11' International Trade

1
11. International Trade
2
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

3
Production possibilities for two countries
4
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
• The limits to specialisation and trade

5
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
• The limits to specialisation and trade
• The terms of trade

6
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
• The limits to specialisation and trade
• The terms of trade
• PX/PM

7
The Gains from Trade

• Other reasons for gains from trade
• decreasing costs
• differences in demand
• increased competition
• trade as an engine of growth
• non-economic advantages

8
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

9
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

10
Arguments for Restricting Trade

• Problems with protection
• protection as second best
• world multiplier effects
• retaliation
• cushions inefficiency
• bureaucracy

11
World Attitudes towardsTrade 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

12
Growth in real GDP and in real exports of
goodsand services total OECD countries
13
Growth in real GDP and in real exports of
goodsand services total OECD countries
Growth in GDP
14
Growth in real GDP and in real exports of
goodsand services total OECD countries
Growth in GDP
15
Growth in real GDP and in real exports of
goodsand services total OECD countries
Growth in exports of goods and services
Growth in GDP
16
Growth in real GDP and in real exports of
goodsand services total OECD countries
Growth in exports of goods and services
Growth in GDP
17
World Attitudes towardsTrade 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
• Re-emergence of protectionism in the 1980s

18
World Attitudes towardsTrade 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
• Re-emergence of protectionism in the 1980s
• the use of non-tariff barriers

19
World Attitudes towardsTrade 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
• Re-emergence of protectionism in the 1980s
• the use of non-tariff barriers
• The Uruguay Round

20
World Attitudes towardsTrade 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
• Re-emergence of protectionism in the 1980s
• the use of non-tariff barriers
• The Uruguay Round
• aims of the Uruguay round negotiations

21
World Attitudes towardsTrade and Protection

• The Uruguay Round settlement and the creation of
  the WTO
• problems in reaching agreement
• the agreement
• the work of the WTO
• dispute settlement
• conflicting interests in trade disputes
• efficiency in trade versus environmental and
  social interests
• international protests

22
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

23
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

24
Trading Blocs

• Preferential trading in practice
• the EU
• NAFTA
• differences between the EU and NAFTA
• other examples

25
The European Union

• Historical background
• From customs union to common market
• Common Agricultural Policy
• regional policy
• competition policy
• tax harmonisation
• social policy

26
The European Union

• The single market
• historical background
• the Single European Act
• completing the single market
• benefits of the single market
• trade creation
• reduction in the direct costs of barriers
• economies of scale
• greater competition

27
The European Union

• The single market (cont.)
• criticisms of the single market
• radical economic change is costly
• adverse regional multiplier effects
• development of monopoly/oligopoly power
• trade diversion
• evidence
• the future of the EU
• effect of new members

28
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

29
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

30
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

31
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

32
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 ruralurban migration
• adverse effects on rural sector
• leads to greater inequality
• environmental problems
• limit to home market

33
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 with comparative advantage
• increased competition
• increased investment
• more employment and greater equality
• faster growth

34
Growth rates and export performance of selected
secondary outward-looking countries
35
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