INTERNATIONAL TRADE
POLICY
, OVERVIEW OF INTERNATIONAL
ECONOMICS
International economics deals with the economic
interdependence among nations.
Itanalyses flow of goods, services, and payments between a
nation and the rest of the world, the policies directed at
regulating this flow, and their effect on the nation’s welfare.
It deals with international trade theory, international trade
policy, the balance of payments and foreign exchange
markets, and open-economy macroeconomics.
Open-economy macroeconomics deals with mechanisms for
adjustment in BoP disequilibria as well as effects of
macroeconomic interdependence among nations under
different international monetary systems, and their effect on a
nation’s welfare.
, OVERVIEW OF INTERNATIONAL
ECONOMICS
The balance of payments measures a nation’s total receipts
from and the total payments to the rest of the world.
Foreign exchange markets are frameworks for the exchange of
one national currency for another.
Internationaltrade theory analyses the basis for trade and the
gains from trade.
International trade policy examines the reasons for and the
effects of trade restrictions and new protectionism.
, SOME BASIC THEORIES OF TRADE
1) The Theory of Absolute Advantage—Adam Smith
advocated for free trade as the best trade policy for nations
of the world.
The theory states that with free trade, each nation specialises
in the production of those commodities in which it has an
absolute advantage (can produce more efficiently than other
nations) and import those commodities in which it has an
absolute disadvantage (can produce less efficiently).
This international specialisation of factors in production would
result in an increase in world output which would be shared by
the trading nations.
A nation would thus not gain at the expense of other nations—
all nations would gain simultaneously.
POLICY
, OVERVIEW OF INTERNATIONAL
ECONOMICS
International economics deals with the economic
interdependence among nations.
Itanalyses flow of goods, services, and payments between a
nation and the rest of the world, the policies directed at
regulating this flow, and their effect on the nation’s welfare.
It deals with international trade theory, international trade
policy, the balance of payments and foreign exchange
markets, and open-economy macroeconomics.
Open-economy macroeconomics deals with mechanisms for
adjustment in BoP disequilibria as well as effects of
macroeconomic interdependence among nations under
different international monetary systems, and their effect on a
nation’s welfare.
, OVERVIEW OF INTERNATIONAL
ECONOMICS
The balance of payments measures a nation’s total receipts
from and the total payments to the rest of the world.
Foreign exchange markets are frameworks for the exchange of
one national currency for another.
Internationaltrade theory analyses the basis for trade and the
gains from trade.
International trade policy examines the reasons for and the
effects of trade restrictions and new protectionism.
, SOME BASIC THEORIES OF TRADE
1) The Theory of Absolute Advantage—Adam Smith
advocated for free trade as the best trade policy for nations
of the world.
The theory states that with free trade, each nation specialises
in the production of those commodities in which it has an
absolute advantage (can produce more efficiently than other
nations) and import those commodities in which it has an
absolute disadvantage (can produce less efficiently).
This international specialisation of factors in production would
result in an increase in world output which would be shared by
the trading nations.
A nation would thus not gain at the expense of other nations—
all nations would gain simultaneously.
