Question

Appraise and classify the major themes of international economics and the main types of international economic organizations.

Answer 1

International economics uses the same fundamental methods of analysis as other branches of economics, because the motives and behavior of individuals and firms are the same in international trade as they are in domestic transactions.

The economics of the international economy can be divided into two broad subfields: the study of international trade and the study of international money. International trade analysis focuses primarily on the real transactions in the international economy, that is, on those transactions that involve a physical movement of goods or a tangible commitment of economic resources. International monetary analysis focuses on the monetary side of the international economy, that is, on financial transactions such as foreign purchases of U. S. dollars. An example of an international trade issue is the conflict between the United States and Europe over Europe's subsidized exports of agricultural products; an example of an international monetary issue is the dispute over whether the foreign-exchange value of the dollar should be allowed to float freely or be stabilized by government action.

The subject matter of international economics, then, consists of issues raised by the special problems of economic interaction between sovereign states. Seven themes recur throughout the subject: the gains from trade, the pattern of trade, protectionism, the balance of payments, exchange-rate determination, international policy coordination, and the international capital market.

The three major international economic organizations are the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO). The WTO emerged out of the General Agreement on Tariffs and Trade (GATT) in 1995; it is an arrangement across countries that serves as a forum for negotiations on trading rules as well as a mechanism for dispute settlements in trade issues. By contrast, the World Bank and IMF deal with their member countries one at a time. They have little influence with industrial countries but can affect developing countries during times of economic crisis and when those countries seek additional foreign exchange resources. The origins and evolution of the three organizations are of considerable interest. Perhaps even more important in light of the recent financial crises in Mexico, East Asia, and a few other countries, are the questions that arise about the current and future roles of the IMF and the World Bank