9__Week

Introduction to International Economics

  • Overview by Assist. Prof. Dr. Hande Hakan

  • Significance and scope of international economics introduced.

Quantity Restrictions

  • Topics Covered: New Protectionism, Outline, Subsidies, Import and Export Taxes

Import Quotas

Definition

  • Government restrictions on the volume of goods to be imported (physical quantity or value).

  • Example: Importing 100 units of foreign automobiles, with a value cap of $1,000,000.

Purpose

  • Protect domestic industry and agriculture.

  • Prevent balance of payments deficits.

Application

  • Specific periods for limitations on imports.

  • Quotas can accompany customs duties.

  • Common in underdeveloped countries.

Types of Import Quotas

  1. Global Quotas

    • Impose limits based on total import volumes without specifying countries.

    • Can lead to market inefficiencies.

  2. Allocated Quotas

    • Distributed among firms based on criteria (e.g., production capacity).

    • Import licenses granted per quota share.

  3. Tariff Quotas

    • Quotas in place for set periods but allow imports beyond with higher tariffs.

Economic Effects of Import Quotas

Positive Effects

  • Higher Prices for Consumers: Reduced competition results in inflated prices.

  • Domestic Industry Protection: Limits foreign competition, potentially enhancing domestic profits.

Negative Effects

  • Inefficiency and Resource Misallocation: Reduced competition may deter innovation within domestic industries.

  • Retaliation and Trade Wars: Can provoke countermeasures from affected countries, escalating trade tensions.

  • Reduced Variety and Quality: Limited imports decrease product selection and may lower quality due to lack of competition.

  • Impact on Global Trade: Broad use of quotas may disrupt international trade dynamics.

Customs Tariffs vs. Quotas

  • Tariffs: Taxes on imports raising their prices, generating revenue for the government.

  • Quotas: Limits on quantity, creating economic rent and potential corruption but no direct revenue for government.

  • Tariffs allow market adjustments; quotas lead to strict limitations, potentially causing shortages.

Import Bans

Definition

  • Complete prohibition of specific goods from entering a country.

Reasons

  1. Save foreign currency by banning luxury items.

  2. Protect domestic industries from foreign competition.

  3. Reduce external deficits.

  4. Address non-economic issues (e.g., public health).

Foreign Exchange Control

  • Often used with import quotas to stabilize currency and control capital outflow.

  • Objectives include:

    • Stabilizing national currency.

    • Protecting foreign exchange reserves.

    • Managing trade deficits.

Multiple Exchange Rate System

  • Different rates applied to varying product groups, enhancing foreign exchange revenues.

  • Can result in inefficiencies and competition issues.

New Protectionism

Voluntary Export Restrictions

  • Used for labor-intensive goods; less effective than quotas due to varied exporter strategies.

Health, Safety, and Environmental Standards

  • Serve as invisible barriers with added costs due to regulations.

Subsidies

Export Subsidies

  • Defined as financial aid to enhance export capabilities and price competitiveness.

Domestic Economic Effects

  • Increase export unit prices, decreasing domestic sales while promoting exports; may elicit countervailing duties from importing countries.

Examples

  • EU's Airbus subsidies; Japanese high-tech industry support.

Domestic Market Subsidies

  • Aimed at making local products competitive against imports; can divert public funds resulting in inefficiencies.

Import and Export Taxes

Differential Duties on Imports: Variable Levy

  • Example: EU Common Agricultural Policy utilizes variable levies to stabilize domestic prices against international fluctuations.

Export Duties

  • Imposed on specific exports, aiming to regulate supply, boost treasury income, and encourage domestic processing.

Trade Impact of Export Taxes

  • Influences global prices; high elasticity of substitutes must be considered.

Export Embargoes

  • Politically driven complete trade bans, useful for exerting pressure on specific countries (e.g., US embargoes against Cuba).

Export Monopolies and Dumping

Definition of Dumping

  • The act of selling goods abroad at lower prices than domestic prices, aiming to gain market share.

Types of Dumping

  1. Sporadic: Occasional excess stock liquidation.

  2. Predatory: Intentionally destroy competition.

  3. Persistent: Long-term strategy for profit maximization.

International Price Differentiation & Government Policies

  • Anti-dumping duties can be enforced against unfair pricing.

Cartels

  • Agreements among firms to control markets through restricted production and pricing.

  • Difficult to counteract due to jurisdictional limitations.

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