INTERNATIONAL ECONOMICS
3703
Fien Peerenbooms
3de Bachelor Handelswetenschappen
,HC 1 - HFDST 1: INTRODUCTION ......................................................................................... 3
1. INTERNATIONAL TRADE (hfdst 2-9) ............................................................................... 3
2. INTERNATIONAL PRODUCTION (hfdst 10-12) .................................................................. 5
HC 1 - HFDST 2: ABSOLUTE ADVANTAGE .............................................................................. 7
1. DEFINING ABSOLUTE ADVANTAGE ................................................................................. 7
2. ABSOLUTE ADVANTAGE IN SUPPLY AND DEMAND ............................................................ 7
3. GAINS FROM TRADE ................................................................................................... 10
4. LIMITATIONS ............................................................................................................. 10
HC 2 - HFDST 3: RICARDIAN MODEL of comparative advantage .............................................. 11
1. FROM ABSOLUTE ADVANTAGE TO COMPARATIVE ADVANTAGE .......................................... 11
2. AUTARKY AND COMPARATIVE ADVANTAGE .................................................................... 13
3. INTERNATIONAL TRADE............................................................................................... 13
4. GAINS FROM TRADE ................................................................................................... 15
HC 2 - HFDST 4: HECKSCHER-OHLIN MODEL of comparative advantage ................................... 16
1. FACTORS OF PRODUCTION .......................................................................................... 16
2. FROM FACTORS OF PRODUCTION TO COMPARATIVE ADVANTAGE ..................................... 16
3. INTERNATIONAL TRADE............................................................................................... 17
4. GAINS FROM TRADE ................................................................................................... 19
5. FDI, MIGRATION AND COMPARATIVE ADVANTAGE .......................................................... 19
6. LIMITATIONS ............................................................................................................. 20
HC 3 - HFDST 5: INTRA-INDUSTRY TRADE ........................................................................... 21
1. INTRA-INDUSTRY AND INTER-INDUSTRY TRADE ............................................................. 21
2. GLOBAL PATTERNS OF INTRA-INDUSTRY TRADE ............................................................. 21
3. INTRA-INDUSTRY TRADE UNDER MONOPOLISTIC COMPETITION ....................................... 22
4. THE SMOOTH ADJUSTMENT HYPOTHESIS ...................................................................... 23
HC 3 - HFDST 6: THE POLITICAL ECONOMY TRADE ................................................................ 24
1. APPROACHES TO THE POLITICAL ECONOMY OF TRADE .................................................... 24
2. COMPARATIVE ADVANTAGE, TRADE, AND FACOTRS OF PRODUCITION .............................. 24
3. NORTH-SOUTH TRADE AND WAGES .............................................................................. 26
4. THE ROLE OF SPECIFIC FACTORS ................................................................................. 26
HC 3 - HFDST 7: TRADE POLICY ANALYSIS ........................................................................... 28
1. ABSOLUTE ADVANTAGE REVISITED............................................................................... 28
2. TRADE POLICY MEASURES ........................................................................................... 28
3. A TARIFF ................................................................................................................... 30
4. TERMS OF TRADE EFFECTS .......................................................................................... 30
5. A QUOTA ................................................................................................................... 31
6. SUMMARIZE FOUT POSSIBILITIES ................................................................................ 31
7. COMPARATIVE ADVANTAGE MODELS ............................................................................. 32
APPENDIX 7.1: THE IMPERFECT SUBSTITUTES MODEL ........................................................ 32
HC 4 - HFDST 8: THE WORLD TRADE ORGANIZATION ............................................................ 33
1. THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) ............................................ 33
2. THE WORLD TRADE ORGANIZATION (WTO) ................................................................... 34
3. TRADE IN GOODS ....................................................................................................... 35
4. TRADE IN SERVICE ..................................................................................................... 35
, 5. INTELLECTUAL PROPERTY (IP) ...................................................................................... 36
6. DISPUTE SETTLEMENT ................................................................................................ 37
HC 4 - HFDST 9: PREFERENTIAL TRADE AGREEMENT (PTAs) ................................................... 38
1. Types of Preferential Trade Agreements (PTAs) ............................................................... 38
2. Rules of Origin (ROOs) ................................................................................................ 38
3. The economic effects of PTAs ....................................................................................... 39
4. The European Union .................................................................................................... 40
10. Regionalism and Multilateralism .................................................................................. 41
HC 5&6 - HFDST 10: MULTINATIONAL ENTERPRISES AND FOREIGN DIRECT INVESTMENT .......... 42
1. FOREIGN MARKET ENTRY............................................................................................. 42
2. MOTIVATIONS FOR INTERNATIONAL PRODUCTION ......................................................... 43
3. ENTRY MODE CHOICE ................................................................................................. 44
4. PATTERNS OF FDI ....................................................................................................... 45
6. THE HOME BASE ......................................................................................................... 47
7. JOINT VENTURE ......................................................................................................... 49
8. RESEARCH AND DEVELOPMENT .................................................................................... 49
9. MNEs ........................................................................................................................ 49
HC 5&6 - HFDST 11: GLOBAL VALUE CHAIN ......................................................................... 51
1. TASKS AND VALUE CHAIN ........................................................................................... 51
2. FROM VALUE CHAINS TO GLOBAL VALUE CHAINS ........................................................... 51
3. FIRM-SPECIFIC ASSETS AND INTERNALIZATION ............................................................. 52
4. INTRA-FIRM TRADE..................................................................................................... 53
5. A COST VIEW OF INTERNALIZATION ............................................................................. 53
6. INTER-FIRM RELATIONSHIPS ....................................................................................... 54
7. TRYPING THINGS TOGHETER: THE TLM FRAMEWORK ...................................................... 54
8. VALUE ADDED GVCs ................................................................................................... 54
9. TRADE VALUE ADDED ................................................................................................. 55
10. TRADE POLICY AND GLOBAL VALUE ............................................................................ 56
HC 5&6 - HFDST 12: ENGAGING INTERNATIONAL PRODUCTION.............................................. 57
1. ATTRACTING INTERNATIONAL PRODUCTION .................................................................. 57
2. BENEFITS AND COSTS................................................................................................. 57
3. POLICY STANCES ........................................................................................................ 58
4. ENTERING GLOBAL VALUE CHAINS ............................................................................... 59
5. PROMOTING LINKAGES ............................................................................................... 59
6. GOVERNING INTERNATIONAL PRODUCTION ................................................................... 59
, HC 1 - HFDST 1: INTRODUCTION
1. INTERNATIONAL TRADE (hfdst 2-9)
1.1 What is international trade?
Def. International trade* = the exchange of both goods and services between the countries of
the world.
§ Goods: tangible and storable (ex. Steel, automobiles, wine, bananas)
§ Services: intangible and non-storable (ex. financial services, architectural services,
engineering services)
Trade in services accounts for approximately ¼ of global trade.
1.2 Gross domestic product (GDP) and global export in the economy (1970-2018)
International trade in goods and services is playing an increasing role in the world economy.
Figure. 1.1
This figure plots two series of date for the years 1970 to
2018.
The first series, represented by a dashed line, is inflation-
adjusted world gross domestic product* (GDP), a
measure of world output.
The second series, represented by a solid line, is inflation-
adjusted world exports.
The lines have been normalized so that the value in 1970
is 100, and the values for each subsequent year are
measured relative to 1970.
Over the decades considered trade activity increased more rapidly than production activity in the
world economy. = one of the main features of globalization.
Def. Globalization = the expansion in the exchange of goods and services between the
countries of the world.
You can also see that trade decreased more quickly in 2009 than did production in response to the
2008 GFC before recovering its previous trajectory.
GFC = Global Financial crisis (credit crunch 2007-2008)
3703
Fien Peerenbooms
3de Bachelor Handelswetenschappen
,HC 1 - HFDST 1: INTRODUCTION ......................................................................................... 3
1. INTERNATIONAL TRADE (hfdst 2-9) ............................................................................... 3
2. INTERNATIONAL PRODUCTION (hfdst 10-12) .................................................................. 5
HC 1 - HFDST 2: ABSOLUTE ADVANTAGE .............................................................................. 7
1. DEFINING ABSOLUTE ADVANTAGE ................................................................................. 7
2. ABSOLUTE ADVANTAGE IN SUPPLY AND DEMAND ............................................................ 7
3. GAINS FROM TRADE ................................................................................................... 10
4. LIMITATIONS ............................................................................................................. 10
HC 2 - HFDST 3: RICARDIAN MODEL of comparative advantage .............................................. 11
1. FROM ABSOLUTE ADVANTAGE TO COMPARATIVE ADVANTAGE .......................................... 11
2. AUTARKY AND COMPARATIVE ADVANTAGE .................................................................... 13
3. INTERNATIONAL TRADE............................................................................................... 13
4. GAINS FROM TRADE ................................................................................................... 15
HC 2 - HFDST 4: HECKSCHER-OHLIN MODEL of comparative advantage ................................... 16
1. FACTORS OF PRODUCTION .......................................................................................... 16
2. FROM FACTORS OF PRODUCTION TO COMPARATIVE ADVANTAGE ..................................... 16
3. INTERNATIONAL TRADE............................................................................................... 17
4. GAINS FROM TRADE ................................................................................................... 19
5. FDI, MIGRATION AND COMPARATIVE ADVANTAGE .......................................................... 19
6. LIMITATIONS ............................................................................................................. 20
HC 3 - HFDST 5: INTRA-INDUSTRY TRADE ........................................................................... 21
1. INTRA-INDUSTRY AND INTER-INDUSTRY TRADE ............................................................. 21
2. GLOBAL PATTERNS OF INTRA-INDUSTRY TRADE ............................................................. 21
3. INTRA-INDUSTRY TRADE UNDER MONOPOLISTIC COMPETITION ....................................... 22
4. THE SMOOTH ADJUSTMENT HYPOTHESIS ...................................................................... 23
HC 3 - HFDST 6: THE POLITICAL ECONOMY TRADE ................................................................ 24
1. APPROACHES TO THE POLITICAL ECONOMY OF TRADE .................................................... 24
2. COMPARATIVE ADVANTAGE, TRADE, AND FACOTRS OF PRODUCITION .............................. 24
3. NORTH-SOUTH TRADE AND WAGES .............................................................................. 26
4. THE ROLE OF SPECIFIC FACTORS ................................................................................. 26
HC 3 - HFDST 7: TRADE POLICY ANALYSIS ........................................................................... 28
1. ABSOLUTE ADVANTAGE REVISITED............................................................................... 28
2. TRADE POLICY MEASURES ........................................................................................... 28
3. A TARIFF ................................................................................................................... 30
4. TERMS OF TRADE EFFECTS .......................................................................................... 30
5. A QUOTA ................................................................................................................... 31
6. SUMMARIZE FOUT POSSIBILITIES ................................................................................ 31
7. COMPARATIVE ADVANTAGE MODELS ............................................................................. 32
APPENDIX 7.1: THE IMPERFECT SUBSTITUTES MODEL ........................................................ 32
HC 4 - HFDST 8: THE WORLD TRADE ORGANIZATION ............................................................ 33
1. THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) ............................................ 33
2. THE WORLD TRADE ORGANIZATION (WTO) ................................................................... 34
3. TRADE IN GOODS ....................................................................................................... 35
4. TRADE IN SERVICE ..................................................................................................... 35
, 5. INTELLECTUAL PROPERTY (IP) ...................................................................................... 36
6. DISPUTE SETTLEMENT ................................................................................................ 37
HC 4 - HFDST 9: PREFERENTIAL TRADE AGREEMENT (PTAs) ................................................... 38
1. Types of Preferential Trade Agreements (PTAs) ............................................................... 38
2. Rules of Origin (ROOs) ................................................................................................ 38
3. The economic effects of PTAs ....................................................................................... 39
4. The European Union .................................................................................................... 40
10. Regionalism and Multilateralism .................................................................................. 41
HC 5&6 - HFDST 10: MULTINATIONAL ENTERPRISES AND FOREIGN DIRECT INVESTMENT .......... 42
1. FOREIGN MARKET ENTRY............................................................................................. 42
2. MOTIVATIONS FOR INTERNATIONAL PRODUCTION ......................................................... 43
3. ENTRY MODE CHOICE ................................................................................................. 44
4. PATTERNS OF FDI ....................................................................................................... 45
6. THE HOME BASE ......................................................................................................... 47
7. JOINT VENTURE ......................................................................................................... 49
8. RESEARCH AND DEVELOPMENT .................................................................................... 49
9. MNEs ........................................................................................................................ 49
HC 5&6 - HFDST 11: GLOBAL VALUE CHAIN ......................................................................... 51
1. TASKS AND VALUE CHAIN ........................................................................................... 51
2. FROM VALUE CHAINS TO GLOBAL VALUE CHAINS ........................................................... 51
3. FIRM-SPECIFIC ASSETS AND INTERNALIZATION ............................................................. 52
4. INTRA-FIRM TRADE..................................................................................................... 53
5. A COST VIEW OF INTERNALIZATION ............................................................................. 53
6. INTER-FIRM RELATIONSHIPS ....................................................................................... 54
7. TRYPING THINGS TOGHETER: THE TLM FRAMEWORK ...................................................... 54
8. VALUE ADDED GVCs ................................................................................................... 54
9. TRADE VALUE ADDED ................................................................................................. 55
10. TRADE POLICY AND GLOBAL VALUE ............................................................................ 56
HC 5&6 - HFDST 12: ENGAGING INTERNATIONAL PRODUCTION.............................................. 57
1. ATTRACTING INTERNATIONAL PRODUCTION .................................................................. 57
2. BENEFITS AND COSTS................................................................................................. 57
3. POLICY STANCES ........................................................................................................ 58
4. ENTERING GLOBAL VALUE CHAINS ............................................................................... 59
5. PROMOTING LINKAGES ............................................................................................... 59
6. GOVERNING INTERNATIONAL PRODUCTION ................................................................... 59
, HC 1 - HFDST 1: INTRODUCTION
1. INTERNATIONAL TRADE (hfdst 2-9)
1.1 What is international trade?
Def. International trade* = the exchange of both goods and services between the countries of
the world.
§ Goods: tangible and storable (ex. Steel, automobiles, wine, bananas)
§ Services: intangible and non-storable (ex. financial services, architectural services,
engineering services)
Trade in services accounts for approximately ¼ of global trade.
1.2 Gross domestic product (GDP) and global export in the economy (1970-2018)
International trade in goods and services is playing an increasing role in the world economy.
Figure. 1.1
This figure plots two series of date for the years 1970 to
2018.
The first series, represented by a dashed line, is inflation-
adjusted world gross domestic product* (GDP), a
measure of world output.
The second series, represented by a solid line, is inflation-
adjusted world exports.
The lines have been normalized so that the value in 1970
is 100, and the values for each subsequent year are
measured relative to 1970.
Over the decades considered trade activity increased more rapidly than production activity in the
world economy. = one of the main features of globalization.
Def. Globalization = the expansion in the exchange of goods and services between the
countries of the world.
You can also see that trade decreased more quickly in 2009 than did production in response to the
2008 GFC before recovering its previous trajectory.
GFC = Global Financial crisis (credit crunch 2007-2008)
