International economics

Foreign economic theory (or International Economics ) is a branch of economics. It deals with all matters related to the cross-border movement of goods, persons, services and capital. She turns there on the statements and theories of macroeconomics and microeconomics.

3.1 Statistical summaries of international financial flows
3.2 Exchange Rates and Foreign Trade
3.3 Exchange rate regimes

4.1 Procedure of the World Trade
4.2 European Integration
4.3 Other rooms integration

Subdivision

Foreign economic theory is divided today into three phases: the real ( economic goods ) theory, monetary theory and the theory of economic integration. The real external economy is the traditional core of International Economics (which is why it is called in older textbooks as " pure foreign trade "). It deals with the foreign trade market and the relevant sizes there export and import.

However, monetary aspects have gained a far greater importance in recent decades, in particular by the collapse of the Bretton Woods system. The monetary Trade Theory has therefore emerged as a second important pillar of foreign economic theory since the 1960s. It examines the foreign exchange ( and there especially the exchange rate ). Both approaches were long largely unconnected.

As the newest strand of foreign economic theory have in recent decades, but in particular emerged theories on issues of economic integration in the 1990s. They combine real and monetary foreign trade and represent today's most highly regarded in the public strand of Foreign Trade dar.

A separate area of knowledge are economic aspects of foreign economics, such as the initiation and processing of export transactions, to hedge against foreign exchange rate, economic, and political risks.

Economic goods (real ) Trade Theory

Foreign trade theories

One speaks in this context of the real external economic theory. The goods economic theory is concerned with the causes of foreign trade. This comes about when

Goods are not available in a country (eg Germany imported bananas)
Countries have different cost advantages.
Although the domestic market can produce at a lower cost, but has comparative cost disadvantages (the principle of comparative advantage ). Example, a country may matter a lot cheaper and a little cheaper wine produced as a different country. It will focus on material to produce and partly because of comparative advantage to trade against foreign wines, as it with limited production capacity is useful to focus on what can be produced much cheaper.

The essence of international trade theory is that specialization and trade increase the welfare of all countries. This is true at least when on the world markets, an exchange ratio terms of trade is emerging, in which both sides benefit.

Comparative cost advantage by Ricardo

The English economist David Ricardo showed that even a country that has for all goods on absolute cost advantages, can still benefit from trade if it exploits its based on differences in technology comparative advantage. The assumptions of Ricardo assume a market with only one factor of production and two goods that can be produced in two different modes of production in two different countries with more or less effort. This can be explained by the existence of differences in technology. Furthermore, he assumes constant returns to scale and therefore excludes the emergence of scale ( economies of scale) from principle. In the modeled economies of him a full employment of factors of production is assumed.

Quintessence of his thinking is that specialization and trade increase the welfare of all countries. This is true at least when on the world markets, an exchange ratio terms of trade is emerging, in which both sides benefit.

However, the benefits from foreign trade are subject to assumptions, which are in practice not readily met. The existence of transport costs and a share of non-tradable goods is ignored. It is further assumed that factors of production in the countries involved are flexible, so that a country that, for example, loses its advantages in the field of agriculture, which can use in industries labor force employed readily in the above advantages foreign trade have.
The specialization can lead to monocultures, which countries are dependent on one product and the terms of trade can emerge that are no longer beneficial for the country; suffer from this problem, many developing countries.

Comparative cost advantage for the Heckscher- Ohlin theorem

In contrast to the Ricardian model, the Heckscher- Ohlin theorem is based on two factors of production, namely capital and labor. It is thereby assumed a Cobb- Douglas production function with positive but diminishing marginal productivity of the factors of production. Furthermore, it assumes international resistant homogeneous preferences. According to the Heckscher- Ohlin theorem, it comes in two economies with different production technologies ( capital-and labor-intensive production ) did not complete specialization as in the Ricardian model. Within the domestic sector, the factors of production migrate depending on the terms of trade between the labor-and capital-intensive sectors of the economy. Through this internal migration within national economies creates the necessary export surplus.

Accordingly, each country will use those factor intensively, with which it is equipped compared with other countries in abundance, because it has a cost advantage in such production structures. Therefore the factor is gaining real against the autarky situation without trade with the country is richly endowed.

According to the Stolper - Samuelson theorem duties cause a restriction of trade; the previously imported goods are re-established itself. This leads to a declining use of the relatively abundant factor and increased pressure on the use of the previously very scarce factor. The overall less efficient allocation of the two factors of production leads to a welfare loss compared to the free trade situation.
The Leontief paradox was documented in the 1950s. Foreign trade of that time often did not agree with the calculated based on the Heckscher Ohlin model freight flows. Apparently, the differences in features are factors of production between countries is not the only basis for international trade.

The Heckscher Ohlin model explains the North-South trading better than the North - South trade between industrialized countries with similar production structure.

Trade policy and protectionism

Although a free world trade according to the theory of comparative costs favors, seized and countries take protectionist measures to restrict trade to the prosperity of all economies. Also show different model approaches that for large countries whose trade policy can influence the world market and the terms of trade quite a optimal tariff exists, through which they can maximize national welfare at the expense of the rest of the world. This beggar- my-neighbor strategy only works in the short term, long term respond because the countries affected by the duties and even impose trade barriers on their part. The benefits of free trade for the individual are often not consciously aware of this, while the disadvantages are often small groups (for example, the miners in Germany ) hit very hard, the speed according to articulate their interests.

Traditional instruments of strategic trade policies are tariffs, quotas and export subsidies. They are referred to as tariff barriers. Had a great importance also have non-tariff measures such as voluntary restraint agreements, foreigners discriminatory rules and standards or bureaucratic regulations. (Limit surcharges, consular fees, port charges, health and safety regulations, subsidies and other state aid, Importentmutigende laws ... )

Balance of Payments Theory

While the goods economic theory is concerned with the international exchange of goods and services, monetary foreign trade theory considers the cash flows. These result in part from the payment processing of goods and services flows to a much larger part but from the international movement of capital, ie the purchase and sale of foreign equities, government bonds, currencies, etc.

The monetary Trade Theory investigated:

The transmission mechanisms through which monetary economic effects real consequences, eg unfold on competitiveness, trade surplus or trade deficit and economic growth
Analyzes the international movement of capital ( see also capital account )
Definition of external balance involving the international movement of capital
Analysis of the effectiveness of stabilization policy in economies that interact with the international goods and capital markets, taking account of different exchange rate regimes
The exchange rate theory examines the exchange rate behavior of flexible exchange rate regimes
The study of the advantages and disadvantages of different exchange rate regimes
Analysis of currency crises

Statistical summaries of international financial flows

Definitional framework for the representation of the cross-border money and capital flows, the balance of payments. This is a whole, always balanced, as all imbalances will ultimately offset by the central bank, whose foreign exchange reserves change accordingly. From a balanced balance of payments is when do not change the foreign exchange reserves, ie the foreign exchange balance is balanced. Instruments for payments adjustments are the exchange rate and the interest rate.

Exchange rate and foreign trade

The price of a currency ( exchange rate ) is determined by supply and demand. The exchange offer arises from all transactions in the balance of payments a credit entry trigger (eg goods exports, capital inflows). The demand for foreign currency arises from all transactions in the balance of payments a debit posting trigger (eg goods imports, capital outflows ). If the demand for a currency is greater than the supply, then the exchange rate ( appreciation ) increases. Exchange rate changes have a direct effect on trade. For example, a car valued at $ 20,000 costs at an exchange rate of 0.80 € / $ 16,000 €, with an exchange rate of 0.90 € / $ 18,000 €.

The classical assumption of monetary international economics is that supply and demand results in foreign exchange markets alone from foreign trade: Exporters save foreign exchange and offer them, importers need to pay their bills on foreign exchange and ask for it.

The exchange rate makes freely according to supply and demand, then affect imbalances in the balance of payments, the exchange rate and the exchange rate in turn affects the balance of payments. If a country has a surplus in the balance of payments, exceeds the supply in the foreign exchange market demand, the price of the foreign currency depreciates (relative price level reduction ) or the domestic currency enhances (relative price level increase). However, an appreciation of the domestic currency increases the cost of exports, so that a normal price elasticity of demand provided less export goods are in demand abroad, and consequently decrease the exports. At the same import goods cheaper, so that imports rise. Thus, the surplus decreases in the balance of payments. This only simplifies reproduced here argument was that, when the Bretton Woods system collapsed in the late sixties of fixed exchange rates, the demand for flexible exchange rates could be noisy. However, the balance of payments is highly influenced by capital flows, although they also respond to exchange rates, but also by interest rate differentials, growth expectations, etc. are affected.
With fixed exchange rates, the adaptation of the inflation takes place.

Exchange rate regimes

The exchange rate regimes initially differ in those with fixed exchange rate and those with flexible exchange rate. Both forms have specific advantages and disadvantages.

Even during the Second World War, the reorganization of the international monetary system was initiated with the establishment of the International Monetary Fund ( IMF) and its sister organizations, the World Bank and the International Bank for Reconstruction and Development ( IBRD) at a conference in Bretton Woods. The exchange rate relations between IMF members were governed by the Bretton Woods system, a fixed exchange rate system, in which were allowed to vary the exchange rate within a band of 1% of the parity to the U.S. dollar as the anchor currency. The dollar was partially backed by gold. When the system collapsed early seventies, the European monetary system took shape in Europe in which the highly integrated European Union countries agreed among themselves fixed exchange rates.

IMF's mission today is mainly to monitor the stability of the currencies of its members ( Surveillance) and the grant of bridging loans in order to avoid currency crises. However, the IMF members pursued at times informal exchange rate targets, such as 1985, when she an extremely strong appreciation of the dollar stopped in concerted action and in 1987, when they finished the fall of the dollar.

International economic integration

Real and monetary foreign trade theory are combined via the so-called integration theory. It is the result of the currently observed increasing economic integration, which in turn is the direct result of increased freight economic and monetary interaction between states.

The phenomenon of economic integration has evolved in recent years to a third pillar of International Economics, as it has a particularly strong public attention. In this context, currently considered processes of globalization and the globalization criticism.

Be distinguished from de facto economic integration through the market and competition is operated by States through international treaties, institutionalized economic integration through the establishment of various international organizations, such as free trade zones, so you have to speak each of both parallel integration and institutionalization processes.

Examples of such forms of integration are the European Union, the German Tariffs and Trade Association (1834-1871), the North American Free Trade Agreement ( NAFTA) or the Association of Southeast Asian Nations ( ASEAN). Regional integration is supported and promoted by the World Trade Organization ( WTO) with its main pillars GATT and GATS on a global scale.

However, to study these relationships, the International Economics has been on a relatively small theoretical spectrum. In recent decades, only a few theories of integration have emerged, but there are mainly in the area of monetary integration a number of scientific papers, which are summarized under the term theory of optimum currency areas.

Especially with institutionalized economic integration, the traditional foreign economic doctrines and theories of integration have the theoretical and practical problem to have no criteria for when initially foreign trade - international integrations achieve degree such compression ( convergence, networking, concentration, synergy ) that they turn into a single national economy ( domestic economy, political economy ). In particular, unification of law (abolition of internal borders, creating a single market, legal security, etc.) are unilaterally economic integration lessons to cope with difficulty.

As part of the globalization debate has esp. developed in the 1990s partly sharp dispute between supporters and opponents. The theoretical equipment this form until today esp. the well-known foreign trade theories, but which globalization critics deny the overarching significance.

World trade order

After the Second World War, the reorganization of world trade began in 1947 with the establishment of the General Agreement on Tariffs and Trade (GATT ). Within this framework, eight rounds of negotiations were held, in which the duties were lowered around the world. The eighth round (so-called Uruguay Round ) ended in 1995 with the establishment of the World Trade Organization. As a result, the Doha Round was launched in 2001.

European Integration

As the world's most successful integration project has to date, the European Union proved ( since 1957 ), since they repealed by supranational EU uniform law previously legally independent external economies of the EU countries and to a constitutional and foreign trade legally single, but economic policy continue to federal domestic economy without internal frontiers has merged. She has successfully successively climbed only one of the many started in the world integrations several, increasingly complex levels of integration and realized by been qualitatively and quantitatively extended and deepened from the initial customs union on the Common Market until the completion of the internal market with domestic trade (1992 ) is. It is now a mature Economic and Monetary Union ( EMU) with deep -reaching legal entity internally and externally, some of which even a political union with the further integration columns Constitution, which is equivalent to increasing the National.

The International Economics measures of European integration a majority with a strong positive benefit. EU member states such as Ireland, Spain, Portugal and the CEECs have as domestic EU, not least because of the fertile single institutional framework of the border-free EU domestic economy with convergence and networking, structural changes and division of labor in production and synergies in trade a considerable economic achieved growth.

Other integration spaces

In Europe, EFTA was established in parallel to the EU ( European Free Trade Association), but most of its members were gradually joined the EU. In Eastern Europe, had emerged as a counterpoint to Marshall Plan aid, the Council for Mutual Economic Assistance (CMEA, COMECON ) in 1991, broke up at the end of the planned economic system.

In North America, the US- Canadian free trade zone was formed in 1994 through the accession of Mexico, the NAFTA ( North American Free Trade Agreement). In South America, Argentina, Uruguay, Brazil and Paraguay established the Mercosur. In the planning is a pan-American free trade area FTAA.

In Asia, regional economic integration is still in its infancy. While in Southeast Asia has existed since 1967, the ASEAN, but its members do only present the first steps towards a free trade zone.

Economic aspects of International Economics

Operationally, cross- border transactions are associated with particular risks: Due to the fact that businesses are always subject to a foreign trade or foreign trade law and are often denominated in foreign currencies, there is a need for a hedge against exchange rate risks (eg by hedging). The fact that the transport distances are longer, creates larger transport risks than domestic trade. Therefore, clear agreements are to be taken where risks from shipper to the recipient and who is to bear the costs. In order to create clear rules here, internationally clearly defined in contracts trade clauses.

Furthermore, foreign trade is subject to specific countries and political risks. A government-guaranteed hedge against such risks is the Hermes guarantees in Germany. Hedging in foreign trade is possible, for example, by documentary.

It may also be difficult to enforce claims against the other parties whose legal domicile is abroad and on the domestic law therefore does not apply.

Politics of world trade

In addition to economic interests also have political motives of a state to align the national trade policy at: These typically include mutual trade concessions or free trade agreements that are offered to a State as a reward for his allegiance, and the erection of trade barriers and embargoes, from which a nation under pressure will be without that military force must be applied. In addition, the foreign trade policy of a state can be influenced by lobbies from the inside, if this threatens an economic disadvantage, for example due to planned market openings.

However, for international trade policies serve no one-sided pursuit of power, the WTO greatest possible degree of justice among its members attempt to establish through binding international rules.

Capital (economics) Zollverein List of countries by exports Paul Krugman Maurice Obstfeld Integrated Authority File

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