Chapter 2 - International trade in goods and services. The main goals of this chapter are to: Examine the main patterns of trade to indicate which categories of products have been most important over the recent decades; outline recent changes in intra-industry trade and processing trade; explain why these patterns exist, based on various related developments in the world economy.
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Chapter 2
International trade in goods and
services
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Lecture plan
• Changes in merchandise trade patterns
• Services trade patterns
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World exports growth, by value
(merchandise and services)
Value (US$b.)
Annual change (% p.a.)
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Annual real growth rates of world
merchandise exports and production, %
-2 0 2 4 6 8
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International merchandise trade
value vs volume (Table 2.1)
• Value growth factors
• Volume growth
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Product composition of world
merchandise exports, (% by product
Source: adapted from GATT Annual Reports 1987–88, WTO International Trade
Statistics 2004
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World manufactured exports as % of
world merchandise exports, 1990, 2003
%
20031990
Source: adapted from WTO International Trade Statistics 2001 and 2004
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Recent trend: ‘processing trade ’
• Preferential tariff duty-free access to those
imports bound for processing and assembling
of goods destined for exports
• About 850 ‘export processing zones’
• Mixed success in expanding trade and
employment
• Value varies from US$0.7 billion in
Bangladesh to US$104.6 billion in China
• On the way down in NAFTA
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Recent trend: ‘intra-industry trade”
• Exchange of the same category of products
• T = 1 - I X - M I / (X + M)
• Reasons
– trade takes place in differentiated products – economies of scale (which require a limited range specialisation)
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Leading global exporters of services,
2003 (Fig 2.4)
US16%
UK7%
Germany6%
France6%
Spain4%
Italy4%
Netherlands 4%
China 3%
Hong Kong 3%
Other43%
Source: adapted from WTO International Trade Statistics 2004
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Leading services traders
Eight of the top 10 exporters of services are also
among the world’s top 10 exporters of goods (only Spain and Hong Kong are not)
EU (15): about 40% of world trade in services
US is largest individual exporter(16 %) and importer (12.5%)
Share of developing Asian countries in world’s
services exports up from <10% to about 15%
- China, up by 17 places from 26 to 9
- Hong Kong, China and Spain (up 3 rankings each)
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International prices trends
• Long-term downward trend in relative prices of most primary products
• Consecutive declines of international manufactured prices over 1996–2001
– inflation receded worldwide to 1960s levels
– office and telecom equipment: strong decline in prices, high exports volumes
– firm US dollar over last years, which led to dollar price decline for those goods traded at nearly stable prices in depreciating currencies
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International prices trends cont
• Prices of manufactured goods rose nearly 10% in 2003 (along with prices of farm
products), the first annual increase since
1995.
• Commodity prices and exchange rates
changes led to a 10.5 strengthening of all
internationally-traded goods in 2003
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Terms of trade index, 2001
Source: adapted from World Bank Development Indicators 2004, Table 4.4
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0 5 10 15 20 25 30 35 40 45 50
Share of world merchandise exports,
by region, 1983, 2003
Source: adapted from WTO International Trade Statistics 2004
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Merchandise trade recovery in Asia
(5)*, 1997–2000
Year Exports (% p.a.) Imports (% p.a.)
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% Share of main regions in world
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Reasons for changes in trade patterns
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Merchandise and services as a
percentage of world exports
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Exports of commercial services by
category, %, 1990, 2003
0 10 20 30 40 50
% of total services
Source: adapted from WTO International Trade Statistics 2004
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Services trade in developing countries
• Services—a protected sector
– balance of payments considerations
– support for indigenous providers of services
• Arguments pro protection
– indigenous firms are too weak
– abrupt liberalisation would eliminate domestic firms
• Arguments against protection
– transfer of skills
– more competition, better quality of service