International trade


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International trade

  1. 1. International Trade II - BITSM
  2. 2. • In the beginning, ancient societies produced goods only for their consumption needs. However, people realized that it was not really possible to produce all their needs. So they started exchanging their surplus products with those of other communities. Later on, they discovered the benefits of product specialization.
  3. 3. • ―Even if you are the best lawyer and the best typist in town, it is better to engage only in legal practice and let a secretary do the job of typing.‖ – Prof. Paul Samuelson
  4. 4. – the distribution of natural resources, labour and capital goods among countries is not even.
  5. 5. • More abundant factor is cheaper – means cheaper cost of production and market price serves as the basis of a profitable trade. • Technological efficiency – a country which has the most efficient technology can produce goods at the lowest price, with the best quality, and the highest quantity.
  6. 6. • Why do countries trade if all countries have exactly the same economic resources like land, labour, and capital, and that they produce their goods and services with the same efficiency, quality and price?
  7. 7. • In the real world, the distributions of economic resources are not the same. Some countries have abundant natural resources while others are deficient. The rich countries have modern technologies while the poor countries use primitive technologies. There are also geographical variations among countries which are mainly responsible for the differences of products produced by them.
  8. 8. – concerned with allocation of economic resources among countries.
  9. 9. • Best products are produced and sold in a free competitive market. Example: One fundamental principle in international trade is that one should buy goods and services from a country which has the lowest price, and sell his goods and services to a country which has the highest price. (good for both buyers and sellers)
  10. 10. • Less developed countries have the opportunities to accelerate the pace of their economic development. Example: They can import machines and adapt foreign technology. They can send their scholars and technocrats to more progressive countries to gain more knowledge and skills which are relevant to the particular needs of their developing economies.
  11. 11. • People with money can acquire goods and services which are not available in their countries. • Satisfaction of consumers can be maximized.
  12. 12. is a politico-economic doctrine which believed that the power and prestige of a nation depended on its accumulation of gold and silver. it involved the active participation of the state in achieving favourable international trade.
  13. 13. • The merchant capitalists supplied raw wool to the homes of spinners and weavers; collected the crude cloth and let other workers finish the product; and then they market the final product. In some cases, the capitalists provided the raw materials, tools of production and building for the workers.
  14. 14.  a statesman of Florence, and the intellectual leader of the Renaissance who supported the idea of supremacy of the state over all other sources of power, including the church.  he was in favour of a benevolent dictator who could achieve material prosperity for his powerful national state in order to maintain order and facilitate the creation and accumulation of wealth.
  15. 15.  wrote ―A Brief Treatise on the Causes which can Make Gold and Silver Plentiful in Kingdoms Where There are No Mines‖.  he maintained the superiority of industrial products over those of agriculture as far as exports and profits were concerned.
  16. 16.  ―England’s Treasure by Foreign Trade‖.  argued that the ordinary way to increase our wealth and treasures is to sell more to foreigners than we buy from them.  he further stated that such favourable trade could be attained by encouraging exports and at the same time by discouraging imports.
  17. 17.  is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes.  it is an economic philosophy that ideally supports and promotes individual liberty and choice in economic matters and private property in the means of production.
  18. 18.  states that a country should export those goods in which it has the greatest advantage, and import those goods in which it has the greatest disadvantage.
  19. 19.  leader of the classical economists, pointed out the defects of mercantilism, and stressed the benefits of free trade.  He further stated that if it is cheaper to buy a product than to produce it, then do not produce it.
  20. 20.  ―Theory of Value‖ – states that the value of any product depends on its labour cost, and labour cost is determined by the number of days in producing a certain product. Example: It takes 10 days to make one unit of cloth in Taiwan, and 20 days to make the same unit of cloth in Tanzania; then the value of such cloth is cheaper in Taiwan.
  21. 21. • birth of the factory system of production as a product of the Industrial Revolution • growth of transportation facilities like railway and steamship • disappearance of tenancy(feudalism) • emergence of specialized market facilities such as the presence of dealers and brokers • development of banking and financial facilities led by London • foreign investment which helped the economic development of the world like the United States, Canada, and Australia
  22. 22.  gained momentum during 19th century and was basically trade protectionism.
  23. 23. • most of our major industries are owned and operated by foreigners • processing and marketing are done by the foreigners • our education is American education
  24. 24. • in the economic field, is the control of the resources of the country by its own people to ensure its own utilization primarily for their own interest and enjoyment.
  25. 25. • nation’s aspirations, desires and willingness to improve its material and cultural conditions through its own talents, resources, and sustained labour, and for the benefit of the whole community. – Claro M. Recto, former senator of the Philippines • ―bayan muna‖ – our country first, in thoughts, words and deeds. – Joaquin Roces
  26. 26.  is a tax on imports, which is collected by the federal government and which raises the price of the good to the consumer.  also known as duties or import duties; usually aim first to limit imports and second to raise revenue.
  27. 27.  is levied in order to save a domestic industry that has deteriorated to the point where its very existence is in peril. tariff  is one that is levied in response to a tariff levied by a trading partner. In the eyes of an economist, retaliatory tariffs make no sense because they just start tariff wars in which no one—least of all the consumer—wins.
  28. 28.  is a limit on the amount of a certain type of good that may be imported into the country; can be either voluntary or legally enforced.
  29. 29.  include packing and shipping regulations, harbour and airport permits, and onerous customs procedures, all of which can have either legitimate or purely anti-import agendas, or both.
  30. 30.  there is a need to protect industries which manufacture goods and materials for national defense and security.
  31. 31.  The inflow of cheap foreign products will reduce he prices of the local goods, and ultimately wages and level of living will also fall.
  32. 32.  It is contended that by restricting imports, the level of employment rises.
  33. 33. United Nations Conference on Trade and Development (UNCTAD)  organized by General Assembly in 1946 to promote international trade, particularly the developing country. Integrated Programme for Commodities  aimed at improving conditions in world markets for the wide range of primary products exported by the developing countries.
  34. 34.  planned to eliminate tariffs, import quotas, and other trade discriminations among the member countries appear to have little effects on existing trade protection and discriminations.
  35. 35.  corporations which maintains its headquarters in one country but performs production, marketing, finance, and personal functions within many other countries.
  36. 36. 1. Corporate structure of organization with its infinite life and legal organization as a separate entity. 2. Extensive improvement in communication and transportation which have accelerated international business.
  37. 37. 3. The growth of excess financial resources in industrial countries. 4. The rapid expansion of markets in many countries. 5. Formation of larger regional markets through common market and free trade agreements.
  38. 38. summary of all the economic transactions of a country with the other countries.
  39. 39.  includes exports and imports of goods and services. Example: (goods) copra, corn, rice, tractor, computer, oil, etc. (services) tourism, transportation, education, insurance, banking, motion pictures, etc. - ‖invisibles‖
  40. 40.  records all transactions pertaining to private foreign investments, grants, and loans.  assets of the Central Bank in the form o gold reserves, international currency reserves, and SDRs known as international ―paper gold‖.
  41. 41.  (outflow) if it is payment or expenditure by our residents to other countries.  (inflow) if it is an income for our residents(individuals, organizations, government).
  42. 42.  can be overvalued or undervalued.  price of a foreign money relative to the local money. • Ex. $1 = Php20
  43. 43. 1. Relative income changes 2. Relative price changes (depreciation) 3. Relative interest rates (appreciation)
  44. 44. is a type of exchange rate regime wherein currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.
  45. 45.  a monetary system that allows the exchange rate to be determined by supply and demand.
  46. 46.  A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. • Ex. Belize
  47. 47. To know if the peso is strong one needs to know how it is doing against other currencies over time. This chart shows the value of the Philippine peso on 4/8/2011
  48. 48.  If the Philippine peso is going up against most other currencies then the peso is strong. If it is up against only the dollar, then the dollar is weak.
  49. 49.  (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers
  50. 50.  The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned.
  51. 51.  Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.