What is the difference of Financial Economics and International Economics? Why, How? What are the implications of these differences?

Will a model of international economics suddenly become a model of financial economics if I simply change the names?

Apples, Bananas, Carrots, Drupes are named Financial Products A, B, C and D.

England and France are named investor E and investor F.

I saw myself repeating the same exact basic math and coming to the same conclusions, different names notwithstanding.

Both are Arrow-Debreu general equilibria. I can't understand the differences besides there necessarilly being money in financial economics.


1 Answer 1


The difference between them is as follows:

International Economics: Following the definition from the famous textbook by Krugman et al. (2017) the international economics is defined as a branch of economics that focuses on the special problems of economic interaction between sovereign states.

Financial Economics: According to W. Sharpe financial economics is a sub-field of economics that "concentrates on exchanges in which money of one type or another is likely to appear on both sides of a trade."

Why? The purpose of science is not just to come up with new ideas but to also organize them and categorize them. Thats the reason why we dont have just Physics but also astrophysics, geophysics, theoretical physics etc, why we dont have just biology but zoology, botany etc, why we dont have just psychology but clinical psychology, forensic psychology etc.

How? At some point the knowledge in any branch of science will become so wast that some scientists decide to focus only on special subset of the science and hence create sub-branch. For example, all physical sciences started as natural philosophy and all social sciences as moral philosophy but as science grew in complexity they started to diverge into different fields like physics, biology, economics or psychology, and as science grew ever more complex these fields further subdivided into their respective subfields.

Will a model of international economics suddenly become a model of financial economics if I simply change the names?

Its not about changing names. A model becomes an international economics model if it is applied to economic situation involving two or more sovereign states. A financial economics model will be a model thats applied to a situation where transactions involve money on both sides of a trade.

However, note the same models might be useful in different sub-fields. For example, laws of thermodynamics are widely used directly or indirectly in many branch of physics. A model that includes laws of thermodynamics but is a model pertaining to stellar phenomena will become an astrophysical model. A model based on laws of thermodynamics applied to some geothermal spot on earth will become geophysics model.

I saw myself repeating the same exact basic math and coming to the same conclusions, different names notwithstanding.

Yes, if a two subfields look at similar interactions its highly likely that they will use similar models and will result in similar conclusions. If anything I would be very worried if a scientific model/theory would work only in one narrow application and was unusable anywhere else. A hallmark of successful scientific theory is if it can explain a large number of phenomena with the least amount of effort. For example, marginal utility can explain a large number of phenomena whether you apply it labor economics, industrial organization, financial economics etc. Its a good sign when a scientific theory can be applied to multiple situations and yields similar conclusions (of course conditional on also testing those conclusions and making sure they are accurate).


Krugman, P. R., Melitz, M. J., & Obstfeld, M. (2017). International trade: theory and policy.

  • $\begingroup$ But in all these brances the mechanisms of the model, the methodology and the mathematics are immensely different. In International Economics and Financial Economics the mechanisms are almost identical. The only difference is in the names. I would say that there are only 2 branches of microeconomics. Partial and General equilibrium. The rest is reduntant only the names change. $\endgroup$ Apr 10, 2020 at 14:18
  • $\begingroup$ @GeorgeNtoulos 1. As someone who used to study physics at university before changing fields to economics I can say that you are not correct. Some models can be literary copy pasted between different subfield a of physics. Mechanics of physics is on large scales more or less same same whether we talk about earth or cosmos (in physics already human sized objects would be relatively large). So sorry but your claim that the methodology and mathematics are immensely different there is plain wrong. In fact I dare to say that in natural sciences the differences between mechanisms and models in... $\endgroup$
    – 1muflon1
    Apr 10, 2020 at 14:29
  • $\begingroup$ ... their relative subfields is often less than in economics - at least judged by physics which I used to study. 2. It’s completely wrong to say that models and mechanics in financial and international economics are identical- for example one of the cornerstones of international economics is basic Ricardian model - a model which does not even have money in it and hence it cannot be even used in financial economics. Sure some models might be same or similar. Again so what that means the models are widely applicable which is good and you still want to organize and categorize science by... $\endgroup$
    – 1muflon1
    Apr 10, 2020 at 14:32
  • $\begingroup$ ... it’s subject matter too not just by the models - in fact that’s how science mostly should be organized. A standard physical model of gravity can be applied to international trade with complete copy paste just changing names of variables... will you now say that we should not call international economics international economics but physics just because gravity model from physics can be used with just variable names change in economics? That does not make any sense at all... if we would categorize science based on models and not subject matter it would be total chaos $\endgroup$
    – 1muflon1
    Apr 10, 2020 at 14:35
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    $\begingroup$ @GeorgeNtoulos but mechanics is not really a field it’s an area - that’s more like a set of tools or set of models. An equivalent of mechanics in economics would rational choice theory - that’s not really the same comparison. Here a valid comparison is between astrophysics and geophysics for example which both use mechanics the same way as both international economics and financial economics use rational choice theory. So that’s simply false equivalency - you compare areas in physics with subfields in economics instead of subfields with subfields. $\endgroup$
    – 1muflon1
    Apr 10, 2020 at 15:09

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