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Introduction to international trade, international trade theory, Impacts of trade, trends in international trade
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INTERNATIONAL TRADE
Course 1 Yudy Yunardy S.E., M.M.
INTRODUCTION TO INTERNATIONAL TRADE
• Cause of international trade
1.Uneven distribution of resources
2.Advantage of resources
3. Increase consumption
4.Decrease domestic dependencies
5. Increase economic growth
6.Efficiency
7.Taste
INTRODUCTION TO INTERNATIONAL TRADE
• Swarm of Chinese products
• Goods and services
• Winning the competition
• Definition of international trade
• Specialization in international trade
INTRODUCTION TO INTERNATIONAL TRADE
• International trade theory
1. Mercantilism
2. Absolute Advantage
3. Comparative Advantage
4. Heckscher-Ohlin
INTRODUCTION TO INTERNATIONAL TRADE
The holdings of country’s treasure primarily in the form of gold constituted its wealth
1. Increase export
2. Decrease import
3. Expand/colonize
4. Monopolize
MERCANTILISM
The ability to produce more number of a good product or service than competitors, using the same amount of resources
ABSOLUTE ADVANTAGE
Production of cloth and car before trade :
Cloth Car
Indonesia 100 yd/1 day 10 car/4 days
USA 100 yd/2 days 10 car/1 day
ABSOLUTE ADVANTAGE
Production of cloth and car in specialization :
Cloth Car
Indonesia
USA
ABSOLUTE ADVANTAGE
200 yd/1 day xxxx
xxxx 20 car/1 day
Production gain after trade :
Day 1 Day 2 Day 3 Day 4
Indonesia 100 yd 10 car
After trade 100 yd
10 car
USA 10 car 100 yd
After trade 10 car
100 yd
ABSOLUTE ADVANTAGE
1 day
Production of handphone and chair before trade :
hp chair
Sweden 50 /2 days 10 /2 days
China 50 /1 day 10 /3 days
ABSOLUTE ADVANTAGE
Production of handphone and chair in specialization :
hp chair
Sweden
China
ABSOLUTE ADVANTAGE
xxxx 20 /2 days
100 /1 day xxxx
Country specialization in trade :
Day 1 Day 2 Day 3 Day 4
Sweden 10
10
China 50
50
ABSOLUTE ADVANTAGE
Production gain after trade :
Day 1 Day 2 Day 3 Day 4
Sweden 50
10
After trade 50 10
China 50 10
After trade 50 10
ABSOLUTE ADVANTAGE
1 day
Potential gains from trade between countries that arise from differences in their factor endowments or technological progress
COMPARATIVE ADVANTAGE
COMPARATIVE ADVANTAGE
Production of cloth and rice :
Cloth Rice Exchange rate
India 20 yd 40 ton 1 yd = 2 ton
1 ton = 0.5 yd
Indonesia 60 yd 48 ton 1 yd = 0.8 ton
1 ton = 1.25 yd
COMPARATIVE ADVANTAGE
Production of cloth and rice :
Cloth Rice Gain
India 2 ton 0.5 yd
Indonesia 0.8 ton 1.25 yd
1.25 – 0.5 = 0.75 yd
2 – 0.8 = 1.2 ton
COMPARATIVE ADVANTAGE
Production of cloth and wine :
Cloth Wine Exchange rate
UK 20 yd 125 btl
Portugal 25 yd 60 btl
1 yd = 6.25 btl
1 btl = 0.16 yd
1 btl = 0.42 yd
1 yd = 2.4 btl
1. Which country has absolute advantage of cloth production?
2. Which country has absolute advantage of wine production?
3. Which country has comparative advantage of cloth production?
4. Which country has comparative advantage of wine production?
Portugal
UK
UK
Portugal
COMPARATIVE ADVANTAGE
Production of cloth and wine in specialization :
cloth wine
UK
Portugal
Wine importer will import 100 btl of wine,
exchange rate 1 yd = 5 btl
xxxx 250 btl
50 yd xxxx
COMPARATIVE ADVANTAGE
Production of cloth and wine in trade :
cloth wine
UK
Portugal
20 yd 150 btl
30 yd 100 btl
COMPARATIVE ADVANTAGE
Production gain/loss in trade :
Before after gain/loss
UK
Portugal
20 yd 0 yd
150 btl 25 btl
20 yd
125 btl
30 yd 5 yd
100 btl 40 btl
25 yd
60 btl
COMPARATIVE ADVANTAGE
Differences in factor endowments are the cause of international specialization and trade
HECKSCHER - OHLIN
And the base of comparative advantage :
1. Endowment, factors of production (land, labor and capital)
2. Intensity, level of technology
HECKSCHER - OHLIN
1. Increase bilateral relationship2. Fill demand gap3. Push optimal production4. Advance science and
technology5. Specialization6. Create additional employment
BENEFITS OF INTERNATIONAL TRADE
1. Currency difference2. Unskilled labor force3. International payment risk4. Import policy5. War6. Regional Economic organization
BARRIERS OF INTERNATIONAL TRADE
1. Import dependencies2. Consumerism3. Smothering small business
NEGATIVE EFFECTS OF INTERNATIONAL TRADE
With the rise of interconnected network (internet) shopping online becomes more and more convenient
TRENDS IN INTERNATIONAL TRADE
E-commerce (electronic commerce or EC) is the purchasing, selling and exchanging of goods or services, or the transmitting of funds or data, over an electronic network
ELECTRONIC COMMERCE
1. B2B
2. B2C
3. C2C
4. C2B
5. B2E
6. G2G
7. G2E
8. G2B
9. B2G
10. G2C
11. C2G
E-COMMERCE CLASSIFICATION
E-COMMERCE TRANSACTION
1. Cash on delivery2. Bank transfer3. Payment mediation service4. PayPal5. Western Union6. Credit Card
THANK YOU
