SAJC 2024 H2 Econs International Trade Lecture Notes Students Uploaded

ST ANDREW’S JUNIOR COLLEGE JC2 H2 ECONOMICS 2024 Globalisation and the International Economy In this theme, students will use concepts, theories and principles from earlier themes to examine the problem of scarcity and the concept of trade-offs at the broader level of International Economics. Before this, we have examined the macroeconomic aims, issues and policies relating to growth, inflation, unemployment, exchange rates, balance of trade and income distribution, with particular reference to the Singapore context. The key focus is on governments as economic agents, while recognising that the extent and type of government intervention differ among economies. This theme provides an overview of the workings and linkages of the international economy, which allows students to examine Singapore’s position in the global economy and the impact of globalisation on the Singapore economy; the impact of external trends a nd developments on the national, regional and international economies, and their implications. Important concepts and tools and analysis  Globalisation  Free trade  Protectionism: Tariffs and non-tariff measures  International and reginal economic co-operation Key questions to consider 1. Why do countries engage in free trade? 2. What is protectionism and why do countries engage in it? 3. How do countries engage in protectionism and what are the benefits and costs of doing so? 4. How do countries engage in economic co-operation and trade agreements and what are the benefits and costs of doing so? 5. What is the globalisation and what are the factors that drive it? 6. How does globalisation benefit or harm different economic agents and the economy?

St. Andrew’s Junior College Economics Department 2024 2 Contents Important concepts and tools and analysis .............................................................................................. 1 Key questions to consider ........................................................................................................................ 1 1. International trade .......................................................................................................................... 4 1.1. Basis for trade ......................................................................................................................... 4 2. Theory of Comparative Advantage (Supply factor affecting trade)................................................... 4 2.1. Numerical Illustration of the Theory of CA .............................................................................. 5 2.2. Evaluation of the Theory of CA ............................................................................................... 8 2.3. Sources of Comparative Advantage.......................................................................................... 9 2.4. Dynamic Comparative Advantage ......................................................................................... 10 2.5. Benefits of Free Trade ........................................................................................................... 12 3. Protectionism ................................................................................................................................ 13 3.1. Arguments for Protectionism ................................................................................................. 14 3.2. Protectionist measures ........................................................................................................... 19 3.2.1. Tariffs ............................................................................................................................... 20 3.2.2. Non-tariff Measures ........................................................................................................... 22 3.3. Benefits and Costs of Protectionism ....................................................................................... 25 3.4. Conclusion of Protectionism .................................................................................................. 26 4. Economic Co-operation and Trade Agreements .............................................................................. 26 4.1. Types and degree of Economic Integration ............................................................................ 27 4.2. Benefits of Economic Co-operation and Trade Agreements..................................................... 28 4.3. Costs of Economic Co-operation and Trade Agreements ......................................................... 29 5. GLOBALISATION ....................................................................................................................... 30 5.1. Drivers of Globalisation ......................................................................................................... 30 5.2. Impact of Globalisation ......................................................................................................... 33 5.3. Benefits of Globalisation ........................................................................................................ 33 5.3.1. Macroeconomic Benefits .................................................................................................... 33 5.3.2. Microeconomic Benefits ..................................................................................................... 36 5.4. Costs of Globalisation ............................................................................................................ 38 5.4.1. Macroeconomic Costs ......................................................................................................... 38 5.4.2. Microeconomic Costs ......................................................................................................... 39 5.5. International Competitiveness ............................................................................................... 44 5.5.1. Determinants of a nation’s competitiveness ....................................................................... 44

St. Andrew’s Junior College Economics Department 2024 3 5.5.2. World’s most competitive economies ................................................................................. 45 5.6. Conclusion ............................................................................................................................. 46 Appendix .............................................................................................................................................. 47

GLOBALISATION AND THE INTERNATIONAL ECONOMY St. Andrew’s Junior College Economics Department 2024 4 Why do countries engage in free trade? 1. International trade International trade involves the exchange of goods and services between countries. On one hand, international trade can be a source of economic growth for a country, it can also be a means to sustain a country’s economic growth, help a country to reduce unemployment, attain a lower inflation rate, a favourable balance of trade and ultima tely improve a nation’s standard of living. However, international trade could also be the reason why some countries face both macroeconomic and microeconomic problems. Free Trade can take place when two or more countries can exchange goods and services without any trade barriers between themselves. Trade barriers can include tariffs and quotas that will be covered in later. 1.1. Basis for trade While there are many reasons for trade such as the desire for consumer choice (demand factor), the basis for trade between countries can be largely explained using the The