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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