Embed Size (px)
Citation preview
About the Course
6 Units
1. Introduction to International Trade
2. International Trade Theories,
3. Economic Growth and International Trade
4. International Trade Policies
5. Economic Integration
6. Balance of Payments and Foreign Exchange
Rates
Course module to be mailed to class
representatives
About the Course
Text Books
Dominick Salvatore: International Economics
(Wiley India Edition)
Bo Sodersten and Geoffrey Reed: International
Economics (MacMillan Press)
What is International Trade? The buying and selling of goods and services
across national borders is known as international
trade
International trade is the backbone of our
modern, commercial world, as producers in
various nations try to profit from an expanded
market, rather than be limited to selling within
their own borders
What is International Trade?
Almost every kind of product can be found on the
international market: food, clothes, jewelry,
currencies, etc. Services are also traded: tourism,
banking, consulting, etc.
International trade is the reason because of which
why you can pick between a Japanese, German
or American car
Importance of International
Trade
Economics deals with the proper allocation and
efficient use of scarce resources
International Trade is also concerned with
allocation of economic resources among
countries
The best products are produced and sold in
competitive market, and benefits of efficient
production like better quality and lower price are
available to all people of the world
Growing International Trade With the help of modern production techniques,
highly advanced transportation systems,transnational corporations, outsourcing ofmanufacturing and services, and rapidindustrialization, the international trade system isgrowing and spreading very fast
The restrictions to international trade would limit thenations to the services and goods produced within itsterritories, and they would lose out on the valuablerevenue from the global trade
Nations with strong international trade havebecome prosperous and have the power to controlthe world economy
Reasons That Firms Engage in International
Business/Importance of International Trade
1. Expanding sales and gaining global market share
2. Helps firms to maintain cost competitiveness in thedomestic market
3. Lower production costs in one region versus another
4. Specialized industries
5. Lack or surplus of natural resources
6. Consumer tastes
Reasons That Firms Engage in International
Business/Importance of International Trade
7. Helps to reduce dependence on existing markets
and stabilize seasonal market fluctuations
Point1and 2
By providing goods and services across national
borders, helps to increase sales volumes and
lowering down per unit cost (economies of scale),
thereby increasing profits
This helps in the keeping prices low and thereby
the firm is more cost competitive in the domestic
market as well
Point 3: Lower Costs in
Developing Nations
There is currently a great deal of concern overjobs being taken away from the United States andother "developed" nations as countries such asChina, India, Indonesia and others producegoods and services at much lower costs
Both the United States and the European Unionhave imposed severe restrictions on imports fromAsian nations
Nevertheless, American and Europeanconsumers are happy to lower their costs of livingby taking advantage of cheaper, imported goods.
Point 4: Specialized Industries
Specialized industry is the one that has
developed due to national talent and/or tradition
Swiss watches, for example, will never be price-
competitive with mass produced watches from
Asia. So is the case with German cutlery,
English bone China and fine French silk
Consumers in many parts of the world are willing
to import these goods from countries that are the
best at making them
Point 5
Total net oil imports from oil producing nations in
2005 was over 26 million barrels per day and
consumer nations continue to absorb this flow
Other natural resources contribute to the
movement of international trade, but none to the
extent of the oil trade
Others are Diamonds from Africa, Coal and steel
from Canada and Russia.
Point 6
Consumers have varied tastes and they can be
fulfilled with international trade like preference for
Swiss chocolates, Indian spices, Mexican
Nachos, Arabian Coffee, Japanese Cars, etc.
Point 7
Companies can serve in other countries apart
from domestic market and generate more
revenue and tide over periods of seasonal
variations
Modes of Operation in International
Business
Merchandise exports and imports
(Physical product is sold in exchange of sales price)
There may be logistical difficulties
There are exchange rate fluctuations, and
There is susceptibility to trade barriers
Service exports and importsLike Tourism, Transportation, Banking services, Management Consultancy
Services
Technical assistance, expertise and people are shared
Franchising and Licensing
Management Contracts
Turnkey Operations
Investments
FDI and FII
Modes of Operation in
International Business Both FDI and FII is related to investment in a foreign
country
FDI or Foreign Direct Investment is an investment thata parent company makes in a foreign country. On thecontrary, FII or Foreign Institutional Investor is aninvestment made by an investor in the markets of aforeign nation
In FII, the companies only need to get registered inthe stock exchange to make investments. TheForeign Institutional Investor is also known as hotmoney as the investors have the liberty to sell it andtake it back. But in Foreign Direct Investment, this isnot possible.
Modes of Operation in
International Business Foreign Direct Investment only targets a specific enterprise. It
aims to increase the enterprises capacity or productivity orchange its management control. In an FDI, the capital inflow istranslated into additional production.
The FII investment flows only into the secondary market. It helpsin increasing capital availability in general rather than enhancingthe capital of a specific enterprise.
The Foreign Direct Investment is considered to be more stablethan Foreign Institutional Investor. FDI not only brings in capitalbut also helps in good governance practices and bettermanagement skills and even technology transfer.
While the FDI flows into the primary market, the FII flows intosecondary market. While FIIs are short-term investments, theFDIs are long term.
International Trade and Nation’s
Standard of Living
A nation with a rich human and natural resourcesand with specialized products can fulfill their ownneeds an also export to other countries
Small industrial countries like Switzerland andAustria have very few specialized resources andthus produce and export a much smaller range ofproducts and import the rest
For developing nations exports provideemployment opportunities and earnings for theproducts they do not produce and for advancedtechnology that they need
International Trade and Nation’s
Standard of Living
Imports and Exports as a percentage of GDP aremuch higher for smaller industrial and developingnations than they are for developed industrializednations
Nations like US rely on international trade forcommodities they do not themselves produce likecoffee, cocoa and tea and also for minerals andnatural resources like copper, tin, petroleum thatthey lack
Nations also use products from other countriesthat are available at a cheaper price than in theircountry
Economic Interdependence of
Nations
Over the years economic interdependence of
nations has increased and there has been rapid
growth in world trade
Economic recession and terrorism hits the
international trade
Economic events and policies in one country
significantly impact other nations
Economic Interdependence of
Nations
The strong US economy creates more purchasing
power and which I turn creates increased
demand for import of commodities and this
stimulates the economy of other nations that
export commodities to US
When there is inflow of funds to a country, its
increases the value of its currency/stronger
currency. Stronger value of a currency
encourages imports but discourages exports from
that country which can dampen the economic
activity of the country
Economic Interdependence of
Nations
Trade negotiations that reduce trade barriers
across nations lead to increase in exports of high
technology goods like medical equipments and
computers and also lead to increase in
employment in the concerned sectors
Economic interdependence in turn influences
political and social relations among nations
International Economic Theories and
Policies
Purpose:
To examine the gains from trade
To study the reasons for and effects of traderestrictions
To study policies that regulate the flow ofinternational payments and receipts
To study the effects of these policies on a nation’swelfare and welfare of other nations
To examine the effectiveness of macroeconomicpolicies under different types of monetarysystems
Help us to understand the international economicproblems and offer suggestions for theirresolution
International Economic Problems
1. Trade Protectionism in Industrial Countries
2. Excessive Fluctuations in Exchange Rates
3. Restructuring problems of transition economies
4. Deep poverty in many developing countries
5. Financial Crisis in emerging market economies
6. High structural Unemployment in countries like
Europe (all time high 0f 12 percent in Feb 2013)
7. Job insecurity from restructuring and downsizing
by countries
Thank You
