Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
International Trade International trade is the exchange of capital, goods, and services across international borders or territories.[1] In most countries, such trade represents a significant share of gross domestic product (GDP). 1. dictionary.reference.com While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. New Trade Theory New Trade Theory tries to explain empirical elements of trade that comparative advantage-based models above have difficulty with. These include the fact that most trade is between countries with similar factor endowment and productivity levels, and the large amount of multinational production (i.e., foreign direct investment) that exists. New Trade theories are often based on assumptions such as monopolistic competition and increasing returns to scale. One result of these theories is the homemarket effect, which asserts that, if an industry tends to cluster in one location because of returns to scale and if that industry faces high transportation costs, the industry will be located in the country with most of its demand, in order to minimize cost. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage Production possibilities for two countries Kilos of wheat Metres of cloth Less developed country Either 2 or 1 Developed country 4 or 8 Either Pre-trade exchange ratios Less developed country: Developed country: 2 wheat for 1 cloth 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: Developed country: 1 wheat for 1 cloth 1 wheat for 1 cloth Production possibilities for two countries Kilos of wheat Metres of cloth Less developed country Either 2 or 1 Developed country 4 or 8 Either Pre-trade exchange ratios Less developed country: Developed country: 2 wheat for 1 cloth 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: Developed country: 1 wheat for 1 cloth 1 wheat for 1 cloth Production possibilities for two countries Kilos of wheat Metres of cloth Less developed country Either 2 or 1 Developed country 4 or 8 Either Pre-trade exchange ratios Less developed country: Developed country: 2 wheat for 1 cloth 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: Developed country: 1 wheat for 1 cloth 1 wheat for 1 cloth Production possibilities for two countries Kilos of wheat Metres of cloth Less developed country Either 2 or 1 Developed country 4 or 8 Either Pre-trade exchange ratios Less developed country: Developed country: 2 wheat for 1 cloth 1 wheat for 2 cloth International trade exchange ratios (LDC exports wheat: DC exports cloth) Less developed country: Developed country: 1 wheat for 1 cloth 1 wheat for 1 cloth The Gains from Trade • The limits to specialisation and trade • The terms of trade • PX/PM • Other reasons for gains from trade • decreasing costs • differences in demand • increased competition • trade as an ‘engine of growth’ • non-economic advantages Arguments for Restricting Trade • Methods of restricting trade • tariffs • quotas • administrative barriers • other • Arguments for restricting trade • infant industry argument • changing comparative advantage • to prevent dumping Arguments for Restricting Trade • Arguments for restricting trade (cont.) • to prevent establishment of a foreign-based monopoly • to spread risks • externalities • pursuing national interests (but against world interests) • exploiting monopoly power • protecting declining industries • non-economic arguments Arguments for Restricting Trade • Problems with protection • protection as ‘second best’ • world multiplier effects • retaliation • cushions inefficiency • bureaucracy • Measuring the efficiency loss from protection The cost of protection P Sdom (=MC) S world PW Ddom O Q1 Q2 Q The cost of protection P Sdom (=MC) Area edbc equals loss of consumer surplus a PW + t e Tariff c PW d S world b + tariff S world Ddom O Q1 Q3 Q4 Q2 Q The cost of protection P Sdom (=MC) Area 1 equals gain in producer surplus a Area 3 equals gain in tariff revenue PW + t e Tariff c PW d 1 2 3 4 S world b + tariff S world Ddom O Q1 Q3 Q4 Q2 Q The cost of protection P a PW + t e Tariff c PW Sdom (=MC) Areas 2 + 4 equals net loss d 1 2 3 4 S world b + tariff S world Ddom O Q1 Q3 Q4 Q2 Q World Attitudes towards Trade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade Real growth rate (%) Growth in world real GDP and world merchandise exports 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: Trade Statistics, WTO (www.wto.org) Real growth rate (%) Growth in world real GDP and world merchandise exports 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 1960 Growth in real GDP 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: Trade Statistics, WTO (www.wto.org) Real growth rate (%) Growth in world real GDP and world merchandise exports 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 1960 Growth in merchandise exports Growth in real GDP 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: Trade Statistics, WTO (www.wto.org) World Attitudes towards Trade and Protection • Re-emergence of protectionism in 1980s • the increasing use of non-tariff barriers • The Uruguay Round • aims of the negotiations • problems in reaching agreement • the agreement • assessing the agreement World Attitudes towards Trade and Protection • The World Trade Organisation • WTO more powerful than GATT • WTO rules • • • • • non-discrimination reciprocity general prohibition of quotas fair competition binding tariffs • attitudes of the WTO • WTO activity in recent years • resistance from various groups to unfettered trade Trading Blocs • Types of preferential trading arrangement • free trade areas • customs unions • common markets • features of a full common market • Direct effects of a customs union • trade creation • trade diversion Trading Blocs • Long-term effects of a customs union • longer-term advantages • internal economies of scale • external economies of scale • better terms of trade • increased competition between members • longer-term disadvantages • certain regions of the union may suffer • possibility of oligopolistic collusion • administrative costs Preferential Trading in Practice • Preferential trading in practice • the EU • the EEA • NAFTA • the advent of NAFTA • experience to date • proposals to extent to an all Americas free trade area • the Asia-Pacific Economic Co-operation forum (APEC) • other free trade areas / customs unions The European Union • Historical background • The economic nature of the EU • Development of common EU policies • Common Agricultural Policy • regional policy • competition policy • tax harmonisation • social policy • trade policy The European Union • The single market • historical background • the Single European Act • completing the single market • The benefits of the single market • trade creation • reduction in the direct costs of barriers • economies of scale • greater competition The European Union • Criticisms of the single market • • • • • radical economic change is costly adverse regional effects development of monopoly / oligopoly power trade diversion political objections: loss of sovereignty • Developments of the single market • evidence of economic benefits • eliminating remaining barriers • Internal Market scoreboard • effects of expansion of the EU Trade and Developing Countries • Trade strategies • primary outward looking • secondary inward looking • import-substituting industrialisation (ISI) • secondary outward looking • possibly complemented by primary inward looking Trade and Developing Countries • Approach 1: exporting primaries • justification for exporting primaries • exploits comparative advantage • a 'vent for surplus' • an 'engine for growth' • problems with traditional trade theory • comparative costs change over time • benefits may not flow to nationals • trade my lead to greater inequality • externalities from mines and plantations Trade and Developing Countries • Exporting primaries (cont.) • long-term problems for primary exporting countries • low income elasticity of demand • protection in advanced countries • technological developments • synthetic substitutes • miniaturisation • rapid growth in imports • adverse movements in terms of trade World primary commodity prices (1990 = 100) 1960 1970 1980 1990 2000 Agricultural commodities 208 182 192 100 87 Metals and minerals 137 161 131 100 82 All non-fuel commodities 187 175 174 100 86 34 21 224 100 122 Oil World primary commodity prices (1990 = 100) 1960 1970 1980 1990 2000 Agricultural commodities 208 182 192 100 87 Metals and minerals 137 161 131 100 82 All non-fuel commodities 187 175 174 100 86 34 21 224 100 122 Oil World primary commodity prices (1990 = 100) 1960 1970 1980 1990 2000 Agricultural commodities 208 182 192 100 87 Metals and minerals 137 161 131 100 82 All non-fuel commodities 187 175 174 100 86 34 21 224 100 122 Oil World primary commodity prices (1990 = 100) 1960 1970 1980 1990 2000 Agricultural commodities 208 182 192 100 87 Metals and minerals 137 161 131 100 82 All non-fuel commodities 187 175 174 100 86 34 21 224 100 122 Oil Average annual changes in prices of various products 1985–94 1995–2004 1.2 –1.4 Non-oil primary product exports of heavily indebted poor countries –0.4 –1.6 Oil prices –5.7 4.6 5.0 –0.1 Non-oil primary product exports of developing countries Manufactured exports of advanced economies Average annual changes in prices of various products 1985–94 1995–2004 1.2 –1.4 Non-oil primary product exports of heavily indebted poor countries –0.4 –1.6 Oil prices –5.7 4.6 5.0 –0.1 Non-oil primary product exports of developing countries Manufactured exports of advanced economies Trade and Developing Countries • Approach 2: ISI • justifications • problems of primary exporting • dynamic potential in manufacturing • infant industries • rapid technological advance • patterns of protection • selecting industries for protection • tariff and quota escalation • attracting multinational investment Trade and Developing Countries • Approach 2: ISI (cont.) • adverse effects of ISI • often counter to comparative advantage • tends to cushion inefficiency • encourages establishment of monopolies • artificially low interest rates • use of capital-intensive techniques • • • • • encourages rural–urban migration adverse effects on rural sector leads to greater inequality environmental problems limit to home market Trade and Developing Countries • Approach 3: exporting manufactures • transition from inward-looking to outward-looking industrialisation • a neutral trade approach • active promotion of manufactured exports • benefits from exporting manufactures • conforms more closely with comparative advantage • increased competition • increased investment • more employment and greater equality Growth rates and export performance of selected secondary outward-looking countries Average annual growth in real GDP (%) Share of manufactures in merchandise exports (%) Annual average growth rate of exports (%) 1965–2001 1970 2001 1965–2001 Brazil 4.4 15 53 8.4 Malaysia 6.9 8 80 9.6 South Korea 8.0 76 90 15.3 Singapore 8.1 31 84 9.4 Hong Kong 7.2 96 95 11.5 All developing countries 4.1 27 65 5.7 Growth rates and export performance of selected secondary outward-looking countries Average annual growth in real GDP (%) Share of manufactures in merchandise exports (%) Annual average growth rate of exports (%) 1965–2001 1970 2001 1965–2001 Brazil 4.4 15 53 8.4 Malaysia 6.9 8 80 9.6 South Korea 8.0 76 90 15.3 Singapore 8.1 31 84 9.4 Hong Kong 7.2 96 95 11.5 All developing countries 4.1 27 65 5.7 Growth rates and export performance of selected secondary outward-looking countries Average annual growth in real GDP (%) Share of manufactures in merchandise exports (%) Annual average growth rate of exports (%) 1965–2001 1970 2001 1965–2001 Brazil 4.4 15 53 8.4 Malaysia 6.9 8 80 9.6 South Korea 8.0 76 90 15.3 Singapore 8.1 31 84 9.4 Hong Kong 7.2 96 95 11.5 All developing countries 4.1 27 65 5.7 Growth rates and export performance of selected secondary outward-looking countries Average annual growth in real GDP (%) Share of manufactures in merchandise exports (%) Annual average growth rate of exports (%) 1965–2001 1970 2001 1965–2001 Brazil 4.4 15 53 8.4 Malaysia 6.9 8 80 9.6 South Korea 8.0 76 90 15.3 Singapore 8.1 31 84 9.4 Hong Kong 7.2 96 95 11.5 All developing countries 4.1 27 65 5.7 Growth rates and export performance of selected secondary outward-looking countries Average annual growth in real GDP (%) Share of manufactures in merchandise exports (%) Annual average growth rate of exports (%) 1965–2001 1970 2001 1965–2001 Brazil 4.4 15 53 8.4 Malaysia 6.9 8 80 9.6 South Korea 8.0 76 90 15.3 Singapore 8.1 31 84 9.4 Hong Kong 7.2 96 95 11.5 All developing countries 4.1 27 65 5.7 Trade and Developing Countries • Approach 3: exporting manufactures (cont.) • drawbacks of exporting manufactures • possible retaliation from advanced countries • but attitudes of WTO • competition from other developing countries • vulnerability to world fluctuations • world recessions • speculation • trade between developing countries • trade blocs of developing countries