early 2002, 12 European countries started to use a single new currency, the euro a Controversial: Each country no longer has the ability to use its own national monetary policy b Attractive:  Convenient: No need to change money when crossing a border within the union  Increasing the trade: No exchange risk c Challenging How 25 or more countries can make decisions about common EU policies as otherwise independent economic entities  Common money policy  Limitation about fiscal policy: Sovereign debt crisis in Greece What makes international economics different from domestic economics? Nations are sovereign: No court can enforce its order on them with a global police force What about a provincial policy within a country? 1) National government policies matter to other countries Why? a National governments adopt policies directly toward international transactions e.g tariff policy b Different domestic macroeconomic policies: -Direct impacts: national interests - Indirect impacts: international interests Example : Bahamas imposed lower tax rate on capital gains - Many Banks set up branches in Bahamas because of lower tax rate → This tax policy may cause large flow of international funds c Nations are mostly selfish Ignoring the interests of other nations e.g In the 1999 protest at Seattle: How much American protesters speak about the jobs lost if the US government protect the US jobs? 2) Second major difference: Some resources not move freely between countries (labor, land, capital) Within a country: the factors of production are mobile in the sense that they could be put to different productive uses e.g.: Land could be used for cattle or crop farming, or construction  Between countries  land is essentially immobile except in war  Labor usually migrate within the country more readily than they will emigrate abroad (cost, government restriction)  Capital moves more freely, but: International capital movements can be disruptive Relationship between international trade and finance 1) International trade can exist without international financing arrangement e.g direct exchange or barter, cash payments in gold 2) International finance cannot exist without international trade -No reason for borrowing , lending or investing between countries if nothing could be bought with the loan or investment 3) Then what’s the role of international finance? a Facilitating and expanding international trade b A more efficient allocation of international financial resources c Smoothing consumption ... objectives of this introduction Showing that international economics addresses important and interesting current events and issues Showing why international economics is different from domestic economics. .. policy  Limitation about fiscal policy: Sovereign debt crisis in Greece What makes international economics different from domestic economics? Nations are sovereign: No court can enforce its... moves more freely, but: International capital movements can be disruptive Relationship between international trade and finance 1) International trade can exist without international financing