International Economics Midterms

January 1, 1948

Date of establishment of GATT

January 1, 1995

Establishment of WTO

Trade barriers

refer to measures that government or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.

Import tariff

is a tax imposed on goods brough into a country from foreign market.

Transit tariff

is a fee imposed by a country on goods that pass through its territory en route from one nation to another.

Export tariff

is a tax imposed by a government on goods that are being shipped out of a country. Unlike import tariffs, which area meant to protect domestic industries from foreign competition, export tariffs are used to regulate the flow of goods leaving the country.

Specific tariff

a unit or specific tariff is a tax levied as fixed charge for each unit of a good that is imported.

Ad valorem

latin for according to value or in proportion to the value and this type of tariff is levied as a fixed percentage of the value of the commodity imported.

Compound tariff

is a combination of an valorem and a specific tariff. It includes both a cost per unit as well as a set percentage on the value of the good.

Revenue tariff

It aims at collecting substantial revenue for the government. The tax is impose

Protective tariff

It aims at giving protection to home industries by restricting or eliminating competition. These are usually high so as to reduce imports.

Single column tariff

refers to a tariff schedule in which a country applies a single, uniform rate of duty imported goods, regardless of their country of origin.

Non-tariff barriers

are the restriction resulting from conditions or certain market obligations that make importing and exporting products difficult and less profitable.

• Quotas

• Embargo

• Voluntary export restrains

• Import license

What are some example of non-tariff barriers?

Quotas

a government imposed trade restriction that limits that number of goods that a country can import or export during a particular period.

Voluntary export restraints

are arrangements between exporting and importing countries whereby an exporting country limits the number of goods of a particular nature that it can export to a specific or region. Typically a country imposes a voluntary export restrain at the request of an importing country that seeks protection for its domestic producers.

Embargo

Embargoes are total bans of trade on specific commodities and may be imposed on imports or exports of specific goods that are supplied to or from specific countries.

Import licenses

can be defined as administrative procedures requiring the submission of an application or other documentation (other than those required for customers purposes) to the relevant administrative body as prior condition for importation of goods.

• Employment

• Domestic Firms

• Consumer

• Balance of payments

• Economic growth

What are the effects of barriers?

166 members

how many members are there in WTO?

• Trade negotiation

• Implementation and monitoring

• Dispute settlement

• Supporting development and building trade capacity

• Outreach

What are the goals of world trade organization?

International economics

is a branch of economics that studies how countries interact through trade, investment, and financial transactions. It analyzes the flow of goods, services, capital and labor across borders and the policies that govern these exchanges.

• Exchange rate fluctuations

• Trade barriers

• Political and economic instability

What are the challenges in international trade?

• International trade

• International finance

• Globalization and economic development

What are the key areas of international economics?

International trade

Study of exports, imports, and trade policies.

International finance

Study of foreign exchange rates, balance of payments, and financial markets.

Globalization and economic development

Impact of trade liberalization, foreign direct investment (FDI), and multinational corporations.

World Trade Organization

regulates global trade agreements.

International monetary fund

Provides financial assistance to countries in crisis.

World bank

Funds development projects in emerging economies like the Philippines.

Major exports

Philippine Trade structure

Electronic, semiconductors, agricultural products, garments, BPO services.

Major Imports

Philippine Trade Structure

Petroleum, machinery, transport equipment, consumer goods.

Top trading partners

Philippine Trade Structure

China, United states, Japan, South korea, ASEAN

• GDP Growth Rate

• Inflation Rate

• Exchange Rate

• Remittances Contribution to GDP

What are the key economic indicators? (as of recent data)

• Trade deficits and reliance on imports

• Vulnerability to global economic downturns

• Currency fluctuations affecting trade competitiveness

What are the challenges for the Philippines in International Trade?

• Strengthening trade within ASEAN and RCEP Agreements

• Expanding digital trade and e-commerce

• Developing high-value exports and industrialization

What are opportunities for the Philippines in International trade?

Trade Flows

Key Components of the Global Economy

Movement of goods and services across borders

Financial flows

Key Components of the Global Economy

Investment, stock markets, and foreign direct investment (FDI)

Labor mobility

Key Components of the Global Economy

Migration and movement of workers across countries

Technology and Innovation

Spread of digital technology and production methods.

USA, EU, Japan

Major Players in the Global Economy

Advanced Industrial Economies

China, India, Brazil

Major Players in the Global Economy

Rapidly growing economies with expanding global influence.

Philippines, Vietnam, Kenya

Major Players in the Global Economy

Developing countries - economies in transition, dependent on trade and foreign aid

Globalization

refers to the increasing interconnectedness of economies, cultures, and societies through trade, technology, migration and communication

• Trade liberalization

• Technological advancements

• Foreign Direct Investment

• Global financial markets

• Multinational Corporations

What are the key drivers of globalization?

Trade Liberalization

Key Drivers of Globalization

Reduction of tariffs and trade barriers

Technological advancements

Key Drivers of Globalization

Internet, automation and logistics improvements

Foreign Direct Investment

Key Drivers of Globalization

Companies expanding operations across borders

Global Financial markets

Key Drivers of Globalization

International banking, stock exchanges and currency trading

Multinational Corporations

Key Drivers of Globalization

Companies like apple, samsung and Toyota operating globally

• Growth of BPO industry

• Increased trade and investment opportunities

• Access to global markets for Filipino workers and businesses

• Increase competition for local businesses

• Dependence on foreign economies (e.g oil prices, remittances)

• Income inequality and job displacement

What are the impact of globalization on the Philippines?

• Pre classical version

• Classical Version

• Modern version

• New Version

Four phases of the trade theories

Pre classical version

Phases of the trade theories

Mercantilism

Classical version

Phases of the trade theories

Adam smith, David Ricardo and Karl Marx

Modern version

Phases of the trade theories

Eli hecksher and bertil Ohlin (Modern theories of international trade)

New Version

Phases of the trade theories

Irving B. Kravis, Staffan B. Linder and Raymond Vernon

Mercantilism

It is an economic doctrine which believes that the power and glory of a nation depend on its wealth best served by increasing exports.

Absolute advantage

• Smith started with the simple truth that for two nations to trade with each other voluntarily both nations must gain.

• It exists between nations when they differ in their ability to produce goods.

• More specifically, it exists when one country is good at producing one item while another country is good at producing another item.

Comparative Advantage

• According to this law, even if one nation is less efficient than the other nation in the production of both commodities, there is still basis for mutually beneficial trade.

• It is an economy’s ability to produce good or service at a lower opportunity cost than its trading partners.

Labor theory of value

It is a marxism theory that states that the relative price or economic value of a good or service is determined by the amount of labor required to produce it.

Hecksher ohlin theorem

states that a country which is capital abundant will export the capital intensive good. Likewise the country which is labor abundant will export the labor intensive good.

Leontief paradox

• Contrary opinion

• The concept that countries with a great deal of capital available import capital intensive commodities and export labor intensive commodities

• This is led to reject or revision of the hecksher ohlin theorem

Kravis Theory of Availability

• Technological innovation as basis of trade operates through his product availability hypothesis

• The availability approach seeks to explain the pattern of trade in terms of domestic availability and non-availability of goods.

• In short, international trade takes place because of differences in the availability of certain products among countries.

Linder’s theory of volume of trade and demand pattern

• In his theory, gave importance to demand side factors like similarity in income levels across nations and income distribution characteristics in determining the pattern of trade.

• As per this theory, international trade takes place between those countries which have similar income levels and demand patterns.

• Explains the reasons for large volume of trade in manufacturers among developed countries.

Vernon’s product cycle theory

• Has put forth the product cycle hypothesis.

• It states that the development of a new product moves through a cycle or series of stages in the course of its development, and its comparative advantage changes as it moves through the cycle.

Trade barriers

Any hurdle, impediment or roadblock that hampers the smooth flow of goods and services, and payments from one destinate to another. They are man made obstacles to the free movement of goods between different countries. In spite of WTO, trade barriers exist.

International Production

Deals with production of goods and services in international locations and markets.

• Export

• Contracting

• Foreign Direct Investment

What are the foreign market entry menus?

Domestic

Characteristics of foreign market entry menu

Purely domestic firm supplying home market

Indirect exporting

Characteristics of foreign market entry menu

Another firm acts as sales agent.

Direct exporting

Characteristics of foreign market entry menu

Firm undertakes export transaction itself.

Licensing

Characteristics of foreign market entry menu

License to foreign firm to produce abroad.

Franchising

Characteristics of foreign market entry menu

License with conditions to ensure consistency

Subcontracting

Characteristics of foreign market entry menu

Contract with materials and specifications (a.k.a outsourcing and contract manufacturing)

Joint venture

Characteristics of foreign market entry menu

Establish a separate firm jointly owner with a foreign country firm

Mergers and Acquisitions

Characteristics of foreign market entry menu

Purchase or part of part or whole of foreign firm.

Greenfield

Characteristics of foreign market entry menu

Brand-new production facility

• Resource seeking

• Market seeking

• Efficiency seeking

• Strategic Asset seeking

What are the motivations for international production?

Resource seeking

Motivations for international production

The home country firm is trying to gain access to natural resources or human resources of the foreign country.

Market seeking

International production might be

1. Necessary to adopt and tailor products to local needs

2. Acts as a part of global production and marketing strategy

3. Required in supplying intermediate products to another firm opening up operations in a foreign country.

Efficiency seeking

Motivations for international production

Rationalize the established structure of international production for economies of scale and scope

Strategic Asset Seeking

Motivations for international production

Intangible resources dealing with the technology and core competence of the company (Dunning, 1993)

Migration

A means by which international production can take place, namely the movement of people across national borders in the form of temporary or permanent movement.

• Internal Migration

• International migration

What are the two major types of migration?

• Based on direction of movement

• Based on the motive/reasons for migration

• Based on duration of migration

What are the classification of internal migration?

• Marriage migration

• Labour migration or migration of people for employment

• Migration due to natural calamities

What are the based on motive or reasons for migration?

• Permanent migration

• Temporary migration

What are the based on duration of migration?

• Forced migration

• Circular migration

• Irregular migration

What are the classifications of international migration?