ĐẠI HỌC FPT CẦN THƠ

Session 1

Chapter 1 c

Growth and Direction

of International Trade
 Nội dung bài học
• Importance of International Trade to
1 the Global Economy

• Determinants of Trade
2

• Volume and Direction of Trade

3

• Important Developments in Trade

4

<Growth and Direction of International Trade><Nguyen Thang loi> 2

 Growth and direction of trade
International trade: Exchange of goods and
services across national boundaries
International Trade requires the least
commitment of/ risk to the companies’
resources. A firm can use intermediaries.
It is an inexpensive way of testing a product

<Growth and Direction of International Trade><Nguyen Thang loi> 3

 Growth in Trade
Growth of trade: Dollar
value of merchandise
export: $18.3 trillion
(2012); services: $4.3
trillion (2012). Growth
rate in value (volume):
0.2 percent (2.1 percent),
respectively.

➢ Merchandise trade: four-fifths of world trade.

➢ Slower growth attributed to falling prices for
traded goods such as coffee, cotton etc.
<Growth and Direction of International Trade><Nguyen Thang loi> 4
 Importance of Trade
allows manufacturers and distributors to seek
out products and services from other countries
helps acquire low cost merchandise (not
necessarily low quality)
provides consumers with a variety of goods and
services
increases incomes and employment (see
examples)

<Growth and Direction of International Trade><Nguyen Thang loi> 5

 Importance of trade
Example 1: The number of US jobs supported by
exports ($2.2 trillion) reached 9.8 million in
2012.
Example 2: A survey of 3032 small and
medium sized manufacturing firms in Canada
(during 1994-1997) shows the association of
exports to increase in jobs.
Example 3: Exporters in the US pay wages that
are 6% higher than non-exporters.

<Growth and Direction of International Trade><Nguyen Thang loi> 6

 Exports vs. Imports

Imports are associated with loss

of jobs (plant closings,
production cutbacks due to
competition).

Export job generation effect is about 7.5%

larger than the import job loss effect.

Imports also have a positive effect on wages

through their positive effects on productivity.

<Growth and Direction of International Trade><Nguyen Thang loi> 7

 Determinants of Exports

❖Trade and exchange rate regime

❖Presence of an entrepreneurial class
❖Efficiency-enhancing government policy
❖Secure access to transport and marketing services
<Growth and Direction of International Trade><Nguyen Thang loi> 8
 Determinants of import demand

❖ High per capita ❖ Government restrictions

incomes ❖ Availability of foreign
❖ Price of imports currency (in the case of
❖ Exchange rates developing countries)

<Growth and Direction of International Trade><Nguyen Thang loi> 9

 Volume and Direction of
Trade Cont…,

❖Volume of trade: The volume of world exports

in 2012 was over four times what it was in 1990
and approached 19 trillion U.S dollars. Some of
the major factors for this increase include
increased incomes due to the expanding middle
class in many countries, trade liberalization and
new technologies that assist in the physical
integration of world markets.

<Growth and Direction of International Trade><Nguyen Thang loi> 10

 Dependence on Trade

Larger countries (in terms of population) tend to

depend less on trade than small ones.

Larger countries such as the US or Japan tend

to have a more diversified economy that
enables them to produce many products and
services locally.

<Growth and Direction of International Trade><Nguyen Thang loi> 11

 Value and Direction of Trade

The Value of World trade: $ 18 trillion

(merchandise exports); $4 trillion (export of
services)
Direction of trade: Industrial countries
account for the largest share (52 percent) of
world merchandise trade. Their share (value)
declined from 69 percent in 1995 to 52 percent
in 2011.

<Growth and Direction of International Trade><Nguyen Thang loi> 12

 Trends in global exports

Steady growth in the role of developing

nations, especially emerging economies

Increasing levels of trade among developing

nations

<Growth and Direction of International Trade><Nguyen Thang loi> 13

 Important Developments in Trade

❖ Complete Stalemate in the Doha Round

WTO negotiations.
❑ Focused on reducing trade distorting
agricultural subsidies in developed nations and
equitable rules for developing nations
❑ Failure also attributed to the emerging
multipolar world (where no one is in charge)
and proliferation of national interests

<Growth and Direction of International Trade><Nguyen Thang loi> 14

 Developments in Trade
Increase in the establishment of regional
Trading blocs ( common markets, free trade
areas) between countries

❑ US: Trans-Pacific Partnership for Asia;

Transatlantic trade and investment
partnership with Europe

❑ Developing nations: Find such agreements

as more feasible than the multilateral ones

<Growth and Direction of International Trade><Nguyen Thang loi> 15

 Developments in Trade

❖Global trade imbalances: US trade deficit: 5

percent of GDP. East Asian economies with
increasing trade surpluses hold over $ 6 trillion
in foreign currency reserves in 2012.

❖ Growing trade imbalances between nations

leading to destabilizing capital flows.

<Growth and Direction of International Trade><Nguyen Thang loi> 16

 Developments in trade

Developing nations in world trade: Share of

developing nations (merchandise trade) jumped
from 29 percent (1995) to 48 percent in 2011.

Another significant development is the opening

up of China and its dynamic role in world trade.
China’s share alone increased from 2.6 percent
in 1995 to 11 percent in 2011.

<Growth and Direction of International Trade><Nguyen Thang loi> 17

 Developments in trade

China Joined the WTO in 2001. Within three

years, its exports doubled. It is now the world’s
largest merchandise exporter ($1.9 trillion in
2011) and the second largest importer of goods
(1.74 trillion in 2011).
The BRICs account for about one-thirds of
world exports and two-thirds of developing
countries’ exports in 2011.
South-South trade increased at a rate of 14
percent per year during the period 1995-2010.
<Growth and Direction of International Trade><Nguyen Thang loi> 18
 Developments in trade
Transportation and security
❑ About 60 percent (by value) of total world
merchandise trade is carried by sea. In
volume terms, 75 percent of world
merchandise trade is carried by sea whereas
16 percent is by rail and road (9 percent by
pipeline, and 0.3 percent by air).

<Growth and Direction of International Trade><Nguyen Thang loi> 19

 Developments in trade

❑ World air cargo traffic has grown during the

past decade due to increased trade in high-
value-low weight cargo, globalization and
associated just-in time production and
distribution systems.

❑ In light of increasing threats of terrorism,

countries have put in place procedures to
screen cargo across the entire supply chain.

<Growth and Direction of International Trade><Nguyen Thang loi> 20

 REVIEW QUESTIONS
1. Discuss the importance of international trade to national
economies.
2. What are the major determinants of exports? Why do some
countries trade more than others?
3. What is the volume of trade?
4. What are some of the major developments in trade over the past
two decades?
5. What are the implications of the increasing U.S. trade deficit for
global production and exports?
6. What is the reason behind the increase in common markets and
free trade areas over the past few decades?
7. What are the limitations of export-led growth?
8. Why are small countries more dependent on international trade
than larger ones?

<Growth and Direction of International Trade><Nguyen Thang loi> 21

ĐẠI HỌC FPT CẦN THƠ

Chapter 1