EC3040B Topic 2 International Trade

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EC3040B Topic 2 International Trade

• Cf Todaro and Smith Chap. 12

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Fig. 19.7
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Fig. 19.1
Trends in trade up, especially middle income and
since about 1989
Perkins, Radelet, Lindauer
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Table 19.1
East Asia is the big growth area for trade
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Table 19.3
Intra-regional trade is relatively small
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Figure 12.3
but growing
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• Developing countries have traditionally relied on
  primary products (agriculture, mining) for
  exports. This is changing.
• Some countries are still very dependent on a
  handful of export products
• The structure of developing country imports is
  much more similar across countries. Fuel,
  machinery and other capital goods, intermediate
  producer goods, and consumer products are usually
  involved

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Table 12.2
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Fig. 19.2
Bigger economies trade less!
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Table 12.1
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Table 19.2
Dependence on primary products is falling
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Terms of Trade and the Prebisch-Singer Thesis

• Total export earnings depend on
• Total volume of exports sold AND
• Price paid for exports
• Terms of trade relative price of exports and
  imports
• Many alternative calculations
• Simplest is average unit price of exports divided
  by average unit price of imports (barter TOT)
• Also income TOT measures export receipts divided
  by price of imports (takes account of shifting
  volumes of primary products)
• Prebisch and Singer export prices fall over
  time, so LDCs lose purchasing power unless they
  can continually increase export volumes
• Implication LDCs need to avoid dependence on
  primary exports

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Source Weil (2007)
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Source FT Jan 2008
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Oil prices
Brent futures ICE FT
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Copper prices
Comex futures FT
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Wheat prices
CBT futures FT
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Coffee prices
ICE futures FT
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The Basic Static Theory of International Trade

• The principle of comparative advantage
• Different production possibilitiesbased on
• Technology differences (Ricardo) or
• Relative factor endowments (Heckscher-Ohlin)
• Need to add imperfect competition, increasing
  returns to scale, learning by doing

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Figure 12.1
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Figure 12.2
Position before trade opens up
The point of the vent-for-surplus theory is that
it deals with situations where surpluses are just
unused without trade Trade here is not so much
about reallocation more about finding a use for
underused resources
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Figure 12.2
Position with trade
Position before trade opens up
The point of the vent-for-surplus theory is that
it deals with situations where surpluses are just
unused without trade Trade here is not so much
about reallocation more about finding a use for
underused resources
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Mozambique
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