Lecture 8 WORLD TRADING PATTERNS

International trade is exchange of capital, goods and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). 2

WORLD TRADING PATTERNS Top exporters 2010 merchandise  China 1.58 trillion 10%  United States 1.28 trillion 8%  Germany 1.27 trillion 8%  Japan 770 billion 5%  Netherlands 572 billion 3.8% 3

WORLD TRADING PATTERNS TOP importers 2010 merchandise  United States 1.97 trillion 13%  China 1.40 trillion 9%  Germany 1.07 trillion 7%  Japan 693 billion 4.5%  France 606 billion 4% 4

WORLD TRADING PATTERNS Top exporters 2010 services  United States $515 billion 14%  Germany $230 billion 6%  United Kingdom $227 billion 6%  China $170 billion 5%  France $140 billion 4% 5

WORLD TRADING PATTERNS TOP importers 2010 services  United States $358 billion 10%  Germany $256 7%  China $ %  United Kingdom $156 billion 4.5%  Japan $155 billion 4.5% 6

Trade balance t-countries-10_Best-Countries-for- Business_TradeBal.html t-countries-10_Best-Countries-for- Business_TradeBal.html 7

Reasons countries trade The law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies 8

How a comparative advantage is achieved. Sustained period of investment. Lower labour cost. Proximity to raw materials. Building expertise in certain key areas. … 9

Barriers to world trade Tariffs  A tax placed on an imported or exported good involved in international market. 10

Barriers to world trade Non Tariffs.  Quantitative; Trade barriers that impose a numerical limit on the quantity: Quotas, numerical export control, embargoes, voluntary export restraints.  Restrictive ; laws, regulations, etc. Testing standards, public sector policies, local purchase agreements, etc. 11

World Bank The World Bank is an international financial institution that provides loans to developing countries for capital programmes. The World Bank's official goal is the reduction of poverty. 12

World Bank The World Bank comprises only two institutions:  The International Bank for Reconstruction and Development (IBRD)  The International Development Association (IDA) 13

IMF The International Monetary Fund (IMF) Is an intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. Its objectives are to stabilize international exchange rates and facilitate development through the encouragement of liberalizing economic policies in other countries as a condition of loans or debt relief. It also offers loans with varying levels of conditionality, mainly to poorer countries. 14

Main types of trade associations. Free trade area: A free trade area (FTA) is a trade bloc whose member countries have signed a free trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them. Countries choose this kind of economic integration if their economical structures are complementary. If their economical structures are competitive. Example NAFTA ( USA, Canada and Mexico) 15

Main types of trade associations. Customs union A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Common competition policy is also helpful to avoid competition deficiency. Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. Mercosur ( Argentina, Brazil, Paraguay, Uruguay, Venezuela and associate members) 16

Main types of trade associations. Common Market Is composed of a free trade area (for goods) with common policies on product regulation, and freedom of movement of the factors of production (capital and labour) and of enterprise and services. The goal is that the movement of capital, labour, goods, and services between the members is as easy as within them. European Union. 17

Main types of trade associations. Economic Union An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common fiscal and monetary policy. European Monetary Union. 18

Main types of trade associations. Political Union A political union is a type of state which is composed of or created out of smaller states. Germany or USA 19