Transcript Chapter 1 An Introduction to International Trade

Chapter 1
An Introduction
to International
Trade
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Topics to be Covered
•
•
•
•
Branches of International Economics
Characteristics of National Economies
Characteristics of World Trade
Characteristics of U.S. Trade
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Examples of International Trade
Questions
• What impact will the global financial crisis have on world
trade?
• Has the recent growth of world trade and capital flows
exacerbated the impact of the financial crisis?
• Does reliance on international trade lead to a loss of jobs for
Palestinian?
• Can Palestinian firms compete against firms in low-wage
countries?
• Is the large palestine trade deficit harmful?
• What is the appropriate value of the dollar?
• International Economics helps explain patterns of
international trade, investment, and other cross-border
transactions
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What Is International Economics
About?
• International economics is about how nations
interact through trade of goods and services,
through flows of money and through investment.
• International economics is an old subject, but it
continues to grow in importance as countries
become tied to the international economy.
• Nations are more closely linked through trade in
goods and services, through flows of money, and
through investment than ever before.
• International economics is a blend of micro and
macro economic analysis
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Branches of International
Economics
• Trade (international microeconomics)
– Why do nations engage in international trade?
– What goods and services do nations trade?
– How does international trade affect national
income, welfare, and jobs?
– How do trade barriers affect national welfare?
– How are countries affected by international
movements of labor and capital?
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Branches of International
Economics (cont.)
• Finance (international macroeconomics)
– What is the balance of payments?
– What is an exchange rate and what factors
determine the exchange rate?
– What is the relationship between exchange
rates, prices, and interest rates?
– How are countries affected by foreign direct
investment and lending?
– How effective are domestic policies given
the global economy?
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Patterns of Trade
• Differences in climate and resources can
explain why Brazil exports coffee and
Australia exports iron ore.
• But why does Japan export automobiles,
while the U.S. exports aircraft?
• Differences in labor productivity may explain
why some countries export certain products.
• How relative supplies of capital, labor and
land are used in the production of different
goods and services may also explain why
some countries export certain products.
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The Effects of Government
Policies on Trade
• Policy makers affect the amount of trade through
– tariffs: a tax on imports or exports,
– quotas: a quantity restriction on imports or exports,
– export subsidies: a payment to producers that export,
– or through other regulations (ex., product specifications)
that exclude foreign products from the market, but still
allow domestic products.
• What are the costs and benefits of these policies?
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The Effects of Government
Policies on Trade (cont.)
• Economists design models that try to
measure the effects of different trade
policies.
• If a government must restrict trade, which
policy should it use?
• If a government must restrict trade, how
much should it restrict trade?
• If a government restricts trade, what are the
costs if foreign governments respond
likewise?
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Characteristics of National
Economies
• Over 190 countries in the world today
• Population
• Land area
• Gross National Product (GNP)—value of
final goods and services produced by
domestic factors of production.
• Gross Domestic Product (GDP)—value of
final products produced within a country.
• Per capita GNP (GDP)
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International Trade
• Exports—goods and services produced in
one country and sold to other countries.
• Imports—goods and services consumed
in a country but which have been
purchased from other countries.
• Trade Deficit (Surplus)—a country has
a trade deficit (surplus) if its imports
(exports) exceeds its exports (imports).
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IMPORTS AND EXPORTS OF GOODS
IN THE WORLD ECONOMY
Table 1.2 Distribution of Imports and Exports of
Merchandise in the World Economy 2005
Imports
(millions of $)
Low-Income
Economies
Middle-Income
Economies
High-Income
Economies
World Total
% of
World Total
Exports
(millions of $)
% of
World Total
$316,559
3.0%
$261,853
2.5%
$2,552,089
23.9%
$2,795,181
26.8%
$7,816,297
73.2%
$7,376,990
70.7%
$10,684,945
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–
$10,434,024
–
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GLOBALIZATION
• Globalization is the term used to
convey the idea that international
factors are becoming a more
important part of the world economy
• The simplest measure of globalization
is the ratio of exports to GDP
– Countries with a high ratio of exports to
GDP are generally more open to the world
economy than countries with a low ratio
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Index of Openness
• Index of Openness—a measure of how
much a country participates in
international trade; defined as the ratio of
a country’s exports to its GDP (or GNP).
• Open Economy—a country with a high
value of the index of openness.
• Closed Economy—a country with a
relatively low index of openness.
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GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP
for Selected Countries
Country
Real Export plus Imports as a Percent of GDP
Singapore
462.9%
Hong Kong
334.4
Luxembourg
282.0
Hungary
180.0
Ireland
176.7
Belgium
174.0
Netherlands
146.9
Taiwan
118.1
Honduras
109.7
Philippines
107.7
Austria
103.0
Costa Rica
96.4
Korea
95.5
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GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP
for Selected Countries
Country
Real Export plus Imports as a Percent of GDP
Denmark
94.5
Switzerland
90.7
Sweden
88.9
Canada
81.8
Indonesia
81.7
Portugal
79.9
Nicaragua
79.3
Iceland
78.9
Israel
78.3
Finland
77.9
Ecuador
76.9
Germany
76.6
Norway
76.4
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GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP
for Selected Countries
Country
Real Export plus Imports as a Percent of GDP
Turkey
71.2
Chile
71.1
Poland
69.5
Mexico
66.8
Spain
65.1
U.K.
59.9
France
57.5
Italy
54.5
China
54.4
South Africa
54.4
Greece
54.3
Australia
48.9
U.S.
26.6
Japan
23.4
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Developing Country vs.
Developed Country
• Developing (poor) countries vs. developed
(rich) countries – classified by per capita
GNP
• The poorest countries tend to be located in
Africa and Asia.
• The richest countries are industrialized
countries of Western Europe, North
America, and the Pacific Rim.
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Developing Country vs.
Developed Country
• World Bank
– A multi-lateral institution, which makes loans to
developing countries to enhance economic
development
– It classifies each country of the world into low
income, middle-income, and high-income
economies based on GDP per capita
– With minor adjustments, GDP measures both the
total production and total income of a country
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THE OUTPUT OF
THE WORLD ECONOMY
Table 1.1 Distribution of World Population and
Economic,
2005
GDP
% of
per
capita
Low-Income
Economies
Middle-Income
Economies
High-Income
Economies
Population
(millions)
World
Population
(millions of $)
% of
World
GDP
Total
GDP
$602
2,352
36.5%
$1,416,212
3.2%
$2,782
3,075
47.8%
$8,553,721
1.2%
$34,316
1,011
15.7%
$34,687,058
77.7%
• The distribution of world income affects the
study of international trade because the
production of goods and income is unevenly
distributed among the world economies
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TABLE 1.1 Basic Characteristics of
Selected Countries
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TABLE 1.1 Basic Characteristics of
Selected Countries (cont.)
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TABLE 1.1 Basic Characteristics of
Selected Countries (cont.)
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Causes of Differences in
Economic Growth of Countries
• Quantity and quality of resource
endowments, particularly human capital
• Investment in plant and equipment
• Political and socioeconomic environment
that is stable and conducive to competition
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Characteristics of World
Trade
• Value and growth of world merchandise
trade
• Largest exporters and importers
• Geographic patterns or direction of world
trade
• Commodity composition – What goods do
countries trade?
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Growth of World Exports
• Refer to Figure 1.1 (next slide)
• What has caused the explosion of world
trade?
– Reduction in trade barriers
– Advances in transportation, communication and
technology
– Proliferation of trade agreements
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FIGURE 1.1 World Exports and
Output in Real Terms: 1950–2007
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Geographic Trade Patterns
• Developed countries account for the bulk of
world trade (largest exporters and
importers).
• Developed countries trade primarily with
each other.
• Developing countries rely on developed
countries for their export markets.
• Countries trade mainly with neighbors.
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FIGURE 1.2 Geographic Pattern of
Merchandise Trade: 1965 and 2007
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FIGURE 1.2 Geographic Pattern of
Merchandise Trade: 1965 and 2007 (cont.)
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TABLE 1.2 Top Ten Trading
Partners of Selected Countries, 2007
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Commodity Composition
• What kinds of products do nations currently trade,
and how does this composition compare to trade in
the past?
• Today, most of the volume of trade is in
manufactured products such as automobiles,
computers, clothing and machinery.
– Services such as shipping, insurance, legal fees, and
spending by tourists account for 20% of the volume of
trade.
– Mineral products (ex., petroleum, coal, copper) and
agricultural products are a relatively small part of trade.
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The Composition of World
Trade, 2005
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• In the past, a large fraction of the volume of trade
came from agricultural and mineral products.
– In 1910, Britain mainly imported agricultural and mineral
products, although manufactured products still represented
most of the volume of exports.
– In 1910, the U.S. mainly imported and exported
agricultural products and mineral products.
– In 2002, manufactured products made up most of the
volume of imports and exports for both countries.
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TABLE 1.3 World Trade in Major
Products: 1994, 1999, 2003, 2006 (Rank,
value in billions of $, percent share)
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TABLE 1.3 World Trade in Major Products:
1994, 1999, 2003, 2006 (Rank, value in
billions of $, percent share) (cont.)
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TABLE 1.4 Broad Categories of
Exports of Selected Countries, 2006
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TABLE 1.5 Broad Categories of
Imports of Selected Countries, 2006
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World Trade in Services
• $3.3 trillion in 2007 (or 25% of
international trade)
• U.S. is the largest exporter and importer of
services
• Most traded services: transportation,
travel, other services (banking, medicine,
consulting, insurance & education)
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Characteristics of U.S. Trade
• U.S. is the largest participant and a trading
partner of many countries.
• Top trading partners of the U.S. – primarily
its neighbors, Canada and Mexico (Refer to
Table 1.2, ONLY U.S. DATA)
• Major U.S. exports and imports – primarily
exports and imports machines and transport
equipment (Refer to Tables 1.4 and 1.5,
ONLY U.S. DATA)
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