2. Brief Overview of International Trade (2016)

Apunte Inglés
Universidad Blanquerna (URL)
Grado Relaciones Internacionales - 2º curso
Asignatura International Trade
Año del apunte 2016
Páginas 6
Fecha de subida 18/03/2016
Descargas 15
Subido por

Descripción

Brief overview of International Trade

Vista previa del texto

Marta Busquets International Trade 2016 2. Brief Overview of International Trade Theory Some.
2.1. Traditional Trade Models Intr.
2.1.1. Basic Trade Model: Ricardo Model of Comparative Advantage Conditions: 2 countries - 2 products - 1 factor (labour) — general equilibrium.
Known as the Ricardo Model of Comparative Advantage. This theory uses concepts of Opportunity Cost and Comparative Advantage. The Ricardian Model provides the simplest setting to illustrate comparative advantage and the gains from trade in a general equilibrium.
The model explains differences in productivity of labor between countries, which in fact is a consequence of differences in technology.
2.1.2. Heckscher-Ohlin (H-O) Model: Specialization and Trade Conditions: 2 countries - 2 products - 2 factors (labour, technology) — general equilibrium.
Based on specialization and trade.
2.1.3. Comparative and Competitive Advantage COMPARATIVE COMPETITIVE About opportunity cost in production About outperforming competitors Inherited Created Country level Firm level Advantages in natural resources or skills Advantages in marketing, management, personnel, branding, R&D, costs, etc.
Labour and capital Cost and Differentiation • Comparative advantage may be similar in different countries Marta Busquets International Trade 2016 • Competitive advantage regardless the country of origin.
• Positioning: The costumers are perceiving their brand as high value.
The company has a certain level of autonomy, but if it has support from the government of constructing certain branding, it can help its competitiveness. It is quite important to create a kind of “economic diplomacy”. Embassies help companies to develop and promote in other countries.
Classical theories of International Trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit. Factor endowments include land, natural resources, labor and the size of local populations.
Michael E. Porter argued that a nation can create ned advanced factor endowments such as skilled labor, a strong technology and knowledge base, government support and culture. He used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries.
The individual points on the diamond and the diamond as a whole affect four ingredients that lead to a national comparative advantage. These ingredients are: A. The availability of resources and skills B. Information that firms use to decide which opportunities to pursue with those resources and skills C. The goals of individuals in companies D. The pressure on companies to innovate and invest.
Marta Busquets International Trade 2016 Firms can create new competitive advantages and Governments can support them through policy-making.
2.1.4. Effects of Tariffs and Quotas International Trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn’t widely accepted as a completely beneficial parties.
What is a Tariff? In simple terms, a tariff is a tax. It adds to the cost of imported goods and is one of several trade policies that a country can enact.
Import Quotas An import quota is a restriction placed on the amount of a particular good that can be imported.
This sort of barrier is often associated with the issuance of licenses. For example, a country may place a quota on the volume of imported citrus fruit that is allowed.
Why are tariffs and trade barriers used? I.
For protecting domestic employment.
II. For protecting consumers III. For protecting infant industries — The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth.
Marta Busquets International Trade 2016 IV. National Security V. Retaliation Movements in factors of production include: • Labor migration • The transfer of financial capital through international borrowing and lending — Some companies need to find financial support and sometimes they enter the international market.
• Transactions of multinational corporations involving direct ownership of foreign firms.
Like movements of goods and services, movements of factors of production are politically sensitive and are often restricted: • Restrictions on immigration • Restrictions on financial capital flows (less common today in Europe and the US) • Restrictions on the activities of multinational corporations Implications: 1. A simple model of international labor mobility predicts that labor will migrate to countries with higher labor productivity and higher wage rates.
• Real wages are predicted to fall due to immigration • Real waged are predicted to rise due to emigration 2. Due to the fact that countries don’t produce the same goods, due to differences in technology and due to immigration barriers, real wages across countries are far from equal.
3. International borrowing and lending can be described as inter-temporal trade, where countries with profitable investment opportunities borrow funds today and repay lenders in the future, benefiting both borrowers and lenders.
4. The price of current consumption relative to the price of future consumption is a function of the interest rate.
5. Multinational corporations undertake foreign direct investment 2.1.5.Theory of Factor Movements Movements in factors of production include: • Labor Migration: Migration also plays a role in competitive advantage of nations. “Brain drain”.
Collateral effect: state has invested a lot of resources and when the return of this investment is almost to come people live, so those investments are not returned + Loose of talent.
• Transfer of financial capital through international borrowing and lending: One thing is the exchange of goods and services, then companies have to find financial support in order to produce goods and services.
• Transactions of multinational corporations involving direct ownership of foreign firms: companies buy companies. Ex. Mergers and acquisitions: Haier very important Chinese Marta Busquets International Trade 2016 company) goes to a European market they normally buy a european company that have financial problems Like movements of goods and services, movements of factors of production are also political sensitive and are often restricted: • Restriction on immigration • Restrictions on financial capital flows (less common today in Europe and US) • Restrictions on the activities of multinational corporations Implications: 1. A simple model of international labor mobility predicts that labor will migrate to countries with higher labor productivity and higher wage rates.
 - Real wages are predicted to fall due to immigration 
 - Real wages are predicted to rise due to emigration 2. Due to the fact that countries do not produce the same goods, due to differences in technology and due to immigration barriers; real wages across countries are far from equal.
3. International borrowing and lending can be described as intertemporal trade (takes time), where countries with profitable investment opportunities borrow funds today and repay lenders in the future, benefiting both borrowers and lenders.
4. The price of current consumption relative to the price of future consumption is a function of the interest rate.
5. Multinational corporations undertake foreign direct investment, possibly because
 - Locating production in foreign countries is efficient 
 - Internalizing technology transfers is efficient 
 - Vertical integration is efficient.
2.1.6. Political Instruments Used by Governments Protectionism as an economic policy of restraining trade between states through tariffs on imported goods, quotas, etc. The main reason is to protect national industries that otherwise would disappear and lead to the loss of jobs.
Infant Industries: They have to be protected to allow them grow and fairly compete with other bigger industries. Without protectionism, these industries would die without having taken advantage of economies of scale, industrial infrastructure,etc.
Free Trade is used for efficiency reasons, to efficiently allocate resources and products.
Examples: Import Substituting Industrialisation (ISI) and Export-based industrialisation (EI).
2.1.7. Why Do Countries Restrict Trade? Why do countries trade? In order to have access to more and cheaper products and to have more competition and innovation.
Reasons for restricting trade: Marta Busquets International Trade 2016 1. Protection of domestic jobs: taxing foreign goods favors domestic demand and therefore domestic jobs.
2. Since Asian industrial development, now Asian companies of steel also want to sell in USA because is a big market, so USA protects the steel sector. Workers in the sector are as well the voters, they do a large lobby and pressure to the government 3. Opportunity cost: the products costs more to the consumers — less competitively, less incentives to cost reduction and efficiency 4. Companies can compete in value added, cheap labour… 5. Level playing field - competitive devaluations 6. Increases government revenue: it can be a long term measure, if foreign companies have to pay taxes, governments can have shot term cash. Is it worthy to harm consumers? In developing countries, with small consumption and therefore taxation, is good to charge importers.
7. National defense 8. National interest: soft power e.g. US fostered the “american dream” through Holywood.
S.Korea allows 40% of films to be foreign, the rest have to be Koren.
9. Infant industires 10. Export Promotion: subsidize ceratin industries the state wants to promote abroad, there’s risk of retaliation. e.g. Samsung used to manufacture nuddles, but with the war, they defined 5 strategic sectors, samsung started to focus on technology - samsung was subsidized by the government since the 60’s TYPES OF TRADE RESTRICTIONS: • Tariffs: Tax on X • Quotas: They have been decreasing • Healthy and safety regulations: Criteria/prerequisites to comply with national regulations.
...