International Economics: Introduction

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In this presentation, we will discuss about International Economics and will focus on various aspects that influence import and export trading, MNCs operational structure etc. We will also discuss about International trade and financial scenario.
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International Economics: Introduction

  1. 1. International EconomicsLearning Objectives ♥ Coverage of International Economics. ♥ International Trade. ♥ International Finance. ♥ India & International Economy.
  2. 2. International Economics1.1 IntroductionWith revolutionary advances in transport,communications coupled with disappearance ofdistances all countries are economically interconnected.It is not certain whether even big countrieslike USA, India or China can survive if theywere to close their borders to any overseastrade. Other countries cannot even think of anysuch possibility.If countries were to decide to be selfsufficient it would bring about drasticlowering of standard of living if not economiccatastrophe.
  3. 3. International Economics1.1 IntroductionThis economic interdependence of countriesis indicated by continuous rise in volumesof Imports and exports; Capital inflows; Overseas travel; Multinational companies etc.
  4. 4. International Economics1.1 IntroductionThis increasing economic interdependence ofcountries has serious implications on thedomestic economy caused by internationaldivision of labour.Some countries are forming economic groups[like OPEC] to protect their commoninterests.These issues are addressed in ‘InternationalEconomics’.
  5. 5. International Economics1.2 Coverage of International Economics$ Analysis & study of theory of comparative costs.$ Modern theory of international trade.$ Modern version of the above theory.The theory of comparative cost advantage isbasically a static theory. Dynamic variablesthat affect the trade like capital flows,new technology, population [& thereforelabour] changes, etc are graduallyintroduced
  6. 6. International Economics1.2 Coverage of International EconomicsInternational trade is unique sincetransactions are carried in differentcurrencies.Steps taken by one country to improve itsbalance of trade/payment position has reboundeffect on others.All these factors make ‘InternationalEconomics’ as ‘Applied Economics’ requiringstudy of foreign currencies, commercial policy,quota fixation, price stabilization, formationof regional groups & their trade policies.
  7. 7. International Economics1.3 International Economics, a Branch of GeneralEconomics?Yes.General Economics has several branches like - theory of consumption, - theory of value, exchange and distribution, - theory of money and banking, - public finance, - and International Economics. These branches are inter linked, hence knowledge of others is essential for study of International Economics.
  8. 8. International Economics1.4 The subject of International Economics All branches of general economics have some international aspects in their study, these all form a part of international economics which is considered a subject in itself. Even international trade cannot be considered in isolation without considering its effects on domestic trade and vice versa.
  9. 9. International Economics1.4 The subject of International EconomicsMain difference between domestic andinternational trade is caused by the factthat factors of production are perfectlymobile within the country but not so amongthe countries.Hence when there is a movement of thesefactors from one country to another, it hasmany interesting implications bothfavourable and adverse.
  10. 10. International Economics1.4 The subject of International EconomicsInternational Economics, therefore, attemptsto 1] show benefits of international economic policy to the nation within itself and with others, 2] identify areas of conflict of interest among nations and 3] point out ways for their mutual resolution.
  11. 11. International Economics1.5 The scope and nature of International EconomicsInternational Economics studies howindependent economies of the world interactwith one another in the process ofallocating scarce resources to satisfy humanwants.The subject matter can be studied in twoparts : International Trade & International Finance.
  12. 12. International Economics1.5 The scope and nature of International EconomicsInternational Trade :International trade deals with the long-runstatic equilibrium theory of barter.It relies heavily on concepts of demand,supply, indifference curves, opportunitycosts from micro economics to explain whynations trade, how do they gain, and why dothey resort to protectionism, in which formetc.
  13. 13. International Economics1.5 The scope and nature of International EconomicsInternational Trade [IT]:The gains from the trade : It is fact thatif two nations trade with each other, it isfor the mutual benefit. IT theory explainscircumstances under which these gains aremaximized.The pattern of trade: IT theory explains howclimate, availability of resources and othersuch factors decide items that are tradedamong nations.
  14. 14. International Economics1.5 The scope and nature of International EconomicsInternational Trade [IT]:Protectionism : Countries, especiallydeveloping countries, are always worried aboutpossible ill effects of internationalcompetition on domestic growth and try torestrict free competition through economicbarriers. IT theory studies pros and cons ofsuch protectionist mechanisms and exploresmeans of minimizing their effects to enhancegains from IT.Commercial Policy: International economicsanalyzes all aspects of the policy to examinehow it can assist domestic growth and encouragefree trade.
  15. 15. International Economics1.5 The scope and nature of International Economics International Finance.It is a macro economic theory that studiesmonetary aspects of international economicrelations.It deals with international monetary systemthat permits smooth working of internationaleconomy operating on different currencies.One major issue it has to handle is that ofbalance of payments. In their internationaloperations each nation has either surplus ordeficit in foreign exchange payments.
  16. 16. International Economics1.5 The scope and nature of International Economics International Finance.One method to manage this balance ofpayments is through determination of optimumexchange rate for its currency.One country’s economic policy immediatelyaffects economy of other countries it isreacting with. This calls for coordinationof these sovereign economies to establishhealthy harmony and theory of internationaleconomics explores ways and means availablefor this purpose.
  17. 17. International Economics1.6 India in the International EconomyUntil 1990s issues discussed so far underinternational economics were affectingIndian economy on a conservative basis.But with economic reforms implemented by theCentral Government, Indian economy isclosely aligned with global economicactivities. International boundaries haveopened up as seen by reduction in % ofimport duties to total imports.There is no field in Indian economy that is not touched by International Economics. The End
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