Download Fig. 19.7

EC3040B Topic 2
International Trade
Cf Todaro and Smith Chap. 12
Trends in trade: up, especially middle income and since about 1989
Perkins, Radelet, Lindauer
East Asia is the big growth area for trade
Intra-regional trade is relatively small
…but growing
Figure 12.3
• Developing countries have traditionally relied on primary
products (agriculture, mining) for exports. This is
changing.
• Some countries are still very dependent on a handful of
export products
• The structure of developing country imports is much
more similar across countries. Fuel, machinery and other
capital goods, intermediate producer goods, and
consumer products are usually involved
Table 12.2
Bigger economies trade less!
Table 12.1
Population of those countries
Burkina Faso
Burundi
Cote d'Ivoire
Ethiopia
Ghana
Kenya
Madagascar
Malawi
Mauritania
Mozambique
Rwanda
Senegal
Seychelles
Sierra Leone
Sudan
Uganda
14
Fiji
8
Maldives
18
Myanmar
73
P.N.G.
23
Solomon Is
35
Tonga
19
13
3
20
9
12
0.1
6
37
30
320 (of 770)
0.9
0.3
51
6
0.5
0.1
58.8
Belize
Chile
Costa Rica
Cuba
Dominica
Guyana
Honduras
Jamaica
Panama
Paraguay
St Lucia
0.3
16
4
11
0.1
0.8
7
3
3
6
0.2
51.4 (of 556)
Dependence on primary products is falling
2002
Share of Primary Products in Exports
100
90
80
70
60
50
40
30
20
10
0
0
20
40
60
1970
80
100
Ethiopia: Merchandise Trade 2005-6
Exports
Coffee
Pulses
Oilseeds
Sugar and molasses
Leather and leather products
Live animals
Meat, canned and frozen
Fruits and vegetables
Flowers
Chat
Gold
Other exports
Total
% of GDP
USD mn
354
37
211
0
75
28
18
13
22
89
65
88
1000
7.6
Imports
Raw Materials
Semi-finished
Fuel
Capital goods
Transportation
(of which aircraft)
Agricultural
Industrial
Consumer goods
Durable
Non-durable
(of which food)
Miscellaneous
Total (cif)
% of GDP
USD mn
77
821
860
429
67
38
984
415
866
332
98
4592
34
Ethiopia: International Payments
Exports
Services (net)
Private current transfers
Official current transfers
USD mn
1000
149
1229
866
New public debt
LT Private capital (inc FDI)
343
365
Use of official external reserves
Debt relief
216
133
Errors and Omissions
507
4808
Imports
Interest etc (net)
Amortization public debt
Other (net)
USD mn
4593
38
148
30
4809
Ethiopia: Export Price and Volume Fluctuations
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
Total
452
483
600
847
1000
1099
Coffee price Oilseeds price
163 1.5
33 0.4
165 1.3
46 0.6
224 1.4
84 0.8
335 2.1
125 0.7
354 2.4
211 0.8
363
Modest
volume
growth, price
surge
Volume
tripled, price
improved
Chat
49
58
88
100
89
Volume more
than double,
price weak
price
5.2
5.2
6.4
5.2
4.0
Gold price Leather Livestock Meat Flowers Others
35
7
56
1
1
0
114
42 8.4
52
0
2
0
118
49 7.9
44
2
8
0
101
59 9.9
67
13
15
8
125
65 13.0
75
28
18
22
138
88
No volume
change,
price strong
Little price
change
Volume
Volume
Volume
Ethiopia: Export Price and Volume Fluctuations
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
Total
452
483
600
847
1000
1099
Coffee price Oilseeds price
163 1.5
33 0.4
165 1.3
46 0.6
224 1.4
84 0.8
335 2.1
125 0.7
354 2.4
211 0.8
363
Modest
volume
growth, price
surge
Volume
tripled, price
improved
Chat
49
58
88
100
89
Volume more
than double,
price weak
price
5.2
5.2
6.4
5.2
4.0
Gold price L
35
7
42 8.4
49 7.9
59 9.9
65 13.0
No volume
change,
price strong
L
: Export Price and Volume Fluctuations
s price
3 0.4
6 0.6
4 0.8
5 0.7
1 0.8
e
Chat
49
58
88
100
89
Volume more
than double,
price weak
price
5.2
5.2
6.4
5.2
4.0
Gold price Leather Livestock Meat Flowers Others
35
7
56
1
1
0
114
42 8.4
52
0
2
0
118
49 7.9
44
2
8
0
101
59 9.9
67
13
15
8
125
65 13.0
75
28
18
22
138
88
No volume
change,
price strong
Little price
change
Volume
Volume
Volume
Terms of Trade and the Prebisch-Singer Thesis
• Total export earnings depend on:
– Total volume of exports sold AND
– Price paid for exports
• Terms of trade: relative price of exports and imports
– Many alternative calculations
– Simplest is average unit price of exports divided by average unit price of
imports (barter TOT)
– Also: income TOT measures export receipts divided by price of imports
(takes account of shifting volumes of primary products)
• Prebisch and Singer: “export prices fall over time, so LDCs lose
purchasing power unless they can continually increase export
volumes”
– Implication: LDCs need to avoid dependence on primary exports
Source: Weil (2007)
Source: FT Jan 2008
Oil prices
Brent futures ICE FT
Copper prices
Comex futures FT
Wheat prices
CBT futures FT
Coffee prices
ICE futures FT
The Basic Static Theory of International
Trade
• The principle of comparative advantage
• Different production possibilities…based on
– Technology differences (Ricardo) or
– Relative factor endowments (Heckscher-Ohlin)
• Need to add: imperfect competition, increasing
returns to scale, learning by doing…
Figure 12.1
Position before trade
opens up
The point of the vent-for-surplus theory is that it deals with situations
where surpluses are just unused without trade:
Trade here is not so much about reallocation: more about finding a
use for underused resources
Position with trade
Position before trade
opens up
The point of the vent-for-surplus theory is that it deals with situations
where surpluses are just unused without trade:
Trade here is not so much about reallocation: more about finding a
use for underused resources
Mozambique
Cashew nuts in Mozambique…a lesson in political economy
1960s: Mozambique produced half of the world’s cashews
Independence 1975: ban on raw Cashew exports
(objective: stimulate domestic processing)
(War 1982-92)
Ban lifted 1991/2, replaced with export quota and export tax (60%).
Quota subsequently removed and export tax reduced to 14% (1998-9)
Aim of 1990s reforms:
 restore efficient level of raw cashew production
 (and reduce inefficient processing activity)
 and by increasing farmer price lower poverty
 (at expense of processors)
Results:
 farmgate prices increased;
 raw cashew exports increased
 processing shrank
But effects small: (McMillan, Horn and Rodrik, 2003)
Efficiency gains about 0.14% of GDP
About $5 per annum extra for each cashew-growing household
Unemployment (maybe transitory) of processor workers (there had been 11,000)
May have resulted in lost output of almost as much as the efficiency gains.