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Summary Internationale Economie
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- Universiteit Utrecht (UU)
Summary Internation Ecomony most important chapters
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Samenvatting Internationale EconomieChapter 1 The Global Economy
Economic globalization process: The increased interdependence of national
economies, and the trend towards greater integration of goods, labor, and capital
markets.
International economics analyses the interactions in the global economic
environment.
Population
Population size increased exponentially with a few moments of less increasing growth in
time (like the black death period).
Total fertility is generally higher in the developing countries than in the developed
countries. As a result of better health care systems, sufficient availability of food, and
access to safe water supplies, life expectancy at birth is higher in the developed
countries than in the developing countries. The rise in life expectancy at birth combined
with the decline in fertility rates will lead to rapid increases in the share of older people.
Firms study these kinds of trends closely and try to predict the implications that
these trends are likely to have for their core activities and strategies.
Total value of the goods and services produced is the best indicator of economic
power.
3 steps (in comparing results across nations)
- A well-functioning statistics office in each nation must gather accurate
information on the value of millions of goods and services produced and
provided by the firms in the economy.
- Decide what to compare with: Gross domestic or gross national product.
- How to compare the outcome for the different nations.
GDP: Is defined as the market value of the goods and services produced by labor and
property located in a country.
GNP: Is defined as the market value of the goods and services produced by labor and
property of residents of a country.
GDP + Net receipts of factor income = GNP
Tradable goods and services: Can be transported or provided in another country,
perhaps with some difficulty and at some cost. Prices of such goods are related and can
be compared effectively on the basis of observed exchange rates.
Non-tradable goods and services: Have to be provided locally and do not compete
with international providers.
Since different sectors in the same country compete for the same laborers, so that
the wage rate in an economy reflects the average productivity of a nation and
productivity differences between nations in the non-tradable sectors tend to be
smaller than in the tradable sectors, converting the value of output in the non-
tradable sectors on the basis of observed exchange rates tends to under-estimate
the value of production in these sectors for the low-income countries.
,Production value per person (=per capita): Gives an idea of the well-being for the
‘average’ person in the country, but gives no information on the distribution of the
income level within the country.
With the creation of multinational companies, on the one hand the wealth and incomes
increases, however the gap between poor and rich also tends to increase.
5 types of globalization:
- Cultural globalization: This pertains to the debate whether there is a global
culture or a set of universal cultural variables, and the extent to which these
displace embedded national cultures and traditions.
- Economic globalization: This centers on the decline of national markets and the
rise of global markets as the firm’s focal point, be it for the production and sale of
final and intermediate goods and services or for the procurement of inputs.
- Geographic globalization: Refers to the sensation of compressed time and space
as a result of reduced travel times between locations and the rapid exchange of
information.
- Institutional globalization: Relates to the spread of ‘universal’ institutional
arrangements across the globe.
- Political globalization: Refers to the relationship between the power of markets
and (multinational) firms versus the nation-state, which is undergoing
continuous change and updating in reaction to economic and political forces.
Logarithmic scale: Advantage is the simultaneous depiction of the level of a variable
and the growth rate of that variable.
Slope: Reflects the growth rate of the variable.
Per capita income growth is not the only indicator of welfare. Over the long run, there has
been a dramatic increase in life expectation.
Globalization of trade tends to go hand in hand with the globalization of enterprises the
multinational enterprises.
Downwards sloping demand curve: People buy less of a good if its price is higher.
Upward sloping supply curve: Firms produce more of a good if its price rises.
Price wedge (between home and foreign price): Can be created by transport costs,
tariffs, trade impediments, cultural differences etc.
History:
- Discovery of New World with new commodities demand shifts to the right.
- Luxury items demand grew.
- First wave: 90e century increase in trade of basic and homogeneous
commodities.
- Second wave: After world war increase in trade of basic and differentiated
manufactured products.
- Spectacular decline in transportation costs
Capital market
- Foreign capital flows increase in end 90th century.
- Foreign capital flows drop in inter-war years.
- Sharp increase after the capital market liberalizations beginning in the 1960s.
, Migration
Real wage differences between countries explain the direction of migration flows to a
large extent. Still wage differences between countries exist:
- Migration quota
- Probability of finding a job.
- Lack of knowledge
Two waves:
- Millions of migrants departed from Europe to Australia, Canada, South America
and USA (of those that went to the USA most were relatively low-skilled)
- Immigration from Asia and from Eastern European Countries Restrictions
became more binding.
Technological and communication advances have enabled many production processes to
be subdivided into various phases which are physically separable, a process known as
fragmentation. This leads to increased interdependence of national economies.
Chapter 2
Vertical multinational activity: Triggers a trade flow because goods produced abroad
are subsequently exported back to the home country. (Here only a part of the value
chain is located in another country, i.e. production)
Horizontal multinational activity: Implies that a firm starts producing and selling
products or services to clients in a host country.
Statement of income: Description of the costs and benefits of the firm’s operations in a
book year, and hence of the resulting financial performance, reflecting an account of the
enterprise’s financial flows.
Problems international firms have when accounting on micro-level:
- It must decide how to account for foreign-currency transactions.
- It is confronted with diverging country-specific accounting regulations.
Balance payments:
- Current account: Income-related, pertaining to produced goods, provided
services, income and unilateral transfers (= for example foreign aid). Exports are
recorded as credit items (+) and imports as debit items (-).
- Capital/financial: A national account that shows the net change in asset
ownership for a nation. The capital account is the net result of public and private
international investments flowing in and out of a country and financial
account: A component of a country’s balance of payments that covers claims on
or liabilities to non-residents, specifically in regard to financial assets. Financial
account components include direct investment, portfolio investment and reserve
assets, and are broken down by sector.
Two types of trade
- Inter-firm: A US firm located in the United States, producing in the USA, and
exporting a product to final customers in another country.
- Intra-firm: A US firm located in the USA, selling (intermediate) goods to a
subsidiary (=dochteronderneming) it has in another country.
Market-seeking and inter-firm exports are substitutes.
Intra-firm exports and efficiency seeking are complements.
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