International Trade

The Global Economy1MacroeconomicsThe study of the behavior and decisions of entire economies.GlobalizationA modern term used to describe the changes in societies and the world economy that result from dramatically increased international trade and cultural exchange.Why do nations trade?Countries engage in international trade for two basic reasons, each of which contributes to their gain from trade. First, countries trade because they are different from each other. Nations, like individuals, can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production. That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. In the real world, patterns of international trade reflect the interaction of both these motives.~Paul Krugman, International Economics

4Trade BarriersDefinition~ Preventing a foreign product from freely entering into a nations territory.

5Types of Trade BarriersImport Quota Voluntary Export RestraintTariffInformal BarriersGovernment Licensing RestrictionsGovernment Health and Safety Requirements

6Effects of Trade BarriersThe overall impact of trade barriers is that they limit supply. This results in two common consequences:Increased price of foreign goodsTrade wars

7ProtectionismDefinition~ The use of trade barriers to protect industries from foreign competition. PositivesProtect jobsProtect infant industriesEnhance national securityNegativesLimits LDCs ability to compete on a global scaleReduces global living standardLimits attempts for international peace

8International AgreementsWorld Trade Organization (1995)~ The only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.European Union (1951/1999)~ A regional economic agreement among 27 countries across the European continent. NAFTA (1994)~ This agreement removed most barriers to trade and investment among the United States, Canada, and Mexico. Under the NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. The agreement was phased in from 1994-2008 and has increased trade by over 200% since it was enacted. Key Content:

Development- Process by which a nation improves the economic, political and social well being of its people.Developed-High level of material well being (US)Less Developed- Low level of material well being (Ethiopia)Newly Industrializing- Better performing LDCs (Mexico)Indicators of DevelopmentPer capita GDPEnergy ConsumptionLabor ForceLiteracyInfant MortalityLife ExpectancyConsumer Goods

Levels of DevelopmentSouth AmericaCentral AmericaCaribbeanUnited StatesCanadaSouthern AfricaMiddle AfricaEastern AfricaWestern AfricaNorthern AfricaSouthern EuropeWestern EuropeEastern EuropeNorthern EuropeWestern AsiaSouth Central AsiaEast AsiaSoutheast AsiaOceaniaTropic of CancerTropic of CapricornEquator

Three Levels of DevelopmentDeveloped CountriesLess Developed CountriesNewly Industrialized Countries

**ISSUES IN DEVELOPMENT**Rapid population growthResource distributionLack of physical capitalLack of human capitalHealth/NutritionEducation/TrainingBrain DrainPolitical FactorsColonial Dependency to Independent PlanningGovernment CorruptionPolitical Instability (civil wars, social unrest, lack of government infrastructure)Debt

Rapid population growth Many countries of the world are experiencing rapid population growth and although every case is different one consistent similarity is that these nations are most often less developed countries. Examples: Sudan, Ethiopia and Kenya

Why is population growing in these countries? ~At the core it is simple math - many more people are being born than are dying.

PopulationcontinuedWhy are there more babies being born?Children may be needed to help earn moneyLack of contraceptive devices may lead to unwanted pregnancies and babies.The local or national culture or government may encourage large familiesParents may be fearful of infant mortality (children dying very young) Better medical facilities could be increasing the lives of mothers and therefore increasing their chances of having larger familiesWhy are there fewer deaths now?Better birthing facilitiesMore widely available medicines and medical expertiseA general improvement in diet and nutrition in many countries

Resource DistributionIn parts of Africa, Asia, and Latin America, physical geography makes development more difficult.Only about 10 percent of the worlds land is arable, or suitable for producing crops. Lack of Physical Capital The lack of economic activity typical of LDCs is due in part to a lack of physical capital.

Subsistence agriculture provides little opportunity for individuals or families to save. Lack of Human Capital Health and Nutrition Proper food and nutrition are necessary for physical and mental growth and development. Inadequate nutrition is called malnutrition. Education and TrainingTo be able to use technology and move beyond mere subsistence, a nation must have an educated work force. Brain DrainThe scientists, engineers, teachers, and entrepreneurs of LDCs are often enticed to the benefits of living in a developed nation. The loss of educated citizens to the developed world is called brain drain.

Political Factorsshifting from colonial dependency Find out more...political instability Find out more...Corruption Find out more...Debt Find out more...Shifting from colonial dependency>Many nations, specifically on the African continent, were under colonial domination until recent times.This domination created an economic structure that was export heavy and import light. This unequal balance of trade made nations dependent on the colonial power for manufactured products. In addition to hyper-dependency for manufactured goods, colonies often lacked infrastructure and internal leadership.

But independence is a good thingRIGHT?!!?!?

Political Instability>Political instability plagues less developed nations with civil wars and social unrest acting to prevent the necessary social stability required for sustained development. Corruption>Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty. ~ Peter Eigen

Corruption isnt a natural disaster: it is the cold, calculated theft of opportunity from the men, women and children who are least able to protect themselves. Leaders must go beyond lip service and make good on their promises to provide the commitment and resources to improve governance, transparency and accountability. ~ David NussbaumIssue Focus: DebtDebt is an efficient tool. It ensures access to other peoples' raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters' income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in ... [a] healthy, well-fed, literate population ... is the most intelligent economic choice a country can make.-- Susan George,A Fate Worse Than Debt,(New York: Grove Weidenfeld, 1990), pp. 143, 187, 235

The Unholy TrinityWorld Bank

International Monetary Fund

World Trade Organization