International trade

INTERNATIONAL TRADE

Course 1 Yudy Yunardy S.E., M.M.

WHO AM I ?

Fifteen years of Banking experience, six years’ experience in Trade Finance Operations background with Unsecured Loan experience, equipped with another seven years’ experience in Management Information Analyst and Dashboard Reporting. Vastly experienced in Bank Indonesia reporting (LBU, SID, LBBU, BMPK etc.)

EMPLOYMENT SUMMARY

2014 Present Indonesia Banking School

2013 2014 Deutschebank AG

2011 2012 Misys Plc

2010 2011 DBS Indonesia

2010 2010 ANZ Bank

2005 2010 RBS Bank

2004 2005 Vendor at Bank Mandiri, BCA and Circle K

1999 2004 HSBC Bank

1998 1999 MetLife Insurance

1997 1998 Demographic Institution FEUI

1996 1997 Private Investment Manager

RULES

1.Disable your comm. device2.Presence 80% minimum3.Time alloc. 08.00 – 10.30

TEXTBOOK

Koch, Timothy (2015), Bank Management, The Dryden Press

GRADING EVALUATION

1. Participation 5%2. Quiz / exercise 10%3. Assignment 15%4. Midterm 35%5. Final 35%

INTRODUCTION TO INTERNATIONAL TRADE


• Swarm of Chinese products

• Goods and services

• Winning the competition

• Definition of international trade

• Specialization in international trade


CAUSES OF INTERNATIONAL TRADE

1.Uneven distribution of resources

2.Advantage of resources

3. Increase consumption

4.Decrease domestic dependencies

5. Increase economic growth

6.Efficiency

7.Taste

INTERNATIONAL TRADE THEORY

1. Mercantilism

2. Absolute Advantage

3. Comparative Advantage

4. Heckscher-Ohlin

INTERNATIONAL TRADE THEORY

The holdings of country’s treasure primarily in the form of gold constituted its wealth

1. Increase export

2. Decrease import

3. Expand/colonize

4. Monopolize

MERCANTILISM

The ability to produce more number of a good product or service than competitors, using the same amount of resources

ABSOLUTE ADVANTAGE

Production of cloth and car before trade :

Cloth Car

Indonesia 100 yd/1 day 10 car/4 days

USA 100 yd/2 days 10 car/1 day

ABSOLUTE ADVANTAGE

Production of cloth and car in specialization :

Cloth Car

Indonesia

USA

ABSOLUTE ADVANTAGE

200 yd/1 day xxxx

xxxx 20 car/1 day

Production gain after trade :

Day 1 Day 2 Day 3 Day 4

Indonesia 100 yd 10 car

After trade 100 yd

10 car

USA 10 car 100 yd

After trade 10 car

100 yd

ABSOLUTE ADVANTAGE

1 day

Production of handphone and chair before trade :

hp chair

Sweden 50 /2 days 10 /2 days

China 50 /1 day 10 /3 days

ABSOLUTE ADVANTAGE

Production of handphone and chair in specialization :

hp chair

Sweden

China

ABSOLUTE ADVANTAGE

xxxx 20 /2 days

100 /1 day xxxx

Country specialization in trade :


Sweden 10

10

China 50

50

ABSOLUTE ADVANTAGE

Production gain after trade :


Sweden 50

10

After trade 50 10

China 50 10

After trade 50 10

ABSOLUTE ADVANTAGE

1 day

Potential gains from trade between countries that arise from differences in their factor endowments or technological progress

COMPARATIVE ADVANTAGE


Production of cloth and rice :

Cloth Rice Exchange rate

India 20 yd 40 ton 1 yd = 2 ton

1 ton = 0.5 yd

Indonesia 60 yd 48 ton 1 yd = 0.8 ton

1 ton = 1.25 yd


Opportunity cost of cloth and rice :

Cloth Rice Gain

India 2 ton 0.5 yd

Indonesia 0.8 ton 1.25 yd

1.25 – 0.5 = 0.75 yd

2 – 0.8 = 1.2 ton


Production of cloth and wine :

Cloth Wine Exchange rate

UK 20 yd 125 btl

Portugal 25 yd 60 btl

1 yd = 6.25 btl

1 btl = 0.16 yd

1 btl = 0.42 yd

1 yd = 2.4 btl

1. Which country has absolute advantage of cloth production?

2. Which country has absolute advantage of wine production?

3. Which country has comparative advantage of cloth production?

4. Which country has comparative advantage of wine production?

Portugal

UK

UK

Portugal


Production of cloth and wine in specialization :

cloth wine

UK

Portugal

Wine importer will import 100 btl of wine,

exchange rate 1 yd = 5 btl

xxxx 250 btl

50 yd xxxx


Production of cloth and wine in trade :

cloth wine

UK

Portugal

20 yd 150 btl

30 yd 100 btl


Production gain/loss in trade :

Before after gain/loss

UK

Portugal

20 yd 0 yd

150 btl 25 btl

20 yd

125 btl

30 yd 5 yd

100 btl 40 btl

25 yd

60 btl


Differences in factor endowments are the cause of international specialization and trade

HECKSCHER - OHLIN

And the base of comparative advantage :

1. Endowment, factors of production (land, labor and capital)

2. Intensity, level of technology

HECKSCHER - OHLIN

SO? WHAT’S THE DIFFERENCE WITH COMPARATIVE ADVANTAGE?

Heckscher-Ohlin

trade based on resource availability

David Ricardo

• trade based on comparative advantage based on difference in opportunity cost

• Opportunity cost based on technology difference

IMPACTS OF TRADE

1. Increase bilateral relationship2. Fill demand gap3. Push optimal production4. Advance science and

technology5. Specialization6. Create additional employment

BENEFITS OF INTERNATIONAL TRADE

1. Currency difference2. Unskilled labor force3. International payment risk4. Import policy5. War6. Regional Economic organization

BARRIERS OF INTERNATIONAL TRADE

1. Rapid depletion of exhaustible natural resources

2. Import of Harmful Goods3. Over specialization4. Import dependencies5. Danger of starvation6. Consumerism7. Smothering small business8. One Country Gains at the Expense

of Other9. May Lead to War

NEGATIVE EFFECTS OF INTERNATIONAL TRADE

TRENDS IN INTERNATIONAL TRADE

1. Forced Dynamism

2. Cooperation among countries

3. Liberalization of cross-border movements

4. Transfer of Technology

5. E-Commerce

TRENDS IN INTERNATIONAL TRADE

1. Businesses are constantly pushing the frontiers of economic growth, technology, culture, and politics which also change the surrounding global society and global economic context

2. Factors external to international trade (e.g., developments in science and information technology) are constantly forcing international trade to change how they operate

FORCED DYNAMISM

1. To gain reciprocal advantages

2. To attack problems they cannot solve alone

3. To deal with concerns that lie outside anyone’s territory

4. Countries set agreements on how to commercially exploit areas outside any of their territories

COOPERATION AMONG COUNTRIES

1. So-called open economies (having very few international restrictions) will give consumers better access to a greater variety of goods and services at lower prices

2. Producers will become more efficient by competing against foreign

3. If they reduce their own restrictions, other countries will do the same

LIBERALIZATION OF CROSS-BORDER MOVEMENTS

Technology transfer is the process by which commercial technology is disseminated

TRANSFER OF TECHNOLOGY

With the rise of interconnected network (internet) shopping online becomes more and more convenient

ELECTRONIC COMMERCE

E-commerce (electronic commerce or EC) is the purchasing, selling and exchanging of goods or services, or the transmitting of funds or data, over an electronic network

ELECTRONIC COMMERCE

1. B2B

2. B2C

3. C2C

4. C2B

5. B2E

6. G2G

7. G2E

8. G2B

9. B2G

10. G2C

11. C2G

E-COMMERCE CLASSIFICATION

E-COMMERCE TRANSACTION

1. Cash on delivery2. Bank transfer3. Payment mediation service4. PayPal5. Western Union6. Credit Card

ASSIGNMENT

•E-commerce will be booming in 2015, why? Give the global sales of B2C e-commerce in 2012-2013 data, compare with world merchandise export by major group in 2013 (from WTO) to support your reasoning

THANK YOU

International trade

Economy & Finance

Transcript of International trade