Global Trade

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Global Trade

Text of Global Trade

Recent trends in global trade

Recent trends in global tradeChapter 1IntroductionImportance/Role of foreign trade in economic development of countriesIntroduction of foreign trade:There is no country in the world today which produces all the commodities it needs. Every country, therefore, tries to produce those commodities in which it has comparative advantage. It exchanges part of those commodities with the commodities produced by other countries relatively more efficiently. The relative difference in factor endowments, technology, tastes etc, among the nations of the world have greatly widened the basis of international trade.Role of foreign trade in economic developmentThe role of foreign trade can be judged by the following faces:Foreign trade and economic development.Foreign trade plays very important role in the economic development of any country. Pakistan also exports a lot of agricultural product to other countries and imports the capital goods from other countries. Therefore, it is not wrong to say that economic development of a country depends of foreign trade.Foreign exchange earningForeign trade provides foreign exchange which can be used to remove the poverty and other productive purposes.Market expansionThe demand factor plays very important role in increasing the production of any country. The foreign trade expands the market and encourages the producers. In Pakistan home market is very limited due to poverty. So it is necessary chat we should sell our product in other countries.Increase in investmentForeign trade encourages the investor to increase the investment to produce more goods. So the rate of investment increases.pg. 1

Recent trends in global tradeForeign investmentBesides the local investment, foreign trade provides incentives for the foreign investors to invest in those countries where there is a shortage of investment.Increase in national incomeForeign trade increases the scale of production and national income of the country. To meet the foreign demand we increase the production on large scale so GNP also increases.Decrease in unemploymentWith the rise in the demand of goods domestic resources are fully utilized and it increases the rate of development in the country and reduces the unemployment in the world.Price stabilityForeign trade helps to bring stability in price level. All those goods which are short and prices are increasing can be imported and those goods which are surplus can be exported. There by stopping fluctuation in prices.SpecializationThere is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has comparative advantage. So all trading countries enjoy profit through international trade.Remove monopoliesForeign trade also discourages the monopolies. Where every any monopolist increases the prices, government allows the import of goods to reduce the prices in the country.Removal of food shortageIndia is also facing the food shortage problem. To remove the food shortage India has imported the wheat many times. So due to foreign trade we are solving this problem for many years.pg. 2

Recent trends in global tradeAgricultural developmentAgricultural development is the back bone in our economy. Foreign trade has played very important role for the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of goods makes our farmer more prosperous. It inspires the spirit of development in them.Import of consumer goodsIndia and Pakistan imports the various consumer goods from other countries, which are not produced inside the country. Today the shortage of any commodity can be removed through international trade.To improve quality of local productsForeign trade helps to improve quality of local products and extends market through changes in demand and supply as foreign trade can create competition with the rest of the world.External economicsExternal economics can also be achieved through foreign trade. The industries producing foods on large scale in Pakistan and India are enjoying the external economics due to international trade.Competition with foreign producersWe can compete with the foreign producers in foreign trade so it improves the quality and reduces the cost of production. It is also an advantage of foreign trade.Useful for the world peaceToday all the countries are tied in trade relations with each other. So foreign trade also contribute to peace and prosperity in the world.Import of capital goods and technologypg. 3

Recent trends in global tradeThe inflow of capital goods and technology in the less developed countries has increased the rate of economic development, and this is due to foreign trade.Import substitutionThese countries not only produce import substitute, but also reduce deficit in balance of payment of their countries.Better understandingForeign trade provides an opportunity to the people of different countries to meet, discuss, and exchange views and ideas related to their social, economic and political problems.Dissemination of knowledgeForeign trade is also responsible for dissemination of knowledge and learning from developed countries to under developed countries.InterdependenceForeign trade is responsible for creating economic depending and establishing economic interest in the economy of the countries having trade relations.Factors productivityThrough foreign trade the productivity of labour and capital and organization increases. Demand make them mobile on national as well as international level which helps underdeveloped countries to develop and maintain a high level of growth of developed countries.pg. 4

Recent trends in global tradeEvolving structure of global tradeThe global economy has grown continuously since the Second World War. Global growth has been accompanied by a change in the pattern of trade, which reflects ongoing changes in structure of the global economy. These changes include the rise of regional trading blocs, deindustrialization in many advanced economies, the increased participation of former communist countries, and the emergence of China and India.Changes in the global economy the main changes in the global economy are:1. The emergence of regional trading blocs, where members freely trade with each other, but erect barriers to trade with non-members, has had a significant impact on the pattern of global trade. While the formation of blocs, such as the European Union and NAFTA, has led to trade creation between members, countries outside the bloc have suffered from trade diversion.

2. Like several advanced economies, the UK's trade in manufactured goods has fallen relative to its trade in commercial and financial services. Many of these advanced economies have experienced deindustrialization, with less national output generated by their manufacturing sectors.

3. The collapse of communism led to the opening-up of many former-communist countries. These countries have increased their share of world trade by taking advantage of their low production costs, especially their low wage levels.

4. Newly industrialized countries like India and China have dramatically increased their share of world trade and their share of manufacturing exports. China, in particular, has emerged as an economic super-power. China's share of world trade has increased in all areas, and not just in clothing and low-tech goods. For example, in 1995, the US had captured nearly 25% of global trade in hi-tech goods, while China had only 3%. By 2005, the US share had fallen to 15%, while China's share had risen to 15%.

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Recent trends in global tradeThe Diffusion of Key Players in Global TradeChanging Patterns of Global Trade outlines the factors underlying important shifts in global trade that have occurred in recent decades. The emergence of global supply chains and their increasing role in trade patterns allowed emerging market economies to boost their inputs in high technology exports and is associated with increased trade interconnectedness.BRICS Economies for diffusing key playersBrazil, Russia, India and China, South Africa are combinedly referred to as BRICS countries by Goldman Sachs. These countries will start the next shift in balance of power in the global economy. It is expected that BRICS will be wealthier than most of the current major economic powers by 2050.The BRIC thesis states that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials.Goldman Sachs states that these countries may not make a formal trading association - but they have the potential to form a powerful economic bloc.Due to lower labor and production costs, many companies also cite BRIC as a source of foreign expansion opportunity.pg. 6

Recent trends in global tradeGrowing Trade InterconnectednessIncreased interconnectedness and interdependence of countries include two factors:1. The opening of borders to increasingly fast flows of goods, services, finance, people and ideas across international borders; and

2. The changes in institutional and policy regimes at the international

and national levels that facilitate or promote such flows. Such inter connectedness has both positive and negative impacts on development.Effects of interconnected trade: Economic change: trade liberalization, deregulation, expansion of the global market place Political change, redistribution of power from states to interstate bodies and the growth of global civil society Social and cultural change Technological change, including improved global telecommunications and transport links. The increases in economic cross-border flows that have resu