Growth and Direction

of International 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 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.
 Trade allows manufacturers and distributors
to seek out products and services from other
countries
 Trade helps acquire low cost merchandise
(not necessarily low quality)

 Trade provides consumers with a variety of

goods and services

 Trade increases incomes and employment

(see examples)
 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.
 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.
 Determinants of Exports
Trade and exchange rate regime
Presence of an entrepreneurial class
Efficiency-enhancing government policy
Secure access to transport and marketing
services
 High per capita incomes
 price of imports
 Exchange rates
 Government restrictions
 Availability of foreign currency (in the case of
developing countries)
 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.
 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.
 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.
 Steady growth in the role of developing
nations, especially emerging economies

 Increasing levels of trade among developing

nations
 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
 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
 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.
 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.
 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.
 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).
 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.