Dr.

Muslima Zahan
Assistant Professor
School of Business and Economics
North South University
Dhaka, Bangladesh

Summer 2020
 Opportunity for sales increase
 Job creation
 Warning for managers for competition
 Reduces country isolation
 http://www.tradeready.ca/2019/featured-stories/10-global-trade-trends-well-b
e-watching-in-2020
/

 https://data.wto.org/
 Asia was the top contributor to trade growth
in volume terms in 2017, growing by 8%.

 Which Nation Account for the Most Exports

and Imports?
◦ China 1.58 tr. (10% or world export)
◦ the US (8%)
◦ Germany (8%)
 https://www.wto.org/english/res_e/booksp_
e/03_wtr19_2_e.pdf
http://data.worldbank.org/indicator/T
G.VAL.TOTL.GD.ZS/countries/
 70% of exports from developed economies go
to other industrialized nations, not to
developing countries.
 Mercantilism
◦ the economic theory that trade generates wealth
and is stimulated by the accumulation of profitable
balances, which a government should encourage by
means of protectionism. Govt. policies should
promote exports and discourage imports.
 The Market force
 Invisible Hands

Assumption: Two countries, two commodities; Perfect competition

No transport cost
Commodity US China Total Output
Tons of Soy 3 1 4
Bolts of Cloths 2 4 6

Each country
specializes
Commodity US China Total Output
Tons of Soy 6 0 6
Bolts of Cloths 0 8 8
 Ricardo’s Comparative Advantage Theory
◦ Absolute disadvantage in production
◦ More efficiency

Commodity US China Total Output

Tons of Soy 4 5 9
Bolts of Cloths 2 5 7

Each country specializes;

Terms of trade
Commodity US China Total Output
Tons of Soy 6 0 8
Bolts of Cloths 0 10 10
 How money can change the direction of trade
◦ Exchange Rate
◦ Currency devaluation

 Some newer explanations for the Direction of

Trade
◦ Differences in Resource Endowments
◦ Overlapping Demand
◦ International Product Lifecycle
◦ Economies of scale and Experience curve
◦ National Competitive Advantage from Regional
cluster
 Portfolio investment
 Monopolistic Advantage Theory (oligopolistic
industry)
 Internalization Theory (expertise to foreign
subsidy)
 Dynamic Capabilities
◦ Knowledge and its exploitation overtime.
 Eclectic Theory of International Production