1. International Economics and World Trade

Question 1

International Economics is about….

The two sub-components are…

Answer 1

….how nations interact through trade of goods and services, flows of money, and investment

International Trade (Micro)
International Finance (Macro)

Question 2

Technological development has caused the value of exported goods as share of GDP to…

Technology has caused transportation costs to be… and compared to the past, distance…

Answer 2

… increase

… cut a lot
…. is less relevant

Question 3

The largest part of world trade is made up from…

Answer 3

… manufactured goods (Commercial Services like shipping fees, legal fees, call center spending / Manufactures like cars, computers, clothing/ Fuels and mining products)

Question 4

Whats more important to Germany, imports or exports?

Answer 4

exports

Question 5

What is the Gravity Model of International Trade?

It is also referred to…

Answer 5

• model that predicts the trade volume between two countries
• Trade Value between two countries = (A (constant term) x GDP of country x x GDP of country y ) / distance between country x and y
• a more general form includes parameters that are fitted to the data
  …. in analogy to Newton´s law of gravity (gravitational attration between two objects is proportional to the product of their masses and diminishes with distance)

Question 6

The underlying assumptions of the Gravity model is that trade between two countries…

1.
2.

Just relying on these assumptions without any further theory, the model….

Answer 6

1. is increasing in the product of their GDP
2. is decreasing in their geographic distance

…. provides a good approximation of real world trade flows

Question 7

As per the Gravity model, the US trade with EU countries is larger for…

Answer 7

….. for larger European countries

Question 8

In the Gravity model, when increasing the distance by 1%, …

Answer 8

…. the trade decreases by 1%

Question 9

What are additional Variables that matter in Trade, apart from the Gravity Model?

1.
2.
3.
4.
5.

Answer 9

• cultural affinity (close cultural ties like language = strong economic ties)
• geography (ocean harbors and no mountain barriers = easier transportation)
• borders (crossing borders involves formalities that take time; need to exchange currencies; also tariffs reducing trade)
• trade agreements (between two or more countries, can reduce fomralities and thus increasse trade)
• multinational corporations (corporations across different nations import and export many goods between their divisions)

Question 10

What are some recent trends that can be seen in world rade patterns?

1.
2.
3.

Answer 10

1. trade in services has grown faster than trade in goods, especially because of technological development
2. still, trade relative to GDP in the world overall stagnates, leading to a slow down (or reversal?) of globalisation
3. thus, firms need to adjust their strategies, so responding to a less connected world, in order to still thrive

Question 11

Wha are examples for services that are traded across borders?

1.
2.

Answer 11

1. music streaming -> technology here moves trade from goods to services
2. consulting, IT, medicine (eg slide decks for businesses; a doctor interpreting your x-ray from anywhere in the world)

Question 12

What can be said regarding the development of trade shares over the last 15 years?

1.
2.

Answer 12

1. hasnt been relevantly increasing in this time (as exports of goods and services as % of GDP)
2. trade has become less reliable (COVID, Wars, Piraes in the red sea)

Question 13

What has been a recent goal of business leaders in terms of trade? And whats an example of that?

1.
2.

Answer 13

• increasing the resilience of their supply chains, partly even at the expense of short term savings
• eg bringing production closer to home (regionalization of trade)

Question 14

Intraregional Trade | Definition
1.
2.

And why do companies do it?
1.
2.
3.
4.

Answer 14

• companies trading more within regions
• makes up large share of trade in goods in the world (Europe 63%; NAFTA 40%)
• reason 1: building closer relationships with suppliers
• reason 2: increasing speed to market
• reason 3: increasing proximity (Nähe) to customers
• reason 4, for german firms: de-risking the supply chains (eg. 46% of german firms are dependent of chinese products like magnesium)

Question 15

International Trade is concerned with analyzing….
International Finance is concerned with…

Answer 15

…. the real parts of international economics (patterns of trade, gains of trade, rade policy)
… anaylzing the monetary part (balance of payments, exchange rates, international macroeconomics policy)

Question 16

In Short: What are the key facts of world trade patterns having changed over time?

1.
2.
3.

Answer 16

1. two waves of globalisation caused by tech having intensified world trade
2. trade intensity in goods has dropped bc of regionalization of world trade (eg, because of production closer to customers)
3. in contrast, trade in services became more intense, eg bc of more mobile digital services like streaming