This document discusses international trade and comparative advantage. It begins by introducing Paul Krugman's support for free trade and comparative advantage. It then discusses concepts like specialization based on comparative advantage, gains from trade including increased competition and economic growth. The document uses an example to illustrate how two countries can both benefit from specializing in different goods based on their relative costs of production. It acknowledges some of the assumptions and limitations of comparative advantage theory. Finally, it discusses patterns of exports for different countries and how the UK's comparative advantage has shifted over time.
For many economists, the labour market is the most important market of all to study, analyse and evaluate. Like product markets for goods and services, labour markets can also fail. The main types of labour market failure are labour immobility including skills gaps, inequality, disincentives to be economically active, labour market discrimination and the effects of monopsony power of employers.
Foreign trade has worked as an "engine of growth" in the past, and even in more recent times the "outward oriented growth strategy" adopted by the Newly Industrializing Economies of Asia, including South Korea, Taiwan, Singapore and Hong kang, has enabled them to overcome the constraints of small resource poor under developed economies Notwithstanding a strong belief in Prebisch Singer and Myrdal thesis at some point of time in the history of international economic relations,
the free trade paradigm in the current WTO administered era has thrown open innumerable opportunities for growth.
Group 7
AGUILA, Don George Kinsee M.
DIMACULANGAN, Shella H.
DINGLASAN, Rydg Chrejt V.
MANTUANO, Dannah Francesca B.
OLAN, Elona Mathel B.
PAALA, Kaycee Ericka B.
PROMENTILA, Julie Anne E.
A2D - Macecon
For many economists, the labour market is the most important market of all to study, analyse and evaluate. Like product markets for goods and services, labour markets can also fail. The main types of labour market failure are labour immobility including skills gaps, inequality, disincentives to be economically active, labour market discrimination and the effects of monopsony power of employers.
Foreign trade has worked as an "engine of growth" in the past, and even in more recent times the "outward oriented growth strategy" adopted by the Newly Industrializing Economies of Asia, including South Korea, Taiwan, Singapore and Hong kang, has enabled them to overcome the constraints of small resource poor under developed economies Notwithstanding a strong belief in Prebisch Singer and Myrdal thesis at some point of time in the history of international economic relations,
the free trade paradigm in the current WTO administered era has thrown open innumerable opportunities for growth.
Group 7
AGUILA, Don George Kinsee M.
DIMACULANGAN, Shella H.
DINGLASAN, Rydg Chrejt V.
MANTUANO, Dannah Francesca B.
OLAN, Elona Mathel B.
PAALA, Kaycee Ericka B.
PROMENTILA, Julie Anne E.
A2D - Macecon
Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
Trade negotiations of the Transatlantic Trade and Investment Partnership (TTIP) and The Trans-Pacific Partnership (TTP) trade deals have provided more fuel to the fire of this ongoing debate.
The link between income and demand is explored when we cover income elasticity of demand. The most important distinction to make in this section is between normal and inferior products. Please also be clear on the difference between a normal necessity and a normal luxury. The coefficient of income elasticity is important for businesses because it helps them to forecast, other factors remaining the same, how demand for their goods and services will be affected by changes in the real incomes of consumers as an economy moves through the various stages of a business cycle. Producers of inferior goods tend to do well when an economy is in recession or when real wages are falling!
Theoretical Part Topics:
1. Introduction to International Trade
2. Trade Barrier & Imperfect Competition
3. Trade Body, Trade Law and Product introduction
4. World Apparel Market and BDG RMG Sector
5. Market and Demand Analysis
6. World Market analysis and Potentialities
7. Introduction to Marketing and Export Promotion
8. Communication Strategy
9. Process of Export and Import
Our project team prepared this slide deck to support presentation of our research results for the Managerial Economics course at UT Arlington Graduate School.
We performed a minor research project to determine whether there was a correlation between joining WTO and improved GDP growth over a 10-year period.
Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
Trade negotiations of the Transatlantic Trade and Investment Partnership (TTIP) and The Trans-Pacific Partnership (TTP) trade deals have provided more fuel to the fire of this ongoing debate.
The link between income and demand is explored when we cover income elasticity of demand. The most important distinction to make in this section is between normal and inferior products. Please also be clear on the difference between a normal necessity and a normal luxury. The coefficient of income elasticity is important for businesses because it helps them to forecast, other factors remaining the same, how demand for their goods and services will be affected by changes in the real incomes of consumers as an economy moves through the various stages of a business cycle. Producers of inferior goods tend to do well when an economy is in recession or when real wages are falling!
Theoretical Part Topics:
1. Introduction to International Trade
2. Trade Barrier & Imperfect Competition
3. Trade Body, Trade Law and Product introduction
4. World Apparel Market and BDG RMG Sector
5. Market and Demand Analysis
6. World Market analysis and Potentialities
7. Introduction to Marketing and Export Promotion
8. Communication Strategy
9. Process of Export and Import
Our project team prepared this slide deck to support presentation of our research results for the Managerial Economics course at UT Arlington Graduate School.
We performed a minor research project to determine whether there was a correlation between joining WTO and improved GDP growth over a 10-year period.
Overview of legal and financial risk-management considerations in financing international business transactions. In other words, "How to Get Paid, or Get what you Pay For in International Business".
International trade is distorted by countries applying tariff and non tariff trade barriers.
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2. Theories of International Trade, Tariff and Non-tariff barriers and Trade ...Charu Rastogi
This presentation starts with an overview of the initial theories of international trade like mercantilism, theory of absolute advantage, theory of comparative advantage and factor proportions theory. It goes on to discuss trade barriers, tariff and non-tariff barriers and trade blocks.
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In this short revision video, we look at the substantial productivity gap between the UK and many of the UK’s major competitor countries.
Paul Krugman, the Nobel Prize-winning economist said twenty fives years ago that “Productivity isn’t everything, but in the long run it is almost everything,”
In this presentation we consider the theory of wage-setting with a monopsony employer and the possible impact that a trade union might have on wages and employment. We also look at efficiency wage theory and mutual gains from pay bargaining between stakeholders.
Updated revision presentation on aspects of behavioural economics and topical issues where behavioural nudges are being used to change the choices of consumers and businesses.
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2. Paul Krugman on Trade
• “If there were an
Economist’s Creed, it
would surely contain the
affirmations “I believe in
the Principle of
Comparative Advantage”
and “I believe in Free
Trade”.”
• Paul Krugman, Professor
of Economics at
MIT, Cambridge
3. Hidalgo and Economic Complexity
Ask yourself the question: If a good
cannot be produced in Japan
or Germany, where else can it be made?
5. What is Free Trade?
• Trade free from artificial barriers
• Trade reflects the impact of
specialisation and exchange
– Specialization: specialisation of scarce
resources
– Exchange: in part based on
comparative advantage in supplying
different goods and services
6. The concept of an open economy
• In an open economy, one nation
trades openly with other
– Trade in goods
– Trade in services
– Free flow of financial capital
– Free flow of labour resources
• An economy integrated with and
connected to the world economy
7. World Trade
Time period
1950-60
Volume of world trade
7.7
Real GDP (world)
4.5
1960-70 8.6 5.5
1970-80 5.3 4.1
1980-90 3.9 3.2
1990-00 6.5 2.3
2000-11 4.7 2.7
2001 -0.2 2.0
2002 3.4 2.3
2003 5.7 2.9
2004 9.7 4.0
2005 6.5 3.5
2006 8.6 4.0
2007 6.5 3.9
2008 2.3 1.3
2009 -12.1 -2.4
2010 14.0 3.8
2011 4.9 2.4
Volume of world merchandise exports and gross
domestic product, 1950-2011, annual % change
10. Potential Advantages from Trade
• (1) Increased competition for producers
– Increased market contestability
– Pressure on suppliers to keep prices down
– Improved allocative & productive efficiency
• Prices closer to their factor cost
• Pressure on unit costs to fall / scale economies
• (2) Better use of scarce resources
– Exploitation of comparative advantage
– Benefits from specialisation
– Trade can be an important source of economic
growth and development
11. Potential Advantages from Trade
• (3) Dynamic Efficiency Gains
– Trade speeds up the pace of technological
progress and innovation
– Transfer of ideas / technology spill-overs
– World Bank – “dynamic globalisers have
achieved the fastest growth over the last twenty
years”
– Greater choice for consumers
12. Potential Advantages of Trade
• (4) Economies of scale
– Increasing returns to scale from selling to larger
markets e.g. BRICs or the EU single market
– Falling LRAC / lower real prices
– Gains in producer & consumer surplus
• (5) A stimulant to growth / recovery
– Exports – an injection of AD into circular flow
– Boost to exports will have multiplier and
accelerator effects on national income
– Supply-side improvements from investment and
greater factor mobility between countries
13. Export Potential to BRICs & Beyond
Jim O’Neill
“By the end of the
decade, Britain’s trade
with the BRIC
countries of
Brazil, Russia, India
and China, will
account for 17pc of
total exports.”
14. Gains from External Trade
Reduction in
extreme poverty
Increased market
competition
Access to new
technologies
Inflows of
knowledge
Economies of
scale
Better use of
scarce resources
15. Comparative Advantage
• David Ricardo, one of the founding fathers
of classical economics
• Comparative advantage exists when
– Relative opportunity cost of production is lower
than in another country
– A country is relatively more productively efficient
than another
• Basic rule – specialise in the things that you
are relatively best at
• This opens up important gains from trade
16. Factor endowment model
• Developed by Heckscher and Ohlin
• Countries with a relative factor abundance
can specialise and trade
– Abundance of skilled labour → specialisation
→ export → exchange for goods and
services produced by countries with
abundance of unskilled labour
– Exports embody the abundant factor
– Imports embody the scarce factor
– Assumes a high degree of factor mobility
18. Theory of Comparative Advantage
Half of each
country’s available
resources are
allocated to each
industry
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 1000 500
Italy 800 200
Total Output
19. Theory of Comparative Advantage
Half of each
country’s available
resources are
allocated to each
industry
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 1000 500
Italy 800 200
Total Output 1800 700
20. Assuming Constant Returns – The
Effects of Partial Specialisation
Gain in total output
after specialisation
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 400 (-600) 800 (+300)
Italy 800 200
Total Output
21. Assuming Constant Returns – The
Effects of Partial Specialisation
Gain in total output
after specialisation
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 400 (-600) 800 (+300)
Italy 1600 (+800) 0 (-200)
Total Output
22. Assuming Constant Returns – The
Effects of Partial Specialisation
Gain in total output
after specialisation
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 400 (-600) 800 (+300)
Italy 1600 (+800) 0 (-200)
Total Output 2000 (+200) 800 (+100)
23. Assuming Constant Returns – The
Effects of Partial Specialisation
Gain in total output
after specialisation
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 400 (-600) 800 (+300)
Italy 1600 (+800) 0 (-200)
Total Output 2000 (+200) 800 (+100)
24. Beneficial Terms of Trade
• A beneficial terms of trade is an agreed rate
of exchange of one product for another than
leaves both countries better off from trade
• Consider the domestic terms of trade for each
country
– Without trade, Germany gets 2 extra freezers for
every dishwasher that is gives up
– Without trade, Italy has to give up 4 freezers for
every extra dishwasher it produces
• Is there a mutually beneficial terms of trade?
25. Trade increases amount available
in each country
Final output in
after trade
Freezers
(000s per year)
Dishwashers
(000s per year)
Germany 1150
(+750 .. import)
550
(-250 ..export)
Italy 850
(-750 .. export)
250
(+250 .. import)
Total Output 2000
At start: (1800)
800
At start: (700)
27. Assumptions underlying theory
Constant
returns to scale
Mobility of
factor inputs
No externalities
Trade finance
available
Barriers to
trade are small
Krugman –
New Trade
Theory
“In
reality, world
trade is
dominated by
rich countries
trading
similar goods
with each
other”
28. Assumptions underlying theory
Constant
returns to scale
Mobility of
factor inputs
No externalities
Trade finance
available
Barriers to
trade are small
Krugman –
New Trade
Theory
“In
reality, world
trade is
dominated by
rich countries
trading
similar goods
with each
other”
Standard theory
ignores extra
benefits from
(i) Consumer
choice
(ii) Economies
of scale
(iii) Positive
trade
externalities
(iv) Other
dynamic
effects of
trade
29. Supply and Demand Analysis
Price
Output (Q)
Domestic Demand
Domestic Supply
World Price
30. Supply and Demand Analysis
Price
Output (Q)
Domestic Demand
Domestic Supply
P1
Q1
World Price
QdQs
Pw
32. The Importance of Human Capital =
More Value Added from Exports
Technology spill-overs Universities Science Parks
Precision Engineering Capital Projects Creative Industries
33. Economic complexity and trade
Two countries that have
high levels of economic complexity, but
still low levels of per capita income are
China and Thailand
Ask yourself the question, if you cannot
produce it in China or Thailand, where
else can you produce it?
37. Shifts in Advantage for the UK
• Long term decline in comparative advantage
in many areas of manufacturing industry
– Lower cost producers in SE Asia and E.Europe
– Productivity gap with other leading economies
– Strong ex. rate has damaged competitiveness
• The UK still has trade surpluses in chemicals
and high knowledge manufacturing
• Main comparative advantage lies with
business and financial services