international economics assignment help

international economics assignment help

International Economics: A Comprehensive Study

1. Introduction to International Economics

Trading among nations has occurred for millennia; hence, the foundation for the present-day claims was established very many years ago. International trade enables a country to specialize in the production of those goods in which it is more efficient, that is, to produce at a lower opportunity and domestic cost, and to exchange them for the specialized products of other nations. This is the key of David Ricardo’s law of comparative advantage. Naturally, the focus of international trade occurred during the mercantilist period of the preceding several centuries. Opportunism – international trade plays an important role in the economic development of every country. Any country can survive by doing so, as no country has all the essential requirements for producing all goods in economic development.

International economics has become a fragment of general economics. International economy, as a part of economics, has been called by various names like Foreign Exchange Economy, International Monetary Economy, Inter-country relationships, and Foreign Trade Economy or by the name of the International Economic Organization. C.P Kindleberger proposed the name of the International Economy in the twenties of the last century and it was accepted for long usage thereafter. The area of International Economics is very wide as it includes Monetary Economics, Macroeconomics, or Economic Theory. Hence, for a better understanding of International Economics, the subject should be broken into syllabus. The taxable subjects of International economics are the exchange rate system, balance of payment movements, and approach to the balance of payments.

2. The Role of International Trade

Trade represents the strongest link between the various countries, and it is the result of the requirement, common to all countries, to secure resources and goods that are necessary and desirable. As it is known, resources and goods do not spread evenly throughout the world. That is the reason for this asymmetrical distribution of resources and goods, as well as the different techniques of production and the existence of differences in tastes and habits between the people from different regions. This leads to commodities being produced in a limited number of countries. The volume and means for the production of the necessary and desirable goods have to be placed that will allow them to be cultivated. The economy will thus benefit both the producers and the consumers of the goods. Therefore, international trade is determined by differences in productive factors and differential needs and habits between the people of the world. With international trade, countries can produce the most suitable and attractive goods simultaneously.

This chapter is devoted to the study of international trade, which constitutes one of the most important topics of international economics. The objective is to investigate the role of exports and imports in the economic development of a country, as well as in its economic mechanism. The study covers both theoretical aspects of international trade, as well as important concepts, such as the arguments for protection, the reasons for the existence of economic entities, and the nature and conditions of trade agreements. Trade is a subject of particular importance in both economic analysis and political and social life.

3. International Monetary Systems

Post-Bretton Woods Monetary System Defined: A post-Bretton Woods system is any currency system that is established without an immediate peg or fix system. Countries engage in bilateral talk with each other, with China clarifying months ago that it would continue to allow the Yuan to ‘appreciate’ demanding that no immediate link is provided. Generally, this may be picture perfect for assisting countries to develop both internal and external policies.

An adjustable peg system essentially consists of a system where a country allows the value of its currency to adjust periodically in response to changing domestic and external factors. The approach is utilized as an alternative to the rigid fixed exchange rate system, approved under the Bretton Woods conference that defined the terms of the international monetary system. In present day, economists have argued that developing countries should adopt this option as the appropriate remedy to balance of payment problems because it allows the potential growth of the system to stabilize the endogenous output by inflationary pressure without losing the control of domestic monetary policy.

The foreign exchange system refers to how the currencies of various countries are traded and the value at which they are traded. The system that determines the rate of exchange in a country basically depends on the type of exchange rate system it has. Exchange rate arrangement may take various forms. A country with a fixed exchange rate system pegs its currency to a fixed parity, i.e., the value of the currency in exchange for the reserve currency is fixed. A country may also peg the foreign exchange rate of its reserve to lose. In that case, a number of things might happen. It may maintain the original parity or value of the rate, or the value of the rate may, from time to time, be adjusted to the internal inflationary process or balance of payment disequilibrium. A country may also decide to link its currency to a basket of currencies and commodity prices without identifying the individual currency.

4. Economic Integration and Regional Trade Agreements

Moreover, the extent to which a regional agreement delivers the global public good of trade liberalization may crucially depend, contrary to traditional expectations, on the size, prevalence, income structures, and trade policies of non-member countries, on the extent of heterogeneity among member countries, and on the extent of preference distortions. Differences in the size of participating countries are likely to increase the distributional gains of a regional agreement, making it easier for these countries to overcome their collective action problem of global cooperation and internalize the global external economies of scale associated with a trade agreement. Intuitively, with differences in size, even the small country becomes relatively large once other small countries join the agreement. Thus, the large country is more willing to overcome whatever international collective action problem may have stood in the way of a global agreement. Moreover, the scope for a regional agreement to resolve the free-rider problem will be greater when the distribution of country sizes is more even, making it more likely that the hitherto small country is a member of a given coalition of countries.

In recent years, two basic facts of international trade and economic integration have been salient. First, economic integration has been a strong force that motivated much of economic policy and propelled international trade and investment in the second half of the 20th century. Second, policymakers around the world have embraced regionalism. According to the World Trade Organization, there were 346 regional trade agreements in force by 2004. From an economist’s perspective, the strongest positive motivation for preferring a regional agreement over a global one is the ease with which a small number of countries can solve the collective action problem associated with global cooperation. However, the static and dynamic inefficiency of a regional agreement relative to a global cooperative solution should raise doubts about the wisdom of regionalism as a first-best strategy, a concern that becomes even greater when one considers the spread effect of regionalism on countries not participating in the agreement.

5. Current Issues and Challenges in International Economics

It is fairly well known that Japan and the Far East have been through an unprecedented period of robust growth in the last five decades. Japan has done particularly well. The Japanese “miracle” had two contrasting implications. One is a challenge and the other is an inspiration. The challenge is that if countries are to catch up with Japan, or similar countries like Singapore and Hong Kong, they need to mimic the economic policies supported by these countries. These economic policies are at variance with those recommended by the World Bank (and IMF). Furthermore, the recent crisis in many East Asian countries has shaken the credibility of World Bank policies. A heated debate existed well before the crisis erupted about the relevance of World Bank policies. However, the debate typically was carried out in the language and models developed for the closed economy case. The utopian assumptions thrown up by the closed economy static general equilibrium models enabled the respective protagonists to make claims about the effectiveness or lack of it of specific policies. When the debate has to rely on dynamic stochastic general equilibrium models, it is an open question whether it will be possible for anyone to draw serious conclusions.

The subject of international economics has been pushed to the center stage of economic analysis. In recent years, international economic theory has been extended and currently our understanding of the subject is comprehensive enough to enable us to face the challenges posed by international economic issues. It is the purpose of this final chapter of the book to discuss current issues and challenges. Only generic issues are considered here. The fact-specific issues can be taken up as research. The chapter starts with a discussion of what I have called the Butchers’ Bill. Most economists look at all technological and policy changes as an unmitigated blessing and have not paid adequate attention to the large number of people adversely affected by the changes. One challenge facing the profession is how to address this issue properly.