Post on 30-Mar-2015
April 2014 Econ 455
International Trade and Finance
PPTs series 3
April 2014 Econ 455
IntroductionPart I Trade1. Theories of Trade
a) Motives for Tradeb) Absolute Ádvantagec) Comparative Advantaged) Extensions
2. Barriers to Tradea) Non.tariffary Barriersb)Tariffsc) Quotasd) Subsidies
Part II Finance1. The Balance of Payments
a) Concept and Structure of BoPb) BoP and GDPc) BoP goals
2. Foreign exchangea) Exchange rates and Marketsb) Exchange rate Mechanicsc) Exchange Rate Policies
3: Exchange Regimesa) Gold Standardb) The Bretton Woods Systemc) Extansionsd) Controversies
4. Agents and their Activities5. Selected Exchange Rate Theories
List of Contents
April 2014 Econ 455
Part I Trade 2. Barriers to Trade
April 2014 Econ 455
a) Reasons for Barriers
- AutonomousThe barrier exists without anyone‘s responsability
- Political extortion or retalliationImposed regardless of economic consequences
- RevenueThe budget needs financial means
- ProtectionismThe national economy as a whole or industries within are to maintain their competiveness
Part I Trade 2. Barriers to Trade
April 2014 Econ 455
b) Non-Tariffary Barriers
Lack of information: knowledge about foreign goods, which would normally attract buyers is not available
Availability of chickens feet in Kentucky not known about in China
Goods which could may have a market in one country but not in another because of taste differences
Intestines not appreciated in the US
Religious rules forbid the consumption of certain goods
Gummi bears – pork or beef gelatine- in India or Muslim countries?
April 2014 Econ 455
Discrimination
Bureaucracy,
Slowdown in processing imports
Political slogansBuy American,
buy British,
freedom fries
April 2014 Econ 455
Boykott and Embargo
Boykott: Imports from a certain country will be prohibited, either in total or limited to certain products
Embargo: exports to a certain country will be prohibited, either in total or limeted to certain products
Motive: Foreign Politics or
moral, environmental issues
April 2014 Econ 455
c) Custom Duties (Tariffs)
Tax levied on imports:- Specific tariff
constant amount of money per item
- Ad valorem tariff
percentage of import price (CIF)
Original purpose: Revenue for the Government
Derivative purpose: influencing imports
April 2014 Econ 455
Four effects of tariffs to be analized:- Influence on international trade- Influence on domestic production and consumption, - Influence on consumer and producer surplus and - Influence on Government revenue
April 2014 Econ 455
Two cases to by distinguished:
“Small” country: It is assumed, that the influence between economic variables of the small country and the rest of the world is asymmetric:Economic activities have no influence on the international economy, but the international economy has an influence
“Two” country-case (also “Big” country-case): Influence of economic variables is symmetrical
4. Custom Duties (Tariffs)
April 2014 Econ 455
P
q
S
D
A „small“ country
pa
qa= qad=qa
s
4. Custom Duties (Tariffs)
Production and Consumption before trade
April 2014 Econ 455
Consumer and Producer surplus before trade
P
q
S
D
A „small“ country
pa
qa= qad=qa
s
Consumersurplus
Producersurplus
April 2014 Econ 455
M1
P
q
SD
A „small“ country
pa
qa
pw S+Sw
qs1
qd1
m1
m: quantity of import
M: Value of import
April 2014 Econ 455
P
q
S
D
pa
qa
pw S+Sw
qs1
qd1
m1
Consumersurplus
Producersurplus
A „small“ country
April 2014 Econ 455
P
q
SD
pa
qa
pw S+Sw
qs1 qs
2
qd1qd
2
m1
t
m2
pw+t
A „small“ country
M2
Tariff reduces quantitiy and value of imports,
April 2014 Econ 455
P
q
SD
pa
qa
pw S+Sw
qs1 qs
2
qd1qd
2
m1
t
m2
pw+t
A „small“ country
Consumersurplus
Producersurplus
April 2014 Econ 455
RevenueA historical puzzle: Because of rising US
imports federal revenue from tariff duties – a very significant source of revenue for the country - rose. The federal budget showed an unconstitutional surplus. Congress passed legislation to reduce tariffs, the consequence being an even higher budget surplus.
What happened?
A „small“ country
April 2014 Econ 455
pw
Revenue
P
q
SD
m0
t = 0 Revenuet*m=0
A „small“ country
April 2014 Econ 455
pw
Revenue
P
q
SD
t1
Revenue
m1
A „small“ country
April 2014 Econ 455
pw
Revenue
P
q
SD
t1
Revenue
m1
t2
m2
Revenue
A „small“ country
April 2014 Econ 455
pw
Revenue
P
q
SD
t2
m2
Revenue
t3
m3
Revenue
A „small“ country
April 2014 Econ 455
A „small“ country
Revenue
Solution of the puzzle: Whether a change in the tariff leads to rising or declining revenue from tariffs depends on the combined price elasticities of demand for imports.
April 2014 Econ 455
A „small“ country
Construction of a new diagram to demonstrate solution
Gap of D-S= Imports
SD
D-S
National market
q
Market for Imports
m
pW
Gap of D-S= Imports
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
Dm
PW
m
Tariff
Revenue
m = 1
m < 1
m > 1
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
PW
m
Tariff
Dm
m = 1
m < 1
m > 1
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
PW
m
Tariff
Dm
m = 1
m < 1
m > 1
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
PW
m
Tariffm = 1
m < 1
m > 1
Dm
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
PW
m
Tariff
Dm
m = 1
m < 1
m > 1
April 2014 Econ 455
A „small“ country
Import, tariff, and revenue
PW
m
Tariff
Dm
m = 1
m < 1
m > 1
April 2014 Econ 455
A „small“ country
Plotting tariff Against Revenue
PW
m, Rt
Dm
t
April 2014 Econ 455
P
q
SD
A „small“ country
pa
qa
pw S+Sw
qs1
qd1
Imports 1
p2
S+Quota
qs2 qd
2
Imports 2
Quota
d) Import Quotas
April 2014 Econ 455
Modification: „Big“ country
qqa
S+Sw
qs1 qs
2qd
1qd2
Imports 1t
P SD
pa
pw
pw+t
Imports 2
April 2014 Econ 455
e) Export Subsidies (Small Country)
P
q
SD
pa
qa
pw
D
qs1
qd1
x: quantity of export
X: Value of export
D+x
x1
Absence of subsidies
April 2014 Econ 455
P
q
SD
pa
qa
pw
D
qs1
qd1
x: quantity of export
X: Value of export
D+x
x2
Introduction of subsidies (specific)
Subs