© the mcgraw-hill companies, 2008 chapter 33 international trade david begg, stanley fischer and...
TRANSCRIPT
©The McGraw-Hill Companies, 2008
Chapter 33International trade
David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 9th Edition, McGraw-Hill, 2008
PowerPoint presentation by Alex Tackie and Damian Ward
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Import and Export /GDP in Turkey (%)
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The Exports and Imports in the World.
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The components of the World’s exports (2000-
2010)
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World Exports by Commodity Groups, 2010
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Exports and Imports in Turkey (2000-2011)
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Turkey’s Exports by Region
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The Turkey’s Exports and Imports by Country in 2010 (Percentage of Total Trade)
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Exports to the GDP (%)
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Some important issues• Raw materials prices
– Less-developed countries (LDCs) have claimed exploitation by industrial countries
• e.g. by buying raw materials cheaply & selling manufactures dear
• Manufactured exports from LDCs
– some LDCs have had success in exporting manufactures
– leading to complaints that jobs are under threat in the industrial countries
• Trade disputes between industrial countries
– In some countries, established producers of certain goods are being undercut by efficient modern producers
– especially from Japan & East Asia
– should such exports be restricted?
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Comparative advantage
• Trade offers benefits when there are international differences in the opportunity cost of goods.
• Opportunity cost of a good– the quantity of other goods sacrificed to make
one more unit of that good
• The law of comparative advantage– states that countries should specialise in
producing and exporting the goods that they produce at a lower relative cost than other countries.
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The source of comparative advantage
• An important difference between countries is in factor endowments
• which will be reflected in different relative factor prices– e.g. if the UK has relatively abundant capital but relatively
scarce labour as compared with India,
– then the UK would tend to specialise in capital-intensive goods,
– and India would tend to specialise in labour-intensive products
• Comparative advantage may also reflect a relative advantage in technology
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Gainers and losers
• Countries may gain from specialisation and trade – but not all countries may gain equally
• Commercial policy– is government policy that influences
international trade through taxes or subsidies• e.g. tariffs
– or through direct restrictions on imports and exports.
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The economic effects of a tariff
DD and SS show the domestic demand and supply for a good.
If the world price is Pw,and there is free trade,
domestic firms supply Qs
domestic demand is Qd
A tariff can stimulate domesticsupply and restrict imports.
At a domestic price Pw + T,
where T is the size of the tariff.Domestic demand falls to Qd', domestic supply rises to Qs'
and the difference is imported.
and imports fall.
DD
SS
Quantity
Price
Pw
Qs Qd
Pw+ T
Qs' Qd'
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The government raisesrevenue – i.e. there is atransfer to the government
There is a social cost from production inefficiency, given that thegood could be imported at Pw, and a loss of consumer surplus.
and there is a transfer in the form of extra profits to producers.
The welfare costs of a tariff
DD
SS
Quantity
Price
Qs Qd
Pw+ T
Qs' Qd'
The tariff leads both to transfers and net sociallosses.
Pw
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Tariffs
• The deadweight burden of a tariff suggests that society suffers from this method of restricting trade.
• This is the case for free trade.
• Tariffs have fallen substantially under the GATT– General Agreement on Tariffs and Trade
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The case for tariffs – good arguments
• Optimal tariff– a first-best argument– only valid where the importing country is large
enough to affect the world price.
• This policy fulfils the principle of targeting– which says that the most efficient way to attain a
given objective is to use a policy that influences that activity directly.
– Policies that attain the objective, but also influence other activities are second-best, because they distort those other activities.
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The case for tariffs – second-best arguments
• Way of life– an attempt to preserve ‘traditional’ ways– a production subsidy would be better
• Suppressing luxuries– an attempt to curb consumption patterns of the rich in a poor
society– better achieved by a consumption tax
• Infant industries– an attempt to nurture new activities via learning by doing– a temporary production subsidy probably better
• Revenue– tariffs raise government revenue– but there are better ways
• Cheap foreign labour– a non-argument – denies benefits of comparative advantage
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Other commercial policies
• Although tariff rates have fallen under GATT, there has been a proliferation of other trade restrictions– quotas– non-tariff barriers
• administrative regulations that discriminate against foreign goods
– export subsidies