international economics introduction
DESCRIPTION
First presentation IERTRANSCRIPT
International division of labour
doc. Ing. Tomáš Dudáš, PhD.
Contact Information
doc. Ing. Tomáš Dudáš, PhD.
Office hoursTuesday – 9.30-11.00 (Tematínska 10)
Email: [email protected]
Course Information Course structure
12 lectures + 6 seminars
Literature Assorted chapters from Krugman-Obstfeld-Melitz:
International Economics Assorted chapters from Carbaugh: International Economics
Slides from the presentations: http://www.slideshare.net/tamass
Grading of the course 30 points– seminar work (presentations) 70 points – final test with open questions
Course structure
Introduction – International Division of Labour
Theories of International TradeMercantilism and classical theories of ITNeo-classical theories of international tradeModern theories of international trade
Course structure
World trade– structure and trends
World economy– definition and characteristics
The current trends and challenges of the world economy
Economic integration and international economic relations
Course structure
International capital movements
Foreign direct investments in the global economy
International migration of workers
Services in the international economic relations
Structure of the presentation
• International division of labour – definition and history
• Allocation of factors of productions
• Intensity of the participation in the IDoL
• Foreign trade and its main functions
• Terms of trade
Labour divisionStarts with the division of different types of
workThis happens at a certain stage of economic
development and in interaction with the needs of the society (the process is dependent on the availability of the factors of productions)
The division of labor manifests itself in the specialization of producers (...and in their dependence...)
>>> what leads to cooperation and trade
Effects of labour division
Increasing volumes of production
Increasing productivity
Reduction in unit costs of production
International division of labour
Specifically developed form of social division of labor, which generates cooperation and exchange relations between national economies
>> It leads to an international specialization of producers determined by the abundance of factors of production
>> the results of the IDoL are traded internationally – international trade
Factors determining IDoL
Environmental, geographic and demographic factors
Historical factorsTechnological factorsEconomic factorsPolitical factors
Environmental factors
Are determined by:Geographical position,ClimateNatural resourcesQuality of agricultural land
Historical factors
Result from the traditions of production of certain goods, which time create a certain goodwill in the international markets
They are very often based on favourable factors of environment (ex. Czech crystal, Chinese silk, Scottish whiskey)
Or sometimes on unfavouable - Swiss watches
Technological factors
They depend on the level economic and social development, capital equipment and skilled labor force
Currently closely related to education, research and development
Economic factors
Economic dimension Availability of capitalLevel of economic developmentStructure of GDP creationThe sophistication of the financial system
Political factors
Can affect the territorial structure of cooperation and exchange(ex. COMECON)
Foreign political orientation of the country
Economic policy, international trade policies, pro-export policies, pro-investment policies...
Relevance of IDoLAchieving savings of national labor by
specializationMore efficient use of natural resources,
production experience, technology etc.The results are goods/services produced at
a lower cost compared to foreign producers
It is the basis for international exchange of goods
Specifies the substantive content and directions of movement of goods and services (territory and commodity structure of international trade)
Historical development of IDoLIn the early stages of economic
development IDoL was mostly determined by natural conditions, but in the later economic factors started to play a more important role
IDoL was greatly influenced by technological breakthroughs, geographical discoveries and by the advent of the modern mass production
Currently, the involvement of countries in the IDoL is determined by the abundance of capital and skilled labour
Export of capital is a very important trend that has a great effect on the IDoL
The intensity of involvement in the international division of laborThe intensity of involvement in the IDoL
(degree of openness) is currently growing on a global level
Globalization – the most important trend
Two extreme possibilities:Totally closed economy (autarky)Highly opened economy
AutarkyAutarky is the quality of being self-
sufficient. Usually the term is applied to political states or their economic systems.
Autarky exists whenever an entity can survive or continue its activities without external assistance or international trade.
In reality it is an „economic abstract“A possible example of a current attempt at
autarky is North Korea, based on the government ideology of Juche – but still has foreign trade relations
Highly opened economyEconomic development is determined by
the development trends in the global economy
Foreign trade is large compared to GDP
Involvement in the IDoL does not necessarily imply openness
Possible indicators: Foreign trade/GDP or FDI/Total investments
Foreign Trade – basic definitions
The products created by the international specialization (IDoL) are traded via foreign trade
Cross-border trade of goods and services
Has two main parts – export a import
Foreign trade - terminology
Foreign trade vs. International trade vs. World trade
Commodity structure of the foreign trade
Territorial structure of foreign trade
Balance of trade (BoT)
Is the difference between a country's total exports and total imports.
The trade balance is identical to the difference between a country's output and its domestic demand
A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap.
Balace of payments (BoP)Is an accounting record of all monetary
transactions between a country and the rest of the world
These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers.
BoP is made of:Current account (foreign trade and factor income)Capital account (short term and long term capital
movements)
The main economic functions of foreign trade
Two main functions:Transformation functionFactor of economic growth
Transformation functionForeign trade changes (transforms) the structure
of national production, resp. of national resources, into the demanded structure in the sphere of use (intermediate as well as final).
The transformation function of foreign trade is especially pronounced in the relatively small economies where the import flows are the prerequisite of overcoming the limits in production resources, respectively the efficiency of their use (with regard to the internal market scope).
Factor of economic growth
- With sales in foreign markets countries create additional sources of economic growth
- FT allows the growth of specialization and production efficiency
- Importing enables to receive products that would otherwise produced only at higher cost
- FT ultimately increases the volume and range of goods consumed
Terms of Trade (ToT)ToT refers to the relative price of
exports in terms of imports and is defined as the ratio of export prices to import prices
It can be interpreted as the amount of import goods an economy can purchase per unit of export goods
A rise in the prices of exported goods in international markets would increase the ToT, while a rise in the prices of imported goods would decrease it.
For example, countries that export oil will see an increase in their ToT when oil prices go up, while the ToT of countries that import oil would decrease.