Download - Chap 01A - Introduction to Interdependence
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Chapter 1: Introduction toInternational Economics
Part A
Interdependence!
Warning: This PowerPoint lecture supplements, but
does not substitute for, the textbook.
The technical parts of the lecture are
more thoroughly explained in the
textbook.
There is much additional material in
the textbook that gives you a more
complete perspective of the issues
covered in this lecture.
Material covered in the text, but not
covered in this lecture, is included
on your assignments and exams.
There are three fundamental
advantages from expanding the number
of people in a society:
1. The gain from specialization
Interdependence!
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There are three fundamental
advantages from expanding the number
of people in a society:1. The gain from specialization
Interdependence!
There are three fundamental
advantages from expanding the number
of people in a society:
1. The gain from specialization
Interdependence!
Economies of scale
There are three fundamental
advantages from expanding the number
of people in a society:
1. The gain from specialization
Interdependence!
Economies of scale
2. The potential for risk r eduction
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There are three fundamental
advantages from expanding the number
of people in a society:1. The gain from specialization
Interdependence!
ompara ve a van age
Economies of scale
2. The potential for risk reduction
3. The expansion o f know ledge
There are three fundamental
advantages from expanding the number
of people in a society:
1. The gain from specialization
Interdependence!
Economies of scale
2. The potential for risk reduction
3. The creation of knowledge
These three advantages are mutually
reinforcing!
Interaction with strangers has many dangers.
The survival of the human species and the
maximization of individual welfare has always
required a careful balance between
interaction and isolation.
Interdependence!
The recent improvements in human welfare,
longevity, and quality of life are the result of
our improved ability to reduce the propensity
for humans to exploit, steal, and kill.
It seems to have become easier and safer to
deal with strangers.
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Paul Seabright (2004) describes the great
experiment.
Human evolution during the extended periodof hunters and gatherers has only partially
Interdependence!
.
To manage the hazards imposed on us by
the actions of strangers has required us to
deploy a different skill bequeathed to us by
evolution for quite different purposes, the
capacity for abstract symbolic thought
In order to capture the gains fromspecialization, risk sharing, and knowledgecreation, we must create institutions thatmake human beings, who are hard-wired tobe suspicious of strangers, willing to deal with
Interdependence!
almost all of the institutions of modernsociety can be understood as dedicated to anutterly unnatural division of labor betweenstrangers.
Humans have struggled to get the institutions
right.
If the objectives of those players in aposition to shape their destiny are met,it is possible to say that society hascreated a consistent set of institutions.
Interdependence!
process of change with lots of errors,endless losers, and no guarantee thatwe will continue to get it right in spite ofthe enormous accretion of knowledgeover those centuries.
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Douglass North suggests that the
frequent inconsistencies between
peoples objectives and societys actualoutcomes are caused by:
Interdependence!
(1) the lack of accurate information on
how the world actually is and how it
functions
Douglass North suggests that the
frequent inconsistencies between
peoples objectives and societys actual
outcomes are caused by:
Interdependence!
(1) the lack of accurate information on how
the world actually is and how it functions
(2) the resistance to change by certain
people and groups of people because
they prefer the status quo to further
change.
Douglass North suggests that the frequent
inconsistencies between peoples objectives
and societys actual outcomes are caused by:
(1) the lack of accurate information on how the world
actually is and how it functions
Interdependence!
(2) the resistance to change by certain people and
groups of people because they prefer the status
quo to further change.
The acceleration of economic growth over
the past several centuries suggests that we
have been getting it right more often.
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Many problems remain, however.
The differences in the rates of change of r eality,
knowledge, formal legal inst itutions, cul ture, andhuman instinct m ean that when economic and
social environments change more rapidly,
Interdependence!
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behavioral systems often fall behind.
Historical evidence shows episodes of expanding
international economic integration are often
reversed because institutional support i s not
sufficient to handle the complex international
economic interactions.
Interdependence!
Our knowledge of our natural and socialenvironments is incomplete. This North writes:
Throughout human history there has always been alarge residual that defied rational explanationaresidual to be explained partly by non-rationalexplanations embodied in witchcraft, magic, religions;but partly by more prosaic non-rational behaviorcharacterized by dogmas, prejudices, half-bakedtheories. Indeed despite the . . . assertion by eminenttheorists that it is not possible to theorize in the faceof uncertainty, humans do it all the time; their effortsrange from ad hoc assertions and loosely structuredbeliefs such as those encompassed in the labelsconservative and liberal to elegant systematic
ideologies such as Marxism or organized religions.
Institutions are both formal and informalarrangements and guidelines.
Culture is an informal institution.
Culture includes the stories, myths,
Interdependence!
re g ons, ra ons, r ua s, an w e y
accepted beliefs that give meaning to our
social existence.
Culture changes slowly.
Culture may clash with reality and other
cultures.
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The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of internationaleconomic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of international
economic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of international
economic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
-
8/10/2019 Chap 01A - Introduction to Interdependence
9/12
12/21/20
The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of internationaleconomic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of international
economic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
The purpose of this textbook i s to advance the
understanding of international economics.
International economics has, traditionally, focused
on four different components of international
economic integration:
International trade
Interdependence!
International investment
International finance
International migration
The chapters that f ollow explain i nternational trade,
international investment, international finance, and
international migration.
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12/21/20
Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involvesfinancing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a greatvariety of ways.
Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involvesfinancing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a great
variety of ways.
Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involves
financing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a greatvariety of ways.
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Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involvesfinancing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a greatvariety of ways.
Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involvesfinancing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a great
variety of ways.
Note, however, that the four components ofinternational economic integration arerelated.
Trade often involves financing.
Investment impli citly always involves
financing.
Interdependence!
grat on s o ten re ate to nvestment.
Investment is related to trade.
We often focus on one of thesecomponents, but the international economyis a complex sy stem in whi ch allcomponents are tightly linked in a greatvariety of ways.
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The purpose of this textbook is to advance
the understanding of international
economics.
International trade
International investment
Interdependence!
International finance
International migration
This textbook provides you w ith a variety of
perspectives, what economists call a
heterodox approach.