international trade. the gains from trade n the law of comparative advantage < specialisation as...
TRANSCRIPT
International Trade
International Trade
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 comparative advantage
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 countriesProduction possibilities for two countries
Pre-trade exchange ratiosPre-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 clothDeveloped country: 1 wheat for 1 cloth
(LDC exports wheat: DC exports cloth)
Production possibilities for two countriesProduction possibilities for two countries
Pre-trade exchange ratiosPre-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 clothDeveloped country: 1 wheat for 1 cloth
(LDC exports wheat: DC exports cloth)
Production possibilities for two countriesProduction possibilities for two countries
Pre-trade exchange ratiosPre-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 clothDeveloped country: 1 wheat for 1 cloth
(LDC exports wheat: DC exports cloth)
Production possibilities for two countriesProduction possibilities for two countries
Pre-trade exchange ratiosPre-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 clothDeveloped country: 1 wheat for 1 cloth
(LDC exports wheat: DC exports cloth)
The Gains from TradeThe 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
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 TradeArguments 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
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 TradeArguments 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 (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 TradeArguments for Restricting Trade
Problems with protection
protection as ‘second best’
world multiplier effects
retaliation
cushions inefficiency
bureaucracy
Measuring the efficiency loss from protection
Problems with protection
protection as ‘second best’
world multiplier effects
retaliation
cushions inefficiency
bureaucracy
Measuring the efficiency loss from protection
The cost of protectionThe cost of protection
O
P
Q
Sdom (=MC)
Q1 Q2
S worldPW
Ddom
O
P
Q
Sdom (=MC)
S world + tariff
S world
a
de
c b
Q1 Q2Q3 Q4
TariffPW + t
PW
Ddom
Area edbc equals lossof consumer surplus
The cost of protectionThe cost of protection
O
P
Q
Sdom (=MC)
S world + tariff
S world
a
de
c b1 2 3 4
Q1 Q2Q3 Q4
TariffPW + t
PW
Ddom
Area 3 equals gainin tariff revenue
Area 1 equals gain inproducer surplus
The cost of protectionThe cost of protection
O
P
Q
Sdom (=MC)
S world + tariff
S world
a
de
c b1 2 3 4
Q1 Q2Q3 Q4
TariffPW + t
PW
Ddom
Areas 2 + 4equals
net loss
The cost of protectionThe cost of protection
History of protection
Pre-war growth in protection
Post-war reduction in protection and the role of GATT
the growth in world trade
History of protection
Pre-war growth in protection
Post-war reduction in protection and the role of GATT
the growth in world trade
World Attitudes towards Trade and ProtectionWorld Attitudes towards Trade and Protection
-3-2-10123456789
10111213
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Rea
l gro
wth
rat
e (%
)Growth in world real GDP and world merchandise exportsGrowth in world real GDP and world merchandise exports
Source: Trade Statistics, WTO (www.wto.org)
Growth in world real GDP and world merchandise exportsGrowth in world real GDP and world merchandise exports
Growth in real GDP
Source: Trade Statistics, WTO (www.wto.org)
-3-2-10123456789
10111213
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Rea
l gro
wth
rat
e (%
)
Growth in world real GDP and world merchandise exportsGrowth in world real GDP and world merchandise exports
Growth in real GDP
Growth in merchandise exports
Source: Trade Statistics, WTO (www.wto.org)
-3-2-10123456789
10111213
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Rea
l gro
wth
rat
e (%
)
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
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 ProtectionWorld Attitudes towards Trade and Protection
The World Trade Organisation WTO more powerful than GATT WTO rules
non-discrimination reciprocitygeneral prohibition of quotas fair competitionbinding tariffs
attitudes of the WTO WTO activity in recent years
resistance from various groups to unfettered trade
The World Trade Organisation WTO more powerful than GATT WTO rules
non-discrimination reciprocitygeneral prohibition of quotas fair competitionbinding tariffs
attitudes of the WTO WTO activity in recent years
resistance from various groups to unfettered trade
World Attitudes towards Trade and ProtectionWorld Attitudes towards Trade and Protection
Trading BlocsTrading 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
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 BlocsTrading 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 disadvantagescertain regions of the union may suffer
possibility of oligopolistic collusion
administrative costs
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 disadvantagescertain regions of the union may suffer
possibility of oligopolistic collusion
administrative costs
Preferential Trading in PracticePreferential Trading in Practice
Preferential trading in practice the EU the EEA NAFTA
the advent of NAFTAexperience to dateproposals to extent to an all Americas free
trade area the Asia-Pacific Economic Co-operation
forum (APEC) other free trade areas / customs unions
Preferential trading in practice the EU the EEA NAFTA
the advent of NAFTAexperience to dateproposals 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 UnionThe 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
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 UnionThe 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 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 UnionThe 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
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 CountriesTrade 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 strategies
primary outward looking
secondary inward looking
import-substituting industrialisation (ISI)
secondary outward looking
possibly complemented by primary inward looking
Trade and Developing CountriesTrade 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 theorycomparative costs change over time
benefits may not flow to nationals
trade my lead to greater inequality
externalities from mines and plantations
Approach 1: exporting primaries justification for exporting primaries
exploits comparative advantage
a 'vent for surplus'
an 'engine for growth'
problems with traditional trade theorycomparative costs change over time
benefits may not flow to nationals
trade my lead to greater inequality
externalities from mines and plantations
Trade and Developing CountriesTrade 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
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)World primary commodity prices (1990 = 100)
World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)
World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)
World primary commodity prices (1990 = 100)World primary commodity prices (1990 = 100)
Average annual changes inprices of various productsAverage annual changes inprices of various products
Average annual changes inprices of various productsAverage annual changes inprices of various products
Trade and Developing CountriesTrade 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
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 CountriesTrade 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 migrationadverse effects on rural sector leads to greater inequalityenvironmental problems limit to home market
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 migrationadverse effects on rural sector leads to greater inequalityenvironmental problems limit to home market
Trade and Developing CountriesTrade and Developing Countries
Approach 3: exporting manufactures transition from inward-looking to outward-
looking industrialisationa neutral trade approachactive promotion of manufactured exports
benefits from exporting manufacturesconforms more closely with comparative
advantage increased competition increased investmentmore employment and greater equality
Approach 3: exporting manufactures transition from inward-looking to outward-
looking industrialisationa neutral trade approachactive promotion of manufactured exports
benefits from exporting manufacturesconforms more closely with comparative
advantage increased competition increased investmentmore employment and greater equality
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Growth rates and export performance ofselected secondary outward-looking countries
Trade and Developing CountriesTrade 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
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