Course

Economics Discipline, Khulna University,

MSS Program

Course No. : Econ 5209

Course title : International Business
Credit hour :3
Course status : Optional
Day and Room : As per routine
Course teacher :Khan Mehedi Hasan

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 Today’s program

 1. International and domestic Trade

 2. Barriers of foreign trade

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 1. International and domestic trade

 International trade: Trade between two

nations

 Domestic trade: Trade within a nation.

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 Domestic and international trade
(similarities)
Decision on factor endowment: Production
decision depends on resource availability.

Sometimes factors becomes immobile: Some time

within the country factors don’t move smoothly
within the country like among countries.

Profit maximisation: Every producer possesses the

same target within and outside of an economy.
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 Domestic and international trade (Dissimilarities)

Less degree of factor mobility: Migration law, cultural ,

custom, language barrier etc. make difference.
Different national policies: Since political party and
government are different, different country opt
different trade policy.
Control: Government can control inter-regional trade
totally but not international trade.
Different currency: Generally different in international
trade and similar in international trade.
Difference in economic environment: Competition…
Other differences: Measurement, transportation,
acceptance etc. 14-5
International versus International Trade

 Why international trade is studied separately:

 Countries are governed by separate
governments
 International trade involves the exchange of
national currencies
 Labor and capital are less mobile
internationally than they typically are within a
country

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 Why Trade?

 Reasons countries benefit from foreign trade

 They can import resources they lack at home.
 They can import goods for which they are a
relatively inefficient producer.
 Specialization sometimes permits economies
of large-scale production.
 Allows to export surplus goods.
 Mutual Gains from Trade
 When trade is voluntary:
 Both sides must expect to gain from it
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 Otherwise, they would not trade
 2. Barriers of foreign trade
 Tariff
 Prohibition of export and import
 Exchange control
 Custom duties
 Preferential treatment
 Quotas
 Import license
 Voluntary export restriction (VER)

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 2. Barriers of foreign trade (i)
 Tariffs
 Tax on imported goods
 Can be a fixed dollar amount per physical
unit or a percentage of good’s value

Tariffs reduce volume of trade and raise domestic

prices of imported goods

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 Barriers of foreign trade (ii)

 Prohibition of export and import: If import is

prohibited by law. Bangladesh can ban export of
some commodities. The same is applied to
export.

 Exchange control: By controlling exchange rate,

the government encourages / discourages
foreign trade.
If the importer need to purchase one USD by BDT
75 instead of BDT 70, then it increases import
cost. 14-10
 Barriers of foreign trade (iii)

 Custom duties: Government get revenue from

imported goods. It can increase and decrees the
rate .

 Preferential treatment: Different rule for different

countries for the same cases.
Bangladesh can take less tariff from machineries
imported from China than Hongkong.

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 2. Barriers of foreign trade (iv)

 Quota system: Limiting physical quantity of

import. For example, limited quantity of wine
import by Bangladesh.
 Government decree limiting imports of a good
to a specified maximum physical quantity
 Because goal is to restrict imports, a quota is
set below the level of imports that would occur
under free trade
 Voluntary export restriction (VER): An economy
can request exporting country to limit second
countries export. Then the exporting countries
can export less than the past period. 14-12
Thanks for your patience hearing

Questions / Comments

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