trade.ppt

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InternationalTrade

InternationalTrade

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The Gains from TradeThe Gains from Trade

The law of comparative advantage

specialisation as the basis for trade

absolute advantage

comparative advantage

the gains from trade based on comparativeadvantage

The law of comparative advantage

specialisation as the basis for trade

absolute advantage

comparative advantage

the gains from trade based on comparativeadvantage

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Kilos of wheat

Metres of cloth

Less developed country Either 2 or 1

Developed country Either 4 or 8

P roduction possibilities for two countriesP roduction possibilities for two countries

P re-trade exchange ratiosP re-trade exchange ratios

Less developed country: 2 wheat for 1 clothDeveloped country: 1 wheat for 2 cloth

International trade exchange ratiosInternational trade exchange ratios

Less developed country: 1 wheat for 1 cloth

Developed country: 1 wheat for 1 cloth

(LDC exports wheat: DC exports cloth)

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Kilos of wheat

Metres of cloth




P re-trade exchange ratiosP re-trade exchange ratiosLess developed country: 2 wheat for 1 clothDeveloped country: 1 wheat for 2 cloth





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Kilos of wheat

Metres of cloth









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Kilos of wheat

Metres of cloth









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The Gains from TradeThe Gains from Trade

The limits to specialisation and trade

The terms of tradeP X /P M

Other reasons for gains from tradedecreasing costs

differences in demand

increased competitiontrade as an engine of growth

non-economic advantages

The limits to specialisation and trade

The terms of tradeP X /P M

Other reasons for gains from tradedecreasing costs

differences in demand

increased competitiontrade as an engine of growth

non-economic advantages

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Arguments for Restricting TradeArguments for Restricting Trade

M ethods of restricting tradetariffs

quotas

administrative barriers

other

Arguments for restricting tradeinfant industry argument

changing comparative advantage

to prevent dumping

M ethods of restricting tradetariffs

quotas

administrative barriers

other

Arguments for restricting tradeinfant industry argument

changing comparative advantage

to prevent dumping

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Arguments for restricting trade (cont.)to prevent establishment of a foreign-basedmonopoly

to spread risksexternalities

pursuing national interests (but againstworld interests)

exploiting monopoly power

protecting declining industries

non-economic arguments

Arguments for restricting trade (cont.)to prevent establishment of a foreign-basedmonopoly

to spread risksexternalities

pursuing national interests (but againstworld interests)

exploiting monopoly power

protecting declining industries

non-economic arguments

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P roblems with protection

protection as second best

world multiplier effects

retaliation

cushions inefficiency

bureaucracy

M easuring the efficiency loss fromprotection

P roblems with protection

protection as second best

world multiplier effects

retaliation

cushions inefficiency

bureaucracy

M easuring the efficiency loss fromprotection

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The cost of protectionThe cost of protection

O

P

Q

S dom (=MC )

Q 1 Q 2

S worldP W

D dom

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O

P

Q

S dom (=MC )

S world + tariff

S world

a

d e

c b

Q 1 Q 2Q 3 Q 4

Tariff P W + t

P W

D dom

Area edbc equals lossof consumer surplus


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O

P

Q

S dom (=MC )

S world + tariff

S world

a

d e

c b1 2 3 4

Q 1 Q 2Q 3 Q 4

Tariff P W + t

P W

D dom

Area 3 equals gain

in tariff revenue

Area 1 equals gain inproducer surplus


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O

P

Q

S dom (=MC )

S world + tariff

S world

a

d e

c b1 2 3 4

Q 1 Q 2Q 3 Q 4

Tariff P W + t

P W

D dom

Areas 2 + 4equalsnet loss


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History of protection

P re-war growth in protection

P ost-war reduction in protection and therole of G ATT

the growth in world trade

History of protection

P re-war growth in protection

P ost-war reduction in protection and therole of G ATT

the growth in world trade

W orld Attitudes to ards Trade and ProtectionW orld Attitudes to ards Trade and Protection

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-3

-2

-1

01

2

3

4

56

7

8

9

10

11

12

13

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Real growth rate (%)

Growth in world real GD P and world merchandise exportsGrowth in world real GD P and world merchandise exports

Source: Trade Statistics , WTO (www.wto.org)

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Growth in real GD P


-3

-2

-1

01

2

3

4

56

7

8

9

10

11

12

13

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005


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Growth in real GD P

Growth in

merchandise exports


-3

-2

-1

01

2

3

4

56

7

8

9

10

11

12

13

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005


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Re-emergence of protectionism in 1980s

the increasing use of non-tariff barriers

The Uruguay Roundaims of the negotiations

problems in reaching agreement

the agreement

assessing the agreement

Re-emergence of protectionism in 1980s

the increasing use of non-tariff barriers

The Uruguay Roundaims of the negotiations

problems in reaching agreement

the agreement

assessing the agreement


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The World Trade OrganisationWTO more powerful than G ATTWTO rules

non-discriminationreciprocitygeneral prohibition of quotasfair competitionbinding tariffs

attitudes of the WT OWTO activity in recent years

resistance from various groups to unfetteredtrade

The World Trade OrganisationWTO more powerful than G ATTWTO rules

non-discriminationreciprocitygeneral prohibition of quotasfair competitionbinding tariffs

attitudes of the WT OWTO activity in recent years

resistance from various groups to unfetteredtrade


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Trading BlocsTrading Blocs

Types of preferential tradingarrangement

free trade areas

customs unions

common marketsfeatures of a full common market

Direct effects of a customs uniontrade creation

trade diversion

Types of preferential tradingarrangement

free trade areas

customs unions

common marketsfeatures of a full common market

Direct effects of a customs uniontrade creation

trade diversion

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Trading BlocsTrading Blocs

Long-term effects of a customs unionlonger-term advantages

internal economies of scale

external economies of scalebetter terms of trade

increased competition between members

longer-term disadvantagescertain regions of the union may suffer

possibility of oligopolistic collusion

administrative costs

Long-term effects of a customs unionlonger-term advantages

internal economies of scale

external economies of scalebetter terms of trade

increased competition between members

longer-term disadvantagescertain regions of the union may suffer

possibility of oligopolistic collusion

administrative costs

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P referential Trading in P racticeP referential Trading in P ractice

P referential trading in practicethe EUthe EE A

NAF TAthe advent of NAF TAexperience to dateproposals to extent to an all Americas freetrade area

the Asia- P acific Economic Co-operationforum ( AP EC)other free trade areas / customs unions

P referential trading in practicethe EUthe EE A

NAF TAthe advent of NAF TAexperience to dateproposals to extent to an all Americas freetrade area

the Asia- P acific Economic Co-operationforum ( AP EC)other free trade areas / customs unions

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The European UnionThe European Union

Historical background

The economic nature of the EU

Development of common EU policiesCommon Agricultural P olicy

regional policy

competition policy

tax harmonisation

social policy

trade policy

Historical background

The economic nature of the EU

Development of common EU policiesCommon Agricultural P olicy

regional policy

competition policy

tax harmonisation

social policy

trade policy

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The single markethistorical background

the Single European Act

completing the single market

The benefits of the single markettrade creation

reduction in the direct costs of barriers

economies of scale

greater competition

The single markethistorical background

the Single European Act

completing the single market

The benefits of the single markettrade creation

reduction in the direct costs of barriers

economies of scale

greater competition

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Criticisms of the single marketradical economic change is costlyadverse regional effects

development of monopoly/

oligopoly power trade diversionpolitical objections: loss of sovereignty

Developments of the single marketevidence of economic benefitseliminating remaining barriers

Internal M arket scoreboard

effects of expansion of the EU

Criticisms of the single marketradical economic change is costlyadverse regional effects

development of monopoly/

oligopoly power trade diversionpolitical objections: loss of sovereignty

Developments of the single marketevidence of economic benefitseliminating remaining barriers

Internal M arket scoreboard

effects of expansion of the EU

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Trade and Developing CountriesTrade and Developing Countries

Trade strategies

primary outward looking

secondary inward looking

import-substituting industrialisation (ISI)

secondary outward lookingpossibly complemented by primary inwardlooking

Trade strategies

primary outward looking

secondary inward looking

import-substituting industrialisation (ISI)

secondary outward lookingpossibly complemented by primary inwardlooking

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Approach 1: exporting primariesjustification for exporting primaries

exploits comparative advantage

a 'vent for surplus'an 'engine for growth'

problems with traditional trade theory

comparative costs change over timebenefits may not flow to nationals

trade my lead to greater inequality

externalities from mines and plantations

Approach 1: exporting primariesjustification for exporting primaries

exploits comparative advantage

a 'vent for surplus'an 'engine for growth'

problems with traditional trade theory

comparative costs change over timebenefits may not flow to nationals

trade my lead to greater inequality

externalities from mines and plantations

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Exporting primaries (cont.)

long-term problems for primary exportingcountries

low income elasticity of demandprotection in advanced countries

technological developments

synthetic substitutes

miniaturisation

rapid growth in imports

adverse movements in terms of trade

Exporting primaries (cont.)

long-term problems for primary exportingcountries

low income elasticity of demandprotection in advanced countries

technological developments

synthetic substitutes

miniaturisation

rapid growth in imports

adverse movements in terms of trade

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1960 1970 1980 1990 2000

Agricultural commodities 208 182 192 100 87

M etals and minerals 137 161 131 100 82

All non-fuel commodities 187 175 174 100 86

Oil 34 21 224 100 122

World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)

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1960 1970 1980 1990 2000




Oil 34 21 224 100 122


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1960 1970 1980 1990 2000




Oil 34 21 224 100 122


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1960 1970 1980 1990 2000




Oil 34 21 224 100 122


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Average annual changes inprices of various productsAverage annual changes inprices of various products

Non-oil pri ar product e portsof developing countries

. .

Non-oil pri ar product e portsof heavil inde ted poor countries

. .

Oil prices . .

Manufactured e portsof advanced econo ies . .

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Approach 2: ISI (cont.)adverse effects of ISI

often counter to comparative advantagetends to cushion inefficiency

encourages establishment of monopolies

artificially low interest ratesuse of capital-intensive techniques

encourages rural urban migrationadverse effects on rural sector leads to greater inequalityenvironmental problemslimit to home market

Approach 2: ISI (cont.)adverse effects of ISI

often counter to comparative advantagetends to cushion inefficiency

encourages establishment of monopolies

artificially low interest ratesuse of capital-intensive techniques

encourages rural urban migrationadverse effects on rural sector leads to greater inequalityenvironmental problemslimit to home market

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Growth rates and export performance of selected secondary outward-looking countries

Growth rates and export performance of selected secondary outward-looking countries

A erage

annual growthin real G P

%

hare of

manufactures inmerchandiseexports %

Annual a erage

growth rate of exports

%

1965 1 1970 2001 1965 2001

Brazil

4.4 15 53

8.4

Malaysia 6.9 8 80 9.6

S outh Korea 8.0 76 90 15.3

S ingapore 8.1 31 84 9.4

H ong Kong 7.2 96 95 11.5

All de elopingcountries

4.1 27 65 5.7

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A erage

annual growthin real GD P

%

S hare of

manufactures inmerchandiseexports ( %

Annual a erage


(%

1965 2001 1970 2001 1965 2001

B ra z il 4.4 15 53 8.4

Malaysia 6.9 8 80 9.6

S outh Korea 8.0 76 90 15.3

S ingapore 8.1 31 84 9.4

H ong Kong 7.2 96 95 11.5


4.1 27 65 5.7

Growth rates and export performance of selected secondary outward -loo king countries


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A erage


(%

S hare of


Annual a erage


(%

1965 2001 1970 2001 1965 2001

B ra z il 4.4 15 53 8.4

Malaysia 6.9 8 80 9.6

S outh Korea 8.0 76 90 15.3

S ingapore 8.1 31 84 9.4

H ong Kong 7.2 96 95 11.5


4.1 27 65 5.7



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A erage


(%

S hare of


Annual a erage


(%

1965 2001 1970 2001 1965 2001

B ra z il 4.4 15 53 8.4

Malaysia 6.9 8 80 9.6

S outh Korea 8.0 76 90 15.3

S ingapore 8.1 31 84 9.4

H ong Kong 7.2 96 95 11.5


4.1 27 65 5.7



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A erage

annual growthin real GD P(%

S hare of


Annual a erage

growth rate of exports(%

1965 2001 1970 2001 1965 2001

B ra z il 4.4 15 53 8.4

Malaysia 6.9 8 80 9.6

S outh Korea 8.0 76 90 15.3

S ingapore 8.1 31 84 9.4

H ong Kong 7.2 96 95 11.5


4.1 27 65 5.7



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Approach 3: exporting manufactures(cont.)

drawbacks of exporting manufactures

possible retaliation from advanced countriesbut attitudes of WT O

competition from other developing countries

vulnerability to world fluctuations

world recessionsspeculation

trade between developing countriestrade blocs of developing countries

Approach 3: exporting manufactures(cont.)

drawbacks of exporting manufactures

possible retaliation from advanced countriesbut attitudes of WT O

competition from other developing countries

vulnerability to world fluctuations

world recessionsspeculation

trade between developing countriestrade blocs of developing countries

trade.ppt

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