International Trade

Univ.Prof. Dr. Gerhard Clemenz

Institut für Volkswirtschaftslehre

Universität Wien

0. Introduction0.1 Subject

0.1.1 International Economics

Special branch of economics for a long time Merkantilists (Jean Baptiste Colbert, Adviser of Louis XIV,

Classical Economists (D. Hume, D. Ricardo [Free Trade], F. List [Infant Industry], J.St.Mill) Neoclassical Economists (B. Ohlin, P. Samuelson, J.Meade, W. Leontieff),

New Trade Theory (P. Krugman, E. Helpman, G.Grossman…)

Origin: Emergence of modern national states (beginning in the 16th century).Difference to general equilibrium models (micro and macro economic models): Factors of production not mobile between states National borders, tariffs, quotas, standards etc. National currencies – additional risks.Because of international trade agreements (GATT, WTO, NAFTA), currency unions, free capital movements, „globalization“ distinction between international and interregional trade blurred.

0.1.2 Branches of International Economics

0.1.2.1 Monetary International EconomicsFocus on macroeconomic issues – macroeconomics of open economiesExchange ratesBalance of paymentsOptimal Currency AreasMonetary and fiscal policies in open economies

0.1.2.2 International Trade

Microeconomic focusFlows of goods and services are usually treated like in a pure barter economyWhy is trade taking place?What determines the composition of the flows of goods and services into and out of countries?How does trade affect domestic production?What determines the volume of trade?

Who benefits from trade?What determines the terms of trade ([index of export prices]/[index of import prices])What are the effects of trade policies (quotas, tariffs, Voluntary Export Restraints)What is the (potential) role of strategic trade policy?How are trade policies determined?What is the role of multinational enterprises?What are the causes and consequences of migration?

Country Population

(millions)

GDP

($ billions)

Imports

merchandise

Exports merchandise

I/GDP

(%)

U.S.A. 263 7,245.8 771 584.7 10.6

Germany 81.6* 1,922.6 444.5 508.3 23.1

U.K. 58.4* 1,086.4 263.7 242 24.3

Singapore 3 85.3 124.5 96.8 146

Brazil 159.2* 395** 53.8 46.5 6**

India 901.5* 301.3 34.5 30.7 11.5

Austria (in S) 8* 233.2 55.3* 45.2* 23.7

*1994 data

**1991 data Source: IMF

Trade Statistics 2011 in Billions US DollarsImports Exports Population GDP IM/GDP

Austria 180,4 169,7 8.5 418,5 43,1

Germany 1.255,40 1.475,50 82 3570,1 35,2

USA 2.565,40 1.480,40 312 15094,0 17,0Canada 452,1 451,7 35 1736,1 26,0

Brazil 214,1 258,9 197 2476,7 8,6

India 447,4 298 1.241 1848,0 24,2

Singapore 365,8 409,5 5.2 239,7 152,6

Japan 854,1 822,7 128 5867,2 14,6

Sources: WTO, World Bank

2004 data

Population (millions)

Nominal GDP ($ billions)

Export, FOB ($ billions)

Import, CIF ($ billions)

Imports % of GDP

United States 295,4 11.734,3 818,5 1.525,7 13,0Germany 82,6 2.744,3 911,6 718,0 26,2Japan 127,9 4.672,0 565,7 454,5 9,7United 59,5 2.133,0 341,6 451,7 21,2Canada 32,0 993,4 304,5 273,1 27,5Singapore 4,3 106,8 179,6 163,9 153,4Brazil 183,9 604,9 96,5 65,9 10,9India 1.087,1 686,2 71,8 94,1 13,7Austria 8,2 292,7 109,0 108,9 37,2

Source: IMF-International Financial Statistics

2003 data (from IMF-IFS National Accounts)

Exports of goods and services ($ billion)

Imports of goods and services ($ billion)

United States 1.045,7 1.546,5Germany 858,9 756,8Japan 508,8 439,9United Kingdom 461,3 511,9Canada 329,0 293,5Singapore . . . .Brazil 83,3 65,0India 87,6 95,2Austria 123,1 112,9

Global daily turnover in traditional foreign exchange markets:

2004: $1.9 trillion (dt.Billionen)2001: $1.1 trillion (57% nominal rise, 36% at constant exchange rates)Global daily turnover in foreign exchange and interest rate derivatives contracts:2004: $2.4 trillion, growth since 2001 in real terms: 51%.Both segments are nearly the sameFinancial centers: London, New York, Paris

Reasons for growth of world trade

Liberalization (GATT, WTO)

Regional Trade Agreements (EFTA, NAFTA)

Opening up of several countries (China)

Improved Transport Facilities

Multinational Corporations

0.3 Comparative AdvantageCore of international trade theory: Every country exports (on average) those goods whose relative prices in autarky are below their relative world market prices.

Example: two countries – two goods: beer and notebooks.•Autarky prices in Germany: 800 €/barrel, 2400 € , relative price of beer: 1/3•Autarky prices in Austria: 900 €/barrel, 4500 €, relative price of beer : 1/5;•Germany: forego 3 barrels of beer for 1 notebook,•Austria: forego 5 barrels of beer for 1 notebook •At any relative price of beer between 1/3 und 1/5 Pareto-improvement, if Austria exports beer and Germany exports notebooks.

Reasons for comparative advantages:

1. Different preferences,

2. different technologies,

3. different factor endowments,

4. increasing returns to scale,

5. others.

First reason: of little theoretical interest, reasons two and three: subject of traditional theory, remaining reasons dealt with in recent theories (imperfect competition, IO).

0.4 Contents0. Introduction

1. Two-Sector Models

2. The Heckscher-Ohlin Model

3. Many Goods and Factors

4. Increasing Returns and the Gravity Equation

5. Strategic Trade Policy

6. Political Economy of Trade Policy

7. Multinationals and Organization of the Firm

0.5 LiteratureFeenstra, Robert C., Advanced International Trade, Princeton University Press, Princeton 2004.

Falvey, Rod and Udo Kreickemeier (eds.), Recent Developments in International Trade Theory, Edward Elgar, Cheltenham, UK, 2005

Kar-yiu WONG, International Trade in Goods and Factor Mobility, The MIT Press, Cambridge, Mass. und London, 1995;

Helpman, E. and P. Krugman, Market Structure and Foreign Trade, Harvester Press, 1985;

Dixit, A. and V. Norman, Theory of International Trade, Cambridge UP, 1980;

Woodland, A.D., International Trade and Resource Allocation, North-Holland, 1982;

Greenaway, D. and L.A.Winters (eds.), Surveys in International Trade, Blackwell, Oxford, 1994;

Krugman, P.R. and M. Obstfeld, International Economics, Harper Collins, New York, 1994.

LVA-Zeugnis und Benotung: Bearbeitung von Übungsaufgaben und Tafelmeldungen (max. 5 Pkte), 2 Quizzes (max. 10 Pkte) Abschlussklausur (max. 45 Pkte), Kolloquium (max. 20 Pkte), mündliches Referat (max 20 Pkte), schriftliches Referat (max.20 Pkte). Positive Note erfordert entweder (i) 50 von 100 Punkten (ohne Kolloquium) oder (ii) 60 von 120 Punkten (mit Kolloquium).Notenschlüssel:(i) Basis 100 Punkte: 50-62: genügend, 63-75: befriedigend, 76-88:gut, >89: sehr gut.(ii) Basis 120 Punkte: 60-74: genügend, 75-89: befriedigend, 90-104:gut, >104: sehr gut.