La relación entre todos los aspectos de la economía de la nación

Chapter 1

The linkage between all aspects of a nation’s economy (its industries, service sectors, living standard, the levels of income and employment) and the economies of its Trading Partners takes form of International Movements of goods/services, labor, business enterprise, investment funds, and tech. It permits producers in each nation to take advantage of the specialization and efficiencies of large scale production.

National economic policies cannot be formulated without evaluating their probable impacts on the economies of other countries.

Economic Interdependence: Over the past 50 years, market economies have become increasingly interdependent; Exports and imports have risen for most industrial nations, foreign investment and International Lending have expanded. Occurs through trade, labor migration, and capital (investment) flows such as corporation stocks and government securities.

As nations became more interdependent, labor and capital should move more freely across nations.

Globalization: the process of greater interdependence among countries. Is the increased interaction of product and resource market across nations; is Political, technological, cultural, and economical.

We are affected by economic developments in other countries; it is more likely now to consume products of another country, to invest in another country, earn income from another country, etc.

First wave of Globalization: 1870 – 1914

It was sparked by decreases in tariff barriers and new technologies to decline transportation costs, such as the shift from sail to steamships and the advent of railways.

Second wave of globalization: 1945 – 1980

Falling transportation costs continued to foster increases trade.

Rich country specialization in manufacturing niches that gain productivity through Agglomeration Economies (firms clustered together: Urbanization, Industrialization, and Localization economies)

Latest wave of globalization: 1980 – …

Developing countries broke into the world markets for manufacturers (China, India, Brazil).

Other ones became increasingly marginalized in the world economy and realized decreasing incomes and increasing poverty.

Some developing countries succeeded in harnessing their labor abundance to provide them with a competitive advantage in labor-intensive manufacturing.

International capital movements, which were modest during the second wave of globalization, again became significant

Developing countries liberalized barriers to foreign investment.

There is less globalization in the world when it comes to labor flows.

Foreign outsourcing: enables companies to do things they couldn’t do before. In developing countries helps spread wealth from rich nations to poor nations.

Open economy: economy increasingly integrated into the world economy. Small countries tend to have higher measure of openness than do large ones. The nation’s exports and imports as a percentage of its gross domestic product (GDP), this ratio is known as openness.

Openness= ((Exports+Imports))/GDP

Law of comparative advantage: the citizens of each nation can gain by spending more of their time and resources doing those things in which they have a relative advantage. When trading partners use more of their time and resources producing things they do best, they are able to produce a larger joint output.

Chapter 2

To the mercantilists, stocks of precious metals represented the wealth of a nation. Government should adopt trade controls to limit imports and promote exports. One nation could gain only at the expense of its trading partners because the stock of world was fixed.

Price-specie-flow doctrine (David Hume): a favorable trade balance is possible only in the short-run, for over time it would automatically be eliminated.

Adam Smith: the world’s wealth was not fixed. With free trade, nations can take advantage of the specialization and the division of labor (which increased

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