- International trade
International trade is exchange of
capital, goods, and servicesacross international bordersor territories. [ [http://dictionary.reference.com/browse/trade dictionary.reference.com] ] In most countries, it represents a significant share of gross domestic product(GDP). While international tradehas been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcingare all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations would be limited to the goods and services produced within their own borders.
International trade is in principle not different from
domestic tradeas the motivation and the behavior of parties involved in a trade does not change fundamentally depending on whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or a different culture.Another difference between domestic and international trade is that factors of productionsuch as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in good and services can serve as a substitute for trade in factors of production. Instead of importing the factor of production a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor.International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.
Several different models have been proposed to predict patterns of trade and to analyze the effects of trade policies such as tariffs.
The Ricardian model focuses on
comparative advantageand is perhaps the most important concept in international trade theory. In a Ricardian model, countries specialize in producing what they produce best. Unlike other models, the Ricardian framework predicts that countries will fully specialize instead of producing a broad array of goods. Also, the Ricardian model does not directly consider factor endowments, such as the relative amounts of labor and capital within a country.
The Heckscher-Ohlin model was produced as an alternative to the Ricardian model of basic comparative advantage. Despite its greater complexity it did not prove much more accurate in its predictions. However from a theoretical point of view it did provide an elegant solution by incorporating the neoclassical price mechanism into international trade theory.
The theory argues that the pattern of international trade is determined by differences in
factorendowments. It predicts that countries will exportthose goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce. Empirical problems with the H-O model, known as the Leontief paradox, were exposed in empirical tests by Wassily Leontiefwho found that the United States tended to export labor intensive goods despite having a capital abundance.
pecific factors model
In this model, labour mobility between industries is possible while capital is immobile between industries in the short-run. Thus, this model can be interpreted as a 'short run' version of the Heckscher-Ohlin model. The specific factors name refers to the given that in the short-run specific factors of production, such as physical capital, are not easily transferable between industries. The theory suggests that if there is an increase in the price of a good, the owners of the factor of production specific to that good will profit in real terms. Additionally, owners of opposing specific factors of production (i.e. labour and capital) are likely to have opposing agendas when lobbying for controls over immigration of labour. Conversely, both owners of capital and labour profit in real terms from an increase in the capital endowment. This model is ideal for particular industries. This model is ideal for understanding income distribution but awkward for discussing the pattern of trade.
New Trade Theory
New Trade theory tries to explain several facts about trade, which the two main models above have difficulty with. These include the fact that most trade is between countries with similar factor endowment and productivity levels, and the large amount of multinational production (i.e., foreign direct investment) which exists. In one example of this framework, the economy exhibits
monopolistic competition, and increasing returns to scale.
The Gravity model of trade presents a more empirical analysis of trading patterns rather than the more theoretical models discussed above. The gravity model, in its basic form, predicts trade based on the distance between countries and the interaction of the countries' economic sizes. The model mimics the Newtonian
law of gravitywhich also considers distance and physical size between two objects. The model has been proven to be empirically strong through econometricanalysis. Other factors such as income level, diplomatic relationships between countries, and trade policies are also included in expanded versions of the model.
Regulation of international trade
Traditionally trade was regulated through
bilateraltreaties between two nations. For centuries under the belief in Mercantilismmost nations had high tariffs and many restrictions on international trade. In the 19th century, especially in the United Kingdom, a belief in free tradebecame paramount.Fact|date=August 2008|please verify the content|-- () 06:55, 20 August 2008 (UTC) This belief became the dominant thinking among western nations since then. In the years since the Second World War, controversial multilateraltreaties like the General Agreement on Tariffs and Trade(GATT) and World Trade Organizationhave attempted to create a globally regulated trade structure. These trade agreements have often resulted in protest and discontent with claims of unfair trade that is not mutually beneficial.
Free trade is usually most strongly supported by the most economically powerful nations, though they often engage in selective
protectionismfor those industries which are strategically important such as the protective tariffs applied to agriculture by the United Statesand Europe.Fact|date=August 2008|please give a reliable source for this assertion | () The Netherlandsand the United Kingdom were both strong advocates of free trade when they were economically dominant, today the United States, the United Kingdom, Australiaand Japanare its greatest proponents. However, many other countries (such as India, China and Russia) are increasingly becoming advocates of free trade as they become more economically powerful themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff measures, including foreign direct investment, procurement and trade facilitation.Fact|date=August 2008|please give a reliable source for this assertion | () The latter looks at the transaction costassociated with meeting trade and customsprocedures.
Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors often support protectionism. Fact|date=August 2008|please give a reliable source for this assertion | () This has changed somewhat in recent years, however. In fact, agricultural lobbies, particularly in the United States, Europe and Japan, are chiefly responsible for particular rules in the major international trade treaties which allow for more protectionist measures in agriculture than for most other goods and services.
recessions there is often strong domestic pressure to increase tariffs to protect domestic industries. This occurred around the world during the Great Depression. Many economists have attempted to portray tariffs as the underlining reason behind the collapse in world trade that many believe seriously deepened the depression.
The regulation of international trade is done through the World Trade Organization at the global level, and through several other regional arrangements such as
MERCOSURin South America, the North American Free Trade Agreement(NAFTA) between the United States, Canada and Mexico, and the European Unionbetween 27 independent states. The 2005 Buenos Aires talks on the planned establishment of the Free Trade Area of the Americas(FTAA) failed largely because of opposition from the populations of Latin American nations. Similar agreements such as the Multilateral Agreement on Investment(MAI) have also failed in recent years.
Risks in international trade
The risks that exist in international trade can be divided into two major groups
*Risk of insolvency of the buyer,
*Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date
*Risk of non-acceptance
*Surrendering economic sovereignty
*Risk of Exchange rate
*Risk of cancellation or non-renewal of export or import licences
*Risk of expropriation or confiscation of the importer's company
*Risk of the imposition of an import ban after the shipment of the goods
*Transfer risk - imposition of exchange controls by the importer's country or foreign
*Surrendering political sovereignty
*Influence of political parties in importer's company
Balance of trade
Free trade area
Globalization and Health
Gravity model of trade
Import (international trade)
International trade law
International Trade Awards
List of countries by imports
List of countries by exports
List of international trade topics
List of economists
Market Segmentation Index
Most favoured nation clause
Single Window System
The Grand Exchange
Trade policy of Japan
Trade of Galicia
* [http://www.ifpri.org/PUBS/fpreview/pv08.asp The Expected Benefits of Trade Liberalization for World Income and Development: Opening the "Black Box" of Global Trade Modeling] by Antoine Bouët (2008)
* The McGill Faculty of Law runs a Regional Trade Agreements Database that contains the text of almost all preferential and regional trade agreements in the world. [http://www.ptas.mcgill.ca/ ptas.mcgill.ca]
* [http://www.wesleyan.edu/re/ Interactive Ricardian Model Simulator ]
* [http://www.worldtradelibrary.com/ Consumers for World Trade Education Fund electronic trade library]
* [http://www.britannica.com/eb/article-9106321/international-trade International trade] , Encyclopædia Britannica
* [http://www.egwald.ca/internationaleconomics/index.php Benefits of International Trade]
* [http://comtrade.un.org/ United Nations Commodity Trade Database]
* [http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/TRADE/0,,contentMDK:20103741~menuPK:167374~pagePK:148956~piPK:216618~theSitePK:239071,00.html World Bank's Trade and Production Database]
* [http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/TradeData.html Resources for data on trade] , including the gravity model
* [http://epp.eurostat.ec.europa.eu/portal/page?_pageid=0,1136217,0_45571467&_dad=portal&_schema=PORTAL European Union Trade Data]
* [http://faostat.fao.org/site/291/default.aspx Agricultural Trade Data] by
* [http://aliceweb.desenvolvimento.gov.br/default.asp Brazilian Trade Data]
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