chp.1 international economics

8/7/2019 Chp.1 International Economics

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INTRODUCTION TO INTERNATIONAL

ECONOMICS

INTERNATIONAL ECONOMICS

ECO 650/652


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1.0 DEFINITION

y International Economics studies how a number of

distinct economies interact with one another in

the process of allocating scarce resources to

satisfy human wants

y Two major division:

1) International trade

2) International finance


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1.2 TRADE TERMINOLOGY

y Two states or conditions created by national government

policies are: laissez faire and free trade

Trade liberalization

Protectionism

AUTARKY

FREE TRADE


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1.3 REASONS FOR TRADEy Differences in technology

- (Ricardian model of Comparative Advantage)

y Differences in resource endowments

- (Heckscher-Ohlin Model)

y

Differences in demand- Advantageous trade can occur between countries if the countries differ in their

endowments of resources

y Existence of economies of scale in production

- the existence of economies of scale in production is sufficient to generateadvantageous trade between two countries

y Existence of government policies

- government tax and subsidy programs can be sufficient to generate advantages in

production of certain products


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1.4 The Advantage of International

Trade

y Allows us to consume products, which are not produced

locally due to lack of knowledge or technology or suitable

climate

y

Enables nations to obtain benefits from specializationy Decreasing costs through large scale of production

y Increased competition

y Allows the transfer of knowledge, information and

technologies between trading partnersy Non-economic advantages : political, social and cultural


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1.6 CURRENT INTERNATIONAL

ECONOMIC PROBLEMS

y Trade protectionism in industrial countries

y Excessive fluctuations and large disequilibria in Exchange

Rates

yFinancial Crises in Emerging Market Economies

y High structural employment and slow growth in Europe and

stagnation in Japan

y Job insecurity from restructuring and downsizing in the US

y Restructuring problems of transition economies

y Deep poverty in many developing


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1.7 THE IMPORTANCE OF THE FOREIGN

SECTOR TO THE ECONOMY OF MALAYSIA

y Essential for the prosperity as every country lacks some vital

resources in the production of goods and services

y Specialization and trade actually permits larger outputs and

economies of larger scale productiony Exports bring in revenue from foreign exchange

y Imports of intermediate and investments goods help

continuous development in the country

y Creates employment


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Malaysias Major Export Destinations


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Malaysias Export by Major Products


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Malaysias Major Import Sources


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Malaysias Import by Major Products


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GLOBALIZATION

Definition of Globalization

o People around the globe are more connected to

each other than ever before.

o Information and money flow more quickly thanever.

o Goods and services produced in one part of the

world are increasingly available in all parts of the

world.

o International travel is more frequent.

o International communication is commonplace.


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DEFINITION OF

GLOBALIZATION Process of global economies integration

by allowing the unrestricted flow ofgoods,

services, currencies , foreign direct

investment, capital flows, migration, and

the spread of technology between

countries.

Process of transformation of local or

regional phenomena into global ones. It

can be described as a process by which

the people of the world are unified into a

single society and function together


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GLOBALIZATION

y The process of greater interdependence among countries and

their citizens

y First Wave of Globalization (1870-1914)

y

Second Wave of Globalization (1945-1980)y Latest wave of globalization


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IMPORTANCE OF GLOBALIZATION

TO MALAYSIAN ECONOMY

Malaysia showed the commitment in accepting the challenges of globalization by

joining the General Agreement on Tariffs and Trade (GATT), and further ratified the

establishment of the World Trade Organization (WTO) on 6 September 1994 (to

replace the GATT with effect from 1 January 1995). So far, globalization has yielded

multiple effects to the Malaysian economy, both positive and negative. As Anwar

Ibrahim once mentioned, "Globalization has done us a good service, particularly in

the economic sphere, a sphere in which the table has been turned, with the

denominator fearing the loss of his domination." Malaysia benefited from increased

manufactured exports and improved consumer welfare. On the other hand,

globalization has been claimed to be a threat(from developed countries) todeveloping countries' autonomy, both economically and politically. In addition, the

economic liberalization has indirectly made the economy increasingly susceptible to

external shocks, and undermined the expansion of domestic industrial capacity and

capability.


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The changes Malaysiags nationaldevelopment

promote the Internet in Malaysia

through the Multimedia Super Corridor,distribute the contract for satellitetelevision, encourage the hajj, cooperatewith NGOs, and reap the benefitsgandpitfalls fro closer economic connectionsthrough policies to attract or regulatecapital flows.

The changes Malaysiags nationaldevelopment

promote the Internet in Malaysia

through the Multimedia Super Corridor,distribute the contract for satellitetelevision, encourage the hajj, cooperatewith NGOs, and reap the benefitsgandpitfalls fro closer economic connectionsthrough policies to attract or regulatecapital flows.

Foreign investment rose significantly

In 1985 and 1986, FDI approvals in

Malaysia were RM 325 million and RM525 million. Approved foreigninvestment rocketed to RM 2billion in1988, RM 3.4 billion in 1989 and RM 6.2billion in 1990.

Foreign investment rose significantly

In 1985 and 1986, FDI approvals in

Malaysia were RM 325 million and RM525 million. Approved foreigninvestment rocketed to RM 2billion in1988, RM 3.4 billion in 1989 and RM 6.2billion in 1990.

Shortage of labor

From 1987 to 1993, labor demandincreased 3.9 percent per year, whilethe labor supply increased only 3.1percent per year. To compensate for thisshortage, the Malaysian governmentencouraged labor from neighboringcountries, such as Bangladesh,Indonesia, Thailand and Philippines.

Shortage of labor

From 1987 to 1993, labor demandincreased 3.9 percent per year, whilethe labor supply increased only 3.1percent per year. To compensate for thisshortage, the Malaysian governmentencouraged labor from neighboringcountries, such as Bangladesh,Indonesia, Thailand and Philippines.

Technology improvements

The flow of foreign investmentinto the high-tech community

like automobile would foster thecreativity of Malaysiags skilledworkers and move the countryinto millennium as part of the

information age.

Technology improvements

The flow of foreign investmentinto the high-tech community

like automobile would foster thecreativity of Malaysiags skilledworkers and move the countryinto millennium as part of the

information age.

Effect of Globalizationto Malaysiags EconomyEffect of Globalizationto Malaysiags Economy

chp.1 international economics

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