International Trade and Finance

Dr. Dnyandev C. TaluleProfessor

Department of EconomicsShivaji University, Kolhapur, 416 004

Email: dnyanshrinit@gmail.com+91-9423750555

Why an International Trade?

• Basic Questions;

Whom does trade benefit to? Can all trade partners benefit from an International

trade? Who gains and who incurs losses from trade? Should trade be under free or controlled environment? Trade and development argument Trade vs. Aid argument Trade and Globalization

Do we live in Global Economy?

• Many of the services we use are increasingly provided by foreigners’ A radiography taken in New York hospital-Evaluated across the world

in Bangalore-the H-R Block sends it tax returns abroad for processing.

• Globalized nature of finance; The story of an evolution of private banking and sovereign finance. Exchange of currencies Funds invested internationally (Pension funds) Tests, production, competition, labour markets and financial markets

have rapidly globalized. Deeply affected Consumers, Voters, Investors.

The Globalization Challenge• Globalization in 1870-1914 resulted from the Industrial Revolution in Europe.

• Opened up new resource rich but sparsely populated lands in North America [ US and Canada], Australia, New Zeland and South Africa.

• These lands received millions of immigrants and vast amounts of foreign investments, principally from England opened up new lands to food, raw material and production.

• This period of globalization came to an end with the brake-out of the WW-I in 1914.

• Second period of rapid globalization started with the end of WW-II in 1945 and extended to about 1980 [private banks and sovereign credit].

• Characterized by rapid increase in International Trade, Dismantling heavy trade protections started during the GD-1929 and WR-II.

International Trade and Nation’s Standard of Living

• The US stretching across a continent and rich in a variety of human and natural resources, can produce, can produce, relatively efficiently, most of the products it needs.

• Contrast this with the situation of small industrial countries, such as Switzerland or Austria, that have a few very specialized resources, and produce and export a much smaller range of products, and import all the rest.

• Even large industrial countries such as Japan, Germany, France, England, Italy and Canada rely crucially on international trade (large countries import large amounts of goods and services).

• A rough measure of the economic relationship is the ratio of M and X to the country’s GDP.

International Flow of Labour.• About 190 million people in the world live in a country other then

the one in which they were born.

• Nearly 60 % of them are in rich countries(about 36 million in Europe and 38 million in USA)

• Migration primarily for economic purposes( To improve standard of living and provide more opportunities to their children).

• The 38 million foreign born people in US represent 12.6 % of US population. Of these over 11 million ie nearly 30 % entered the nation illegally.

International Flow of Capital.

• Middle east nation have huge earning from petroleum export parked in New York and London Banks.

• Then lend to Latin American and Asian government and corporation(1980)

• More than 3 trillion $(23% of the US GDP) of foreign currency are exchange each day by around the clock trading in world financial center.

International economic theory

• Along these lines International economic theory usually as soon a to nation, to commodity, to factor world.

• Further as soon no trade restriction.

• Perfect compitition in all commodity and factor market

Doctrine

• Mercantilism and economic nationalism.• Adam Smith and absolute advantage .• David Recardo and comparative advantage.• Hecker- Ohlin and factor endowment.• Rybzinski and Change in factor endowment

and relative change in output in a sector using factor.

• Mill- Marshal Terms of Trade.

Comparative advantage and International trade

Country Cloth Wine

England 100 120

Portugal 90 80

Internal Opportunity CostEngland England

Cloth for Wine Wine for Cloth

100/120=.83 120/100=1.20

Portugal Portugal

Cloth for Wine Wine for Cloth

90/80=1.12 80/90=.88

Domestic Advantage and Disadvantage for Producing Wine and Cloth

England Portugal

Producing Wine Producing Wine

.83 : 1.20 1.12 : .88

Producing Cloth Producing Cloth

1.20 : .83 .88 : 1.12