International economics deals with economic and financial interdependence among countries of the world. It explains the flow of goods, services, capital and labour between a country and the rest of the world. It examines policies directed at regulating these flows, and their effects on the well-being of a country. The economic and financial interdependence affects political, social, cultural and military relations among countries. Specifically, international economics deals with international trade, international business and international finance. Trade, internal and external, is as old as human civilization. Nations have been trading with each other since times immemorial. Trade is the foundation of modern economic activity and has been rightly termed as the engine of growth. Hence, international trade is an important element of world economy. International trade theory analyzes the basis and the gains from trade. According to traditional trade theory, if each nation specializes in the production of the commodity of its comparative advantage, world output will be greater and, through trade, each nation will share in the gain. The wave of liberalization and globalization sweeping across the world has opened many national markets for international business. Global private investment, in most part, is now made by multinational corporations (MNCs) also referred to as transnational corporations (TNCs). Clearly, these transnational organisations play a major role in world trade and investments because of their demonstrated management skills, technology, financial resources and related advantages. The study of international business raises awareness of the inter-relatedness of a country's economic policies and practices with another. International finance is the study of monetary transactions between two or more countries, focusing on areas such as foreign investment, foreign borrowings and foreign aid. Increased globalization has magnified the importance of international finance. In the wake of globalization, capital has become more mobile across national boundaries as nations are increasingly relying on savings of other nations to supplement the domestic savings. Technological developments in electronic payment and communication systems have substantially reduced the arbitrage opportunities across financial centres, thereby aiding the cross-border mobility of funds. The study of international economics is important to understand the dynamics of global economy, to help domestic public authorities and business entities. This book explains various aspects of international economics in simple, lucid and non-technical language. It would connect teachers and students of the subject to the basic concepts, components and processes of international economics. The book contains 32 chapters which have been organized into 3 parts. Part I (chapters 1 to 13) is titled International Trade. It explains and examines various theories of international trade propounded by economists from time to time, viz. absolute advantage theory of trade by Adam Smith, comparative advantage theory of trade by David Ricardo, and Heckscher-Ohlin theory of trade by Eli Heckscher and Bertil Ohlin. Other topics included in this part are balance of payments, theories of exchange rate determination, foreign exchange market, foreign exchange reserves, terms of trade, tariff and non-tariff trade barriers, regional and mega multilateral trade agreements, World Trade Organization (WTO), and trade and environment. Part II (chapters 14 to 23) is titled International Business. It includes the following topics: globalization and the rejection of decoupling hypothesis, growth of multinational corporations (MNCs), location of industry, mergers and acquisitions (M&A), intellectual property rights (IPRs), international migration of labour, internet and industry, corporate social responsibility (CSR), industrial activities and environmental pollution, and international economic problems and challenges. Part III (chapters 24 to 32) is titled International Finance. It deals with financial system and financial economics, international financial crises, regional and international financial integration, foreign direct investment (FDI), tax incentives to attract FDI, portfolio theory and foreign portfolio investment, foreign borrowings and foreign aid, World Bank and its affiliates, and International Monetary Fund (IMF). CONTENTS Part I: International Trade 1. International Trade and Economic Development 1.1 Reasons for International Trade 1.2 Beneficial Effects of International Trade 1.3 International Trade and Developing Countries 1.4 Import Substitution versus Export Orientation 1.5 Effects of International Trade 1.6 Changing Pattern of International Trade 1.7 Critical Assessment of the Role of International Trade 2. Free Trade versus Protectionist Trade 2.1 Closed Economy versus Open Economy 2.2 Free Trade 2.3 Developing Countries and Trade Openness 2.4 Protectionist Trade 2.5 Forms of Protection 2.6 Economic Integration and Customs Union 3. Absolute and Comparative Advantage Theories of Trade 3.1 Views of Mercantilists on Trade 3.2 Theory of Absolute Advantage 3.3 Theory of Comparative Advantage 4. Heckscher-Ohlin Theory of Trade 4.1 Factor Endowments and Heckscher-Ohlin Theory 4.2 Assumptions of the Theory 4.3 Leontief Paradox 5. Balance of Payments 5.1 Meaning and Significance of Balance of Payments 5.2 Double-Entry Book Keeping in Balance of Payments 5.3 Components of Balance of Payments 5.4 Approaches to Balance of Payments 5.5 Correcting Disequilibrium in the Balance of Payments 6. Theories of Exchange Rate Determination 6.1 Importance and Objectives of Exchange Rate Policy 6.2 Types of Exchange Rate 6.3 Purchasing Power Parity (PPP) Theory 6.4 Monetary Models 6.5 Portfolio Balance Model 6.6 Choice of Exchange Rate Regime 6.7 Causes of Exchange Rate Variations 6.8 Effects of Exchange Rate Variations 6.9 Requirements for Successful Exchange Rate Policy 6.10 Challenges in Designing Exchange Rate Policy 7. Foreign Exchange Market 7.1 Functions of Foreign Exchange Market 7.2 Spot and Forward Rates 7.3 Foreign Exchange Futures and Options 7.4 Foreign Exchange Risks, Hedging, and Speculation 7.5 Arbitrage 8. Foreign Exchange Reserves 8.1 What are Foreign Exchange Reserves? 8.2 Motives for Holding Foreign Exchange Reserves 8.3 Tests of Adequacy of Foreign Exchange Reserves 8.4 Costs of Holding Reserves 8.5 Deployment/Investment of Reserves 8.6 Risk Management Practices 9. Terms of Trade 9.1 Meaning and Measurement of Terms of Trade 9.2 Determinants of Terms of Trade 9.3 Various Concepts of Terms of Trade 9.4 Deterioration in Terms of Trade of Developing Countries 10. Tariff and Non-tariff Trade Barriers 10.1 Tariffs (or Customs Duties) 10.2 Non-tariff Trade Barriers (NTBs) 11. Regional and Mega Multilateral Agreements 11.1 Regional Trade Agreements (RTAs) 11.2 Mega Multilateral Agreements 12. World Trade Organization (WTO) 12.1 Establishment of WTO 12.2 What is WTO? 12.3 How Does WTO Function? 12.4 What Does WTO Do? 12.5 Agreements of WTO 12.6 Founding and Guiding Principles of WTO 12.7 Benefits of WTO Trading System 13. Trade and the Environment 13.1 Linkages between Trade and Environment 13.2 Positive and Negative Effects of Trade on Environment 13.3 Climate Change and Trade 13.4 World Trade Organization (WTO) and Environment 13.5 Trade-off between Trade and Environmental Policies Part II: International Business 14. Globalization and the Rejection of Decoupling Hypothesis 14.1 Meaning of Globalization 14.2 Factors Leading to Globalization 14.3 Impact of Globalization 14.4 Globalization and Developing Countries 14.5 Globalization and Women 14.6 Future of Globalization 14.7 Rejection of Decoupling Hypothesis 14.8 Global Economic Crises are Contagious 14.9 World Economy is Inter-dependent 15. Growth of Multinational Corporations (MNCs) 15.1 What is a Multinational Corporation? 15.2 Theory of Multinational Corporations 15.3 Objectives of Internationalization of Business 15.4 Mode of Entry 15.5 Factors Affecting International Business 15.6 Risks Associated with International Business 15.7 Reasons for the Existence and Proliferation of MNCs 15.8 Problems Created by MNCs in the Home Country 15.9 Problems Created by MNCs in the Host Country 16. Location of Industry 16.1 Factors Affecting Location of Industry 16.2 Theories of Industrial Location 16.3 William Launhardt’s Location Triangle Model 16.4 Alfred Weber’s Theory of Industrial Location 16.5 Sargent Florence’s Theory of Industrial Location 17. Mergers and Acquisitions (M&A) 17.1 Meaning of M&A 17.2 Brief History of M&A 17.3 Categorization of M&A 17.4 Documentation of M&A Transaction 17.5 Business Valuation and Financing 17.6 Motives for M&A 17.7 Impact of M&A on the Economy 17.8 M&A Scenarios Calling for Government Intervention 18. Intellectual Property Rights (IPRs) 18.1 Trademarks 18.2 Patents 18.3 Industrial Designs 18.4 Geographical Indications 19. International Migration of Labour 19.1 Definitions of Labour Migration 19.2 History of Labour Migration 19.3 Categories of Labour Migration 19.4 Motives for International Labour Migration 19.5 Costs and Benefits of Migration 19.6 Impediments to Mobility of Workers 19.7 Impact of Internet on Employment 20. Internet, Industry, Marketing and E-commerce 20.1 Advent of Internet 20.2 Co-ordination of Productive Activities 20.3 Impact of Internet on Select Industries 20.4 Consumer Centricity of Business 20.5 Marketing and E-commerce 21. Corporate Social Responsibility (CSR) 21.1 CSR Defined 21.2 Origins of CSR 21.3 Approaches to CSR 21.4 Principle of Triple Bottom Line (TBL) 21.5 Potential Business Benefits of CSR 21.6 Pressure for CSR 21.7 Challenges in Promoting CSR 22. Industrial Activities and Environmental Pollution 22.1 Economic Development and Environment 22.2 Environmental Pollution 22.3 Mining Activities and Ecological Balance 22.4 Sustainable Development 22.5 Environmental Economics and Management 22.6 Towards Green Growth 22.7 Economic Instruments for Promoting Sustainable Development 23.International Economic Problems and Challenges 23.1 Weak Recovery from Financial Crisis of 2008 23.2 Covid-19 and the Global Economy 23.3 Current Challenges before the Global Economy Part III: International Finance 24. Financial System and Financial Economics 24.1 Meaning and Importance of Financial System 24.2 Functions of Financial System 24.3 Role of the State in Financial Development 24.4 Determinants of Access to Financial Services 24.5 Financial Neutrality versus Financial Activism 24.6 Financial Volatility versus Financial Stability 24.7 Regulation and Supervision of Financial System 24.8 Meaning and Significance of Financial Economics 24.9 Aspects of Financial Economics 25. International Financial Crises 25.1 Types of Financial Crisis 25.2 Asian Financial Crisis, 1997 25.3 Financial (Sub-prime) Crisis, 2007-08 26. Regional and International Financial Integration 26.1 Some Aspects of Integration of Financial Markets 26.2 Regional Financial Integration (Asia) 26.3 International Financial Integration 27. Foreign Direct Investment (FDI) 27.1 Foreign Investment: New Strategy for Faster Growth 27.2 Meaning of Foreign Direct Investment (FDI) 27.3 Superiority of FDI over Other Forms of Capital Inflows 27.4 Resource-seeking, Market-seeking and Efficiency-seeking FDI 27.5 Advantages of FDI for the Host Country 27.6 Disadvantages of FDI for the Host Country 27.7 Determinants of FDI 27.8 World Bank Determinants of FDI 27.9 FDI and Corporate Strategies 27.10 Foreign Investment for Privatisation 28. Tax Incentives to Attract Foreign Direct Investment (FDI) 28.1 Rationale for Offering Tax Incentives 28.2 Types of Tax Incentives 28.3 Priority Sectors for Tax Incentives 28.4 Costs and Benefits of Tax Incentives 28.5 Interaction between International Taxation and FDI 28.6 International Tax Competition to Attract FDI 28.7 Attempts towards International Tax Harmonisation 29. Portfolio Theory and Foreign Portfolio Investment 29.1 Portfolio Theory 29.2 Diversification of Portfolio 29.3 Foreign Institutional Investors (FIIs) 29.4 Advantages of Portfolio Investment Inflows 29.5 Disadvantages of Portfolio Investment Inflows 30. Foreign Borrowings and Foreign Aid 30.1 Classification of Foreign Borrowings 30.2 Indicators of Sustainable Level of Foreign Borrowings 30.3 Foreign Aid 31. World Bank and its Affiliates 31.1 International Bank for Reconstruction and Development (IBRD) 31.2 International Development Association (IDA) 31.3 International Finance Corporation (IFC) 31.4 Multilateral Investment Guarantee Agency (MIGA) 31.5 International Centre for Settlement of Investment Disputes (ICSID) 32. International Monetary Fund (IMF) 32.1 Establishment of IMF 32.2 Objectives of IMF 32.3 Governance and Organization 32.4 Resources of IMF 32.5 Financial Assistance and Special Drawing Rights (SDRs) 32.6 Technical Assistance Bibliography Index ABOUT THE AUTHOR Dr. N. Mani is presently Head of the Postgraduate and Research Department of Economics, Erode Arts and Science College, Erode, Tamil Nadu. He holds M.A., M.Phil. and Ph.D. degrees from Bharathiar University, Coimbatore. Specializing in development economics, he has 30 years of teaching experience to postgraduate and undergraduate classes. He successfully completed 3 major research projects sponsored by the University Grants Commission (UGC), New Delhi. He is currently engaged in a research project sponsored by Indian Council of Social Science Research (ICSSR), New Delhi. Dr. Mani has published 13 books and written several papers on varied subjects in reputed journals and dailies. He is also the former President of Tamil Nadu Science Forum and was organizing secretary of the National Children Science Congress, 2006. He has also organised more than 10 state, national and international level seminars, conferences and workshops. He has successfully guided and supervised the works of 10 Ph.D. and 14 M.Phil. scholars. He is a member of various academic bodies including Indian Society of Labour Economics and Indian Society of Agricultural Economics.