Theoretical analysis of international economics

international economics

International economics means the analysis of international variables that determine the domestic economic circumstances and decide foreign relations among countries. In other terms, it explores the mutual interdependence and economic influence between countries. 

It includes various concepts, such as globalization, trade profits, trading patterns, the balance of payments and FDIs. The scale of international economic activities is extensive. Furthermore, the world economy describes production, trade and investment between countries. International trade has been one of the world's most relevant principles. With various theoretical, empirical and descriptive contributions, international economics has developed dramatically over the years.

Economic activities between nations are generally different from those in countries. For example, due to various restrictions imposed by governments, production factors between countries are less mobile. 

The analysis of internal economics includes the impact of different government constraints on growth, commerce, and demand and income distribution. Thus international economics as a particular field of economics is essential to study. The theoretical and descriptive aspects of international economy are divided in

to two parts.

Theoretical International Economics: 

It tackles the explaining in the institutional environment of international economic transactions. 

In comparison, international theoretical economics is classified into two categories: 

(i) Pure Theory of International Economics:

Microeconomic elements of foreign economies are included. This theory deals with trade patterns, trade’s impact on production, consumption rates and distribution of revenue. Besides, it includes the study of trade effects on commodity and service prices and the rate of economic growth. 

(ii) International Economic Monetary Theory: 

Global monetary philosophy deals with the balance of payments and the global financial system. The research discusses the sources of the disparity in transfers and the international monetary and liquidity framework.

Descriptive International Economics

It includes the administrative framework in which financial transactions between countries take place. International economics may also address issues related to the movement of products and services globally and financially and other tools. It is also associated with the research of different economic bodies worldwide, for example, the IMF, the WTO, the World Bank and UNCTAD.

Globalization is the main element in international economics among the above concepts such as globalization, trade gains, trade patterns, the balance of payments and FDI.

International trade 

There are several aspects in which foreign trade is regulated and encouraged today. The approaches vary from regional or multilateral policy negotiations to more aggressive economic cooperation efforts by supranational organizations like the European Union ( EU). 

Agreements on trade 

All negotiated arrangements between states about international ties can be defined by the word trade arrangement or commercial arrangement. Bilateral or multilateral trade agreements may be between two or more than two nations.


The parties make reciprocal concessions in a trade agreement to ensure that their trade relationships are found to be fair to everyone. The reciprocity principle is extremely old and found in all trade agreements. However, concessions can be in various fields. The reciprocity principle only implies the fair distribution of the gains resulting from foreign trade.

The provision of the most favoured nation

The MFN provision obliges a government to extend every lower rate of import duty to its partner nation than it would be willing to give to imports from any other government. The clause is intended to ensure that the benefits achieved by a subsequent agreement between one of the Partners and another third country will not be attenuated or eliminated. It guarantees the parties to handle a rival in a discriminatory way. 

International trade is an economic area that applies microeconomic models to help the global economy understand. Their content contains the same instruments introduced in microeconomics, including the analysis of supply and demand, the behaviour of companies and consumers, completely competitive structures of the market, oligopolies and monopolies, and the effects of market distortions. The traditional course describes economic connections between consumers, businesses, factor owners and the government. 

International finance

Macroeconomic models are applied to international finance to help the global economy understand. It focuses on linkages between aggregate economic variables such as GDP, unemployment, rate of inflation, the balance of trade, exchange rates, interest rates and so on. In this area, macroeconomics is expanded to include international trade. She focuses on the importance of financial imbalances, the exchange-rate determinants and the overall effects of the monetary and fiscal policies of the government. The pros and cons of fixed-to-float exchange-rate systems are among the most important issues addressed.

The critical aspect of financial economics is international finance. The elements of international finance, such as currency exchange rates, the world's monetary system, foreign direct investment (FDI) and other relevant global financial management issues, are discussed. 

International finance occurs as the economic operation of companies, governments and institutions are affected by the presence of countries, as are foreign commerce and industries. It is understood that countries often borrow from each other and lend. Most nations have their currency in these enterprises. We must also consider the connection between currencies. We should even know clearly how these goods are paid and what the prices that trade in currencies are determining.

External exchange is one of the main engines of developing economies' development and prosperity. Its significance has increased multiple times. These problems are part of the international macroeconomics, commonly known as global finance. 

Significance of International Finance  

In international trade and the exchange of goods and services between the economies, international finance has a crucial role. The most important reasons are listed here − for several reasons.

In international finance, exchange rates are significant as they enable us to determine relative currency values. The calculation of those rates helps international finance.

Different economic factors contribute to the decision of international investment. Economic conditions in economies help to determine whether or not international bond securities are secure for investors' capital. 

In several stages in foreign banking, utilizing IFRS is an essential consideration. It allows other countries to adopt standard methods of coverage.

IFRS frequently assists in avoiding funds by adopting the statutory requirements of the same accounting framework that is part of foreign finance. 

Due to globalization, international finance has grown in stature. It helps us to understand and maintains the balance between the basics of all international organizations. 


An international financial system keeps the peace between nations. All nations would work for their interests without a sound financial measure. International finance helps to keep this issue in place. In the management of international commercial disputes international financial agencies, such as the IMF, The World Bank, etc. are acting as mediators. 

The very existence of an international financial system means that global financial crises are possible. In this caseinternational economics, it is imperative to study international finance. The risks of war and the ensuing chaos are evident without foreign funding. International finance helps maintain disciplined international issues.



1108 Words


Aug 11, 2020


3 Pages

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