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Centre for Financial & Management Studies (CeFiMS) - University of London

Individual Professional Courses – IPC  

International Economics [EP103]

Introduction

International Economics is concerned with the economic principles used to model a country’s international relationships.

Aims & Objectives

This course aims to teach the tools and techniques for analysing the trade and money transactions between economies and for assessing their policy implications. International Economics builds on the theories and models of macroeconomics and microeconomics in order to develop a new set of economic principles which apply to an economy’s international trade and money relationships. Questions addressed in the course include:

  • why do countries trade and who gains from trade?
  • how can patterns of trade be explained?
  • what are the arguments for and against free trade versus protectionism?
  • what are the implications of economic integration between countries?
  • what is the relationship between international trade and economic development?
  • how are foreign exchange rates determined?
  • why can there be persistent deficits or surpluses in the balance of payments?
  • why can one country’s macroeconomic policies affect another’s economic performance?
  • what is international money?

Resources

Students receive a looseleaf binder containing eight ‘course units’; these texts are carefully structured to provide the main teaching and are equivalent to traditional course lectures, defining and exploring the main concepts and issues, locating these within current economics debate and introducing and linking the further assigned readings. Two assignments (which are counted towards the final course grade) marked by your CeFiMS tutors, and a specimen examination paper are also included within the student pack, along with the following:

Textbook:

Dominick Salvatore, International Economics, Seventh Edition, 2001, Wiley, ISBN0471364479.

Readings:

A compilation of further readings: recently published articles or seminal writings which augment and illustrate the main text.

Course Timetable:

This shows the linkage between the various components of the course and indicates the schedule for reading the texts, submitting assignments, etc.

Course Content

Unit 1 Introduction to International Economics

The first unit provides an introduction to International Economics. It explains the distinction between international trade and international finance. It introduces the student to the benefits of trade as seen by the Mercantilists and Adam Smith. It explains the Classical or Ricardian model of trade and shows how this can be used to explain the pattern of trade between countries.

Unit 2 Neo-Classical and Modern Trade Theories

This unit is about the Neo-Classical and modern theories of trade. The Neo-Classical trade theory says that a country’s endowment of resources can explain why trade occurs. Since the 1950s new theories of trade have been developed and these are examined. The unit also investigates whether there are winners and losers from trade and sets out the framework for this analysis. Lastly, it considers a critique of Neo-Classical trade theory from the developing countries’ point of view.

Unit 3 Trade Policies: Tariffs, Quotas and Other Barriers

Barriers to trade are the focus of this unit. It considers tariffs: why they are imposed and their effects on prices, domestic output and imports. It also examines import quotas, voluntary export restraints, non-tariff barriers such as labelling requirements, quality constraints and health requirements. As well as looking at the implications on prices and output of these protectionist measures, the unit questions who wins and who loses when trade barriers are set up. It examines some of the effects of trade policies on the domestic economy and internationally.

Unit 4 Trade and Development

Here trading blocs are discussed — what they are, what effects they have on trade and why countries might want to join such a trading arrangement. The unit also looks at the experiences of such integration and considers the European Union, which is perhaps the best known and most successful trading bloc to date. It also considers developing countries’ experiences of trading arrangements. It focuses on the relationship between trade and economic growth and considers the debates about import substitution versus export promotion as policies for economic development.

Unit 5 Balance of Payments & the Exchange Rate I

This is an introduction to the theory and issues of international finance. The concepts of the balance of payments and the exchange rate are discussed and illustrated. The foreign exchange market is introduced and the unit presents a simple macroeconomic model of an open economy with fixed exchange rates. Unit 5 also considers the effects of an exchange rate devaluation on trade and the balance of payments and, in doing so, develops the elasticities approach to devaluation.

Unit 6 Balance of Payments & the Exchange Rate II

The study of the relationship between the exchange rate and the balance of payments is continued. The unit covers the absorption and monetary approaches to devaluation in a fixed exchange rate changes. The unit looks at the theories which underlie the market, such as the theory of purchasing power parity. It examines the relationship between trade and national income through the open economy multiplier and finally, introduces asset models of exchange rate determination.

Unit 7 Macroeconomic Policy in an Open Economy

The implications of economic policy — fiscal, monetary and exchange rate policy — in an open economy are considered. The unit examines the problem of achieving internal and external equilibria simultaneously. It uses the IS-LM-BP model to analyse policy options for achieving both internal and external balance. It looks at the effectiveness of monetary and fiscal policy for both fixed and floating exchange rate regimes and under differing assumptions about the degree of capital mobility in and out of a country. Two case studies are presented to illustrate how the theory and concepts can be used in practice.

Unit 8 International Monetary System

This is about the world economy and, in particular, about world money. The unit looks at the composition of world money and considers its demand and supply. It also introduces the international monetary system and considers it from an historical perspective, explaining the development of this system starting with the gold standard. It then considers the post-war Bretton Woods system — what it was, and why it broke down in the 1970s. The unit also explains how and why the International Monetary Fund and the World Bank came into being and considers their respective roles. The Euro-currency markets are an important part of today’s world monetary systems and these are also introduced.

Tuition & Assessment

International Economics is assessed by two assignments, which are counted towards the final grade, and by a three-hour examination held in the autumn. Each assignment consists of compulsory questions or an essay topic, which should be answered, in total, in no more than 1500 words. The pass mark for each assignment is 40%; 70% or above is the equivalent of a distinction. Assignments count for 30% of the overall grade for this course, while the examination is worth 70% of the final assessment.