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Interregional trade
◦ With trade between regions, each regions are forced to
specialize in those goods in which they have some
natural or acquired advantages.
◦ Ex. Plain regions, mountain regions, cold regions.
International trade is necessary to achieve the
gains that international specialization makes
possible.
Trade allows each individual, regions and
nations to specialize and concentrate on
producing those goods that is produced
relatively efficiently while trading to obtain
goods and services that it would produce less
efficiently than others.
International economics deals with
◦ 1) International trade theory,
International trade theory analyses the basis
and gains from trade.
◦ 2) International trade policy,
International trade policy examines the
reasons for and the effects of trade
restrictions
Economic Co-operation
EU, NAFTA, SAARC, SAFTA
◦ 1 & 2 are the microeconomic aspects of
international economics
◦ 3) The balance of payments
The balance of payments measures a nation’s total receipts
from and the total payments to the rest of the world
◦ 4) Open-economy macroeconomics.
It deals with the mechanisms of adjustment in balance of
payments disequilibria (deficits and surplus)
It also analyses the relationship between
the internal and the external sectors of the economy of a
nation, and
how they are interrelated or interdependent with the rest
of the world economy
◦ 3 & 4 are the macroeconomic aspects of IE.
◦ Also referred to as open economy macroeconomics
or International Finance.
Adam Smith
David Ricardo
Paul Samuelson
W Leontief
Bertil Ohlin
Paul Krugman
The trade theory develops models that provide
different explanations or reasons why trade
takes place between countries.