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ECON 441_ Introduction Notes and Task_2024

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kidaboy598
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECON 441_Muhia R N 2024

INTERNATIONAL ECONOMICS I
WEEK I. MEANING AND CONTEXT OF INTERNATIONAL ECONOMICS

This course stretches across two semesters (International Economics I and International Economics
II) and covers the subject matter of International trade (flow of goods and services among nations)
and International payments (between nations) and practical implications in the world economy.

International Economics I utilizes mostly micro-economics principles and covers the trade aspects,
whereas International Economics II applies both micro and macroeconomics principles and practice,
and covers the trade and payments aspects.

Trade is defined as the process of exchanging things that have value between two or more entities,
to satisfy a want (usually profit). Bertil Ohlin distinguishes between inter-regional or inter-local trade
and domestic trade. Unique features of international trade:

 Exchange takes place between one country and another.


 Factor mobility is imperfect
 Natural resource endowment is diverse
 Geographical and climatic differences may exist
 There are different currencies and their relative values differ
 It affects a country’s balance of payments. In trying to control balance of payments
problem, a country will affect its international trade performance
 Transport costs between countries are significant
 There exist differences between political and economic groupings and ideologies
 Countries engaged in trade have different economic, fiscal and commercial policies
 There often exist administrative restrictions among different trading partners.

Hence international trade involves:

 Exchange of goods and services


 Use of foreign exchange (currencies)
 Commodity exchange (the traded commodities may not be physically present at point of
trade eg. currencies, commodities etc)
 Electronic trade.

Why is international trade important?

1. Provides opportunity for improvement of standard of living of all people in the trading
nations
 Increased quantity of goods and services available
 Larger variety/quality hence increased consumer choice
2. A country can import the needed goods without the need for industrialization
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ECON 441_Muhia R N 2024

3. Provides a source of valuable foreign exchange


4. Encourages efficiency in production through competition
5. Enhances the need for mutual interdependence hence promotes peace and security among
nations. You do not fight the person whom you expect to buy your goods orprovide you
with vital goods and services eg. Kenya cannot fight Uganda over Migingo island due to the
critical trade links
6. Enlarged commodity market locally and abroad
7. Sharing of production technologies among nations
8. Increased flow of capital to promote growth (even where there little savings eg. South Sudan
benefiting from immense capital injection for Kenya)
9. Increased returns to factors of production with improved mobility. Services are tradable
hence the providers of the services can earn higher returns eg. Kenyan science teachers
working in Botswana, Kenyan IT professionals and architects working in Rwanda, Kenyan
doctors and other health professionals working in US and Europe.

Trade however has potential negative effects:

a. Possibility of dumping. Dumping is an illegal economy; there are two types of dumping that
can in the short and long term be detrimental to an economy.
 Price dumping: selling at below domestic production cost to capture a market and
sabotages the foreign production
 Quality dumping: Selling of substandard goods.
Q. Why does dumping occur and persist? One must be able to prove and legislate, which isoften
very costly exercise.

b. Weak economies may be exploited by larger ones (how?)


c. Cartels and other forms of trade organizations may lead to some countries/regions
benefiting at the cost of others.

Task:
1. Read the following article:
Ref: https://blogs.sussex.ac.uk/uktpo/publications/winners-and-losers-from-international-
trade-what-do-we-know-and-what-are-the-implications-for-policy/ Winners and losers from
International Trade: What do we know and what are the implications for policy? Briefing Paper
33 – July 2019 Michael Gasiorek, Julia Magntorn Garrett and Ilona Serwicka
Q. Discuss the positive and negative effects of trade, providing current local examples, and expand
on the list (above).
2. Refer: International Trade Meaning, features, inter-regional trade vs International trade on
https://www.youtube.com/watch?v=bvxoqWY-YCQ
Summarize the key issues in this video.

-Undertake Task 1 & 2 and Keep your summary notes.


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