4: The International Trade and Capital Flows

Last updated
Save as PDF

Page ID: 158549

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $

$ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $

$ \newcommand{\dsum}{\displaystyle\sum\limits} $

$ \newcommand{\dint}{\displaystyle\int\limits} $

$ \newcommand{\dlim}{\displaystyle\lim\limits} $

$ \newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$

( \newcommand{\kernel}{\mathrm{null}\,}\) $ \newcommand{\range}{\mathrm{range}\,}$

$ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$

$ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$

$ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$

$ \newcommand{\Span}{\mathrm{span}}$

$ \newcommand{\id}{\mathrm{id}}$

$ \newcommand{\Span}{\mathrm{span}}$

$ \newcommand{\kernel}{\mathrm{null}\,}$

$ \newcommand{\range}{\mathrm{range}\,}$

$ \newcommand{\RealPart}{\mathrm{Re}}$

$ \newcommand{\ImaginaryPart}{\mathrm{Im}}$

$ \newcommand{\Argument}{\mathrm{Arg}}$

$ \newcommand{\norm}[1]{\| #1 \|}$

$ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$

$ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\AA}{\unicode[.8,0]{x212B}}$

$ \newcommand{\vectorA}[1]{\vec{#1}} % arrow$

$ \newcommand{\vectorAt}[1]{\vec{\text{#1}}} % arrow$

$ \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $

$ \newcommand{\vectorC}[1]{\textbf{#1}} $

$ \newcommand{\vectorD}[1]{\overrightarrow{#1}} $

$ \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} $

$ \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} $

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $

$\newcommand{\longvect}{\overrightarrow}$

$ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $

$\newcommand{\ket}[1]{\left| #1 \right>}$
$\newcommand{\bra}[1]{\left< #1 \right|}$
$\newcommand{\braket}[2]{\left< #1 \vphantom{#2} \right| \left. #2 \vphantom{#1} \right>}$
$\newcommand{\braopket}[3]{\left< #1 \vphantom{#2}\vphantom{#3} \right| #2 \vphantom{#1}\vphantom{#3} \left| #3 \vphantom{#1}\vphantom{#2} \right>}$
$\newcommand{\qmvec}[1]{\mathbf{\vec{#1}}}$
$\newcommand{\op}[1]{\hat{\mathbf{#1}}}$
$\newcommand{\expect}[1]{\langle #1 \rangle}$
$\newcommand{\dfn}[1]{\emph{\textbf{#1}}}$

$\newcommand{\avec}{\mathbf a}$ $\newcommand{\bvec}{\mathbf b}$ $\newcommand{\cvec}{\mathbf c}$ $\newcommand{\dvec}{\mathbf d}$ $\newcommand{\dtil}{\widetilde{\mathbf d}}$ $\newcommand{\evec}{\mathbf e}$ $\newcommand{\fvec}{\mathbf f}$ $\newcommand{\nvec}{\mathbf n}$ $\newcommand{\pvec}{\mathbf p}$ $\newcommand{\qvec}{\mathbf q}$ $\newcommand{\svec}{\mathbf s}$ $\newcommand{\tvec}{\mathbf t}$ $\newcommand{\uvec}{\mathbf u}$ $\newcommand{\vvec}{\mathbf v}$ $\newcommand{\wvec}{\mathbf w}$ $\newcommand{\xvec}{\mathbf x}$ $\newcommand{\yvec}{\mathbf y}$ $\newcommand{\zvec}{\mathbf z}$ $\newcommand{\rvec}{\mathbf r}$ $\newcommand{\mvec}{\mathbf m}$ $\newcommand{\zerovec}{\mathbf 0}$ $\newcommand{\onevec}{\mathbf 1}$ $\newcommand{\real}{\mathbb R}$ $\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}$ $\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}$ $\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}$ $\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}$ $\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}$ $\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}$ $\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}$ $\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}$ $\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}$ $\newcommand{\laspan}[1]{\text{Span}\{#1\}}$ $\newcommand{\bcal}{\cal B}$ $\newcommand{\ccal}{\cal C}$ $\newcommand{\scal}{\cal S}$ $\newcommand{\wcal}{\cal W}$ $\newcommand{\ecal}{\cal E}$ $\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}$ $\newcommand{\gray}[1]{\color{gray}{#1}}$ $\newcommand{\lgray}[1]{\color{lightgray}{#1}}$ $\newcommand{\rank}{\operatorname{rank}}$ $\newcommand{\row}{\text{Row}}$ $\newcommand{\col}{\text{Col}}$ $\renewcommand{\row}{\text{Row}}$ $\newcommand{\nul}{\text{Nul}}$ $\newcommand{\var}{\text{Var}}$ $\newcommand{\corr}{\text{corr}}$ $\newcommand{\len}[1]{\left|#1\right|}$ $\newcommand{\bbar}{\overline{\bvec}}$ $\newcommand{\bhat}{\widehat{\bvec}}$ $\newcommand{\bperp}{\bvec^\perp}$ $\newcommand{\xhat}{\widehat{\xvec}}$ $\newcommand{\vhat}{\widehat{\vvec}}$ $\newcommand{\uhat}{\widehat{\uvec}}$ $\newcommand{\what}{\widehat{\wvec}}$ $\newcommand{\Sighat}{\widehat{\Sigma}}$ $\newcommand{\lt}{<}$ $\newcommand{\gt}{>}$ $\newcommand{\amp}{&}$ $\definecolor{fillinmathshade}{gray}{0.9}$

4.1: Introduction to the International Trade and Capital Flows
This page examines trade balances in the global financial system, highlighting how personal financial actions like loans and international purchases influence broader economic outcomes. It introduces trade deficits and surpluses using examples from the Democratic Republic of the Congo and the United States, indicating that these indicators aren't always true reflections of economic health.
4.2: Measuring Trade Balances
This page discusses international trade concepts, focusing on the merchandise and current account balances, including the significance of services alongside traditional goods. It details the U.S. current account's components, showing a $419 million deficit mainly due to a goods trade deficit, offset by surpluses in services and income.
4.3: Trade Balances in Historical and International Context
This page discusses the U.S. current account and merchandise trade balance from 1960 to 2020, noting a shift from surpluses in the 1960s and 1970s to growing deficits since the 1980s. It compares the U.S. trade balance with countries such as Japan and Germany, which maintain surpluses. The section also explores the impact of globalization on exports relative to GDP and underscores the U.S. current account balance at -2.6% of GDP.
4.4: Trade Balances and Flows of Financial Capital
This page explains the relationship between trade balances and financial capital flows through a parable. It defines current account deficits and surpluses, indicating whether a country borrows more or lends more. Trade balances reflect private investments and are influenced by comparative advantage. A surplus results in outward capital investment, while a deficit indicates an influx of foreign investment.
4.5: The National Saving and Investment Identity
This page discusses the interplay of national saving, investment, and trade balances, emphasizing that trade deficits arise when domestic investment exceeds savings, necessitating foreign capital. It explains how government borrowing raises demand for financial capital, typically met by foreign investors, and explores the effects of economic cycles on trade balances—recessions reduce deficits while growth periods increase them.
4.6: The Pros and Cons of Trade Deficits and Surpluses
This page examines the effects of borrowing and trade deficits on economic health, highlighting that responsible borrowing can drive growth, supported by historical examples. Conversely, unproductive borrowing may lead to economic issues, as evidenced in Latin America and Africa. The section also notes that trade surpluses do not always indicate economic strength, using Japan as an example of stagnation despite surplus. Such insights are vital for effective economic policy-making.
4.7: The Difference between Level of Trade and the Trade Balance
This page explains the difference between a nation's trade level and balance of trade, noting that high trade levels can align with balanced exports and imports. Factors such as economic size, location, and trade history influence this relationship. Examples illustrate that countries like Sweden have high trade, while large economies like the U.S. may experience low trade levels despite deficits.
4.8: Key Terms
This page of the textbook explores crucial concepts in a nation's trade and financial transactions, including the balance of trade, current account balance, and distinctions between goods and services. It highlights exports relative to GDP, financial capital flows aiding trade, the national savings and investment identity, and unilateral transfers. These topics are vital for comprehending international trade dynamics.
4.9: Key Concepts and Summary
This page explores trade balances, focusing on the difference between exports and imports, with goods still dominating over services in global trade. It reviews historical U.S. trade balance shifts and their impact on financial capital flows. The national saving and investment identity is explained, highlighting the balance of financial capital supply and demand. Ultimately, it conveys that trade balances have neutral implications, depending on government management of financial flows.

Template:HideTOC

Chapter thumbnail sourced from CheapFullCoverageAutoInsurance.com and used under by Creative Commons Attribution 2.0 license.

Search

Text Color

Text Size

Margin Size

Font Type