Lesson No.

International Economics: Theory and Policy

by Flt Lt Iftikhar Ahmed

LESSON NO. 01

Introduction to International

Trade I

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The International Economy & International Economics

International economics is growing in importance as a field of study because of the rapid integration of international economic markets

One simple way to see the rising importance of international economics is to look at the growth of exports in the world during the past fifty or more years.

The overall annual exports measured in billions of U.S. dollars from 1948 to 2008

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A better method is to look at the share of traded goods in relation to the size of the world economy

World exports grew from just over 10 % of the GDP in 1970 to over 30 % by 2008

One other indicator of world interconnectedness can be seen in changes in the amount of foreign direct investment (FDI).

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The share of FDI has grown dramatically from around 5 % of the world GDP in 1980 to over 25 % of the GDP just twenty five years later.

The growth of international trade and investment has been stimulated partly by the steady decline of trade barriers since the Great Depression of the 1930s

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The General Agreement on Tariffs and Trade, or GATT (eight of these rounds were completed between 1948 and 1994)

Uruguay Round, the most recently completed round, was finalized in 1994

The World Trade Organization (WTO) was resulted

As of 2009, 153 countries were members of the WTO “trade liberalization club,”

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Another international push for trade liberalization has come in the form of regional

free trade agreements (SAFTA, AFTA)

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What Is International Economics?

International eco. assesses the implications of international trade, international investment, and international borrowing and lending.

There are two broad subfields : • International Trade & International Finance

International trade is a field in economics that applies microeconomic models to help understand the international economy.

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International Trade

Its content includes basic supply-demand analysis of intl markets; firm and consumer behavior; perfectly competitive, oligopolistic, and monopolistic market structures; and the effects of market distortions.

The objective of an international trade course is to understand the effects of international trade on individuals and businesses and the effects of changes in trade policies and other economic conditions.

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International finance

International finance applies macroeconomic models to help understand the intl economy.

Its focus is on the interrelationships among aggregate economic variables such as GDP, unemployment rates, inflation rates, trade balances, exchange rates, interest rates, and so on.