International Economics and Balance of Payments
International Economy and Balance of Payments
International Trade
Different nations lack resources and capabilities, such as climate conditions, mineral resources, and technology. Modern commerce consists of exchanging goods, services, and capital between countries. This trade facilitates specialization.
Commercial Policy and Protectionism
Commercial policy involves different types of international trade intervention. Measures can include tariffs, import quotas, and export subsidies.
Forms of Commercial Relationships
- Globalizing: Countries aim to promote free world trade (GATT/WTO).
- Regional: Areas of free trade, customs unions, and common markets.
The European Union
The European Union began operating in 1958.
Main Institutions
- Commission
- Council of Ministers
- Parliament
- European Court of Justice
Funding
- Agricultural import tariffs
- Customs duties
- Member country contributions based on GNP
Major EU Policies
- Regional Policy: Aims to reduce differences among member countries’ regions.
- Social Policy: Articulated through the European Social Fund (ESF), with resources allocated to vocational training for the unemployed.
European Funds
- European Regional Development Fund (ERDF)
- European Social Fund (ESF)
- European Agricultural Guidance and Guarantee Fund (EAGGF)
Balance of Payments
Systematic recording of economic transactions occurring at a specific time in a country. It includes all international economic transactions.
Income
Transactions that bring money into the country.
Payments
Transactions that involve money leaving the country.
Balance
The difference between income and payments.
The Current Account
Includes four groups of operations:
- Merchandise or Trade Balance: Includes transactions of goods between countries (imports and exports).
- Services Account: Includes transactions of intangible products such as transport costs and travel. Exporting and importing services have the same effect on gross national income as merchandise.
- Income Account: Includes income obtained from other countries (outside the owner’s residence) from capital and labor. This includes income earned in a country that is not the worker’s residence.
- Current Transfers Account: Includes transactions without compensation.
Capital Account
The second block of the balance of payments, including two categories:
- Unilateral capital transfers
- Acquisition and disposal of non-financial assets
Financial Account
- Direct investment
- Portfolio investment
- Other investments
- Changes in reserves
Net External Demand
Domestic demand differs from spending because some domestic spending is satisfied with goods produced abroad (imports). Spanish imports are positively related to national income and also depend on exchange rates and foreign commodity prices.