Transcript Pasila 13102008 - Haaga

Why Germany is no longer #1 in
Finnish foreign trade?
Seppo Suominen
lecturer, economics
HH Malmi Campus
Why international business?
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to
to
to
to
expand sales
acquire resources
diversify sources of sales and supplies
minimize competitive risk
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Why international trade theory?
 to understand what products should a company import
and export
 to understand how much trade is reasonable
 to understand with whom should a company trade
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Why countries exchange goods and services?
 it is useful
 David Ricardo (1817): comparative advantage
 Note: at that time, exchange rates were fixed, i.e. gold
standard or silver standard
 In Finland (in 1809-1917, part of Russia, as Grand
Duchy) during 1865-1877 1 FIM (Finnish markka = ¼
Russian ruble = 4,45 gm of silver = 0,00445 kg
 During 1878-1915 1 FIM = 0,290 gm of gold
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Laissez-Faire versus Interventionist
Approaches to Exports & Imports
 Interventionist:
 Mercantilism
 Neomercantilism
 Free-trade theories:
 Absolute advantage
 Comparative advantage
6-5
Copyright ©
2009
Pearson
Education,
Theories of Trade Patterns
 Explaining trade patterns:
 Country size
 Factor proportions
 Country similarity
 Trade competitiveness:
 Product life cycle theory
 Porter diamond
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Mercantilist Theory
 Mercantilist theory proposed that a country should try
to achieve a favorable balance of trade (export more
than it imports)
 Neomercantilist policy also seeks a favorable balance of
trade, but its purpose is to achieve some social or
political objective
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2009
Pearson
Education,
Theory of Absolute Advantage
 Suggests specialization through free trade because
consumers will be better off if they can buy foreignmade products that are priced more cheaply than
domestic ones
 A country may produce goods more efficiently because
of a natural advantage or because of an acquired
advantage
6-8
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2009
Pearson
Education,
Theory of Comparative Advantage
 Also proposes specialization through free trade because
it says that total global output can increase even if one
country has an absolute advantage in the production of
all products
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2009
Pearson
Education,
Theory Of Country Size
 Countries with large land areas are apt to have varied
climates and natural resources
 They are generally more self-sufficient than smaller
countries are
 Large countries’ production and market centers are
more likely to be located at a greater distance from
other countries, raising the transport costs of foreign
trade
6-10
Copyright ©
2009
Pearson
Education,
Factor-Proportions Theory
 A country’s relative endowments of land, labor, and
capital will determine the relative costs of these factors
 Factor costs will determine which goods the country
can produce most efficiently
6-11
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2009
Pearson
Education,
Country-similarity Theory
 Most trade today occurs among high-income
countries because they share similar market
segments and because they produce and
consume so much more than emerging
economies
 Much of the pattern of two-way trading
partners may be explained by cultural similarity
between the countries, political and economic
agreements, and by the distance between them
6-12
Copyright ©
2009
Pearson
Education,
Product Life Cycle (PLC) Theory
 Companies will manufacture products first in the
countries in which they were researched and
developed, almost always developed countries
 Over the product’s life cycle, production will shift to
foreign locations, especially to developing economies as
the product reaches the stages of maturity and decline
6-13
Copyright ©
2009
Pearson
Education,
The Porter Diamond
 Four conditions as important for competitive
superiority:
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6-14
demand conditions
factor conditions
related and supporting industries
firm strategy, structure, and rivalry
Copyright ©
2009
Pearson
Education,
 http://www.stat.fi/tup/suoluk/suoluk_kansantalous_en.
html#Nationalbalance
 http://www.tulli.fi/en/03_Foreign_trade_statistics/06_st
atistics/01_timeseries/index.jsp
 http://www.wto.org/english/res_e/statis_e/its2006_e/it
s06_longterm_e.pdf
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 Trade is important or vital for Finland
 Export/production = 82,2/179,9 = 45 %
 Export/supply = export/(production + import) = 33 %
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 There are large changes in export or import numbers
 Sometimes + 42%, sometimes – 8 %
 But on average: + 6 % p.a. while production + 3 %
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“Newton’s gravity theory”
 trade = C•m1•m2/d2
 where C = some constant, parameter, m1 and m2 are
“masses” of the trading countries and d is distance
between the countries
 hence trade is large when a) the countries are close b)
the countries are large, big (population, gdp), and c)
the standard of living is high (gdp/capita)
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 See: Trade statistics, pocket2007 p. 10-13 and 20-21
 http://www.tulli.fi/fi/05_Ulkomaankauppatilastot/05_Til
astokatsaukset/pdf/2008/pocket2007.pdf
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 http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/t
ext.pdf
 Pages 240 http://maps.google.ru/
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