chapter 1_introduction to international economics

8/4/2019 Chapter 1_Introduction to International Economics

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InternationalEconomics I

1


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INTERNATIONAL ECONOMICS?

International economics is the branchof Economics which studies the

causes & consequences of economic

interactions between the nations.


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2. International economic studies how

economic interactions leads to inter-country

& intra-country allocations of the scarceresources aimed at increasing the economic

well-being of their people.


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Different Nations

3.International economics deals with

the economic interdependenceamong the nations of the world.


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ECONOMIC INTERDEPENDENCE

Through the sale & purchase of goods & services Raw material, Semi-finished and Finished products

Through the sale & purchase of financial assets

Stocks, Bonds, Private Equity, Real Estate

Through MNCs( Multinational corporations) Employment opportunities etc.

Through domestic economic policies Government interventions, Example: Maize in Mexico vs. US


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Trade

Purchase and Sale


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TRADE

Trade:-Exchange of goods & services betweentwo individuals or association of individuals.

Domestic Trade:-Exchange of goods & servicesbetween two individuals or firms in the samecountry.

Foreign Trade:-when exchange of goods &

services takes place between two individualsor firms of two different countries.


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Advantages

Use of resources

Wider range ofcommodity

Promotecompetition

Speedyindustrialization

Reduction inprices

Disadvantages

Exhaustion ofresources

Effects on

domesticindustry

Consumptionhabits

Providefootholds toforeigners

EnvironmentalIssues


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The main advantages of international business to a country are as follows.

1. Economy in the use of productive resources: each country tries toproduce those goods in which it is best suited. As the resources of eachcountry fully exploited. There is thus, a great economy in the use ofproductive resources.

2. Wider rang of commodities: international business make it possible foreach country to enjoy the wide rang of commodities.

3. Promotes competition: international business promote competitionamong different countries. The produces in home country, being afraidof foreign competition, keep the price of their product at reasonablelevel.

4. Speedy Industrialization: international business enable a backwardcountry to acquire skill, machinery and other capital equipments fromadvanced countries for speeding up industrialization.

5. Fall of price: a country can export her surplus products to a countrywhich is need of them. The home price are, thus, prevented fromfalling.

Advantages of International Business


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The disadvantages of international business are as follows,

1. Exhaustion of resources: in order to earn present export advantages acountry may exploit her limited natural resources beyond proper limits.This may lead to exhaustion of essential resources like iron, coal, oil etc.

2. Effect on domestic industries: if no restriction are placed on foreigntrade, it may ruin the domestic industries.

3. Effect on consumption habits: sometime it so happens that the traderin order to make profits imports commodities which are very harmfuland injurious for the people. For instance, opium, wine, arms etc.

4. Environmental: Example Nigeria and Shell

5. Provides foothold to the foreigners: foreign trade provides foothold tothe foreigners in the country. For the example the role of East India

company came to sub continent as traders and than hold the wholegovernment of subcontinent.

6. Discus more advantages and disadvantages!!!

Disadvantages of international business.


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MNCs( Multinational corporations)

MNCs?

A head quarter in one

country but having operation

in other countries for

examples, Suzuki, ford

motors, MacDonald, shell

etc are MNCs

Explanation:A large scale business,

where the main head

office situated in one

country while thebusiness operation

perform in another

country or countries is

called Multinational

corporation.


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Activities of Multinational Corporations ( MNCs)

Exports and imports

Foreign Direct investment

Explanation:

Normally anyinternational business inthe form of MNCs

perform two type ofbusiness operationthroughout the world,

1. The first one, Exportsand Imports,

2. And the second one isForeign DirectInvestment


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Export Goods- Money Comes Into the

Country

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Import Goods- Money Goes Out of

Country

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Explanation

Exports: Goods and services produced by a firm in one country and then

sent into another country is called exports.

Imports: goods and services produced in one country and bought in by

another country is known as imports.


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FDI ?The investment of equity funds in another

country or countries known as

Foreign Direct investment.

Foreign Direct Investment


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The drivers of International Business and many

companies wants to establish a place in world

market by setting business operations in other

country of countries. These drivers/firms orcompanies needs a large market share

through out the world. So it is necessary to

established their production unit or units outside from their home country.

Why FDI is important?

chapter 1_introduction to international economics

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