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Abstract
The world trade pattern has never been the same as it used to be 100 years ago. Back to the
past, it is the world that the most developed countries would have the voice in many
important decisions, global economy policies, political issues of other countries, for
instances.
Fifteen years have passed since the entry into force of the Marrakesh Agreement
Establishing the World Trade Organization (WTO). During this time, the traditional actors
namely, the United States, Japan, the European Union and Canada (the original Quad)
have retained much of their leading role on the economic and political scene. While their
influence on world affairs is irrefutable, over the years, their dominance has waned. Since
1995, the world has undergone major geopolitical changes and has witnessed the rise of
new state actors, who have asserted their own role in shaping the world's economic and
political environment. Today, developing countries constitute two thirds of the WTO's
membership. The rise in numbers and significance of non-state actors (NSAs) has also
confirmed their role in shaping the world's economic and political environment.
It is partly to admit, which many people may tell you, the growth of developing economies
and the globalization trend have transformed the word trade sharply. However, that is not
the whole story while there are more. This assignment will bring you a new point of view
about what help shape the world trade pattern, how those factors affect it and some
predictions of the writers about the future of the global trade.
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Introduction
The world economy is currently striving to recover from its deepest economic crisis sincethe 1930s. The crisis led to an unprecedented contraction in trade flows that stands in
contrast to the process of economic integration and the significant expansion of trade
experienced since the Second World War. This expansion was partly driven by the process
of globalization that rested on increased economic inter-dependence among nations, which
was stimulated by a combination of technological advances, economic policy reforms, and
geopolitical changes.
The new geopolitical environment, as well as the financial crisis, are factors that haveaffected international trade in different ways. The development of new technologies has
also contributed towards shaping international trade by changing the way business is
conducted and the way people interact. The rapid development of technology has generated
both new challenges and new opportunities for economic agents worldwide. What are the
main economic, political and technological factors shaping world trade?
There are, definitely, enormous works of thousands of economists in the world considering
about this topic. Understanding well what factors are determining world trade may help notonly them but policy makers, businessmen to make the right decision to earn profit and
gain from world trade. This assignment cannot cover all potential forces affecting the
shaping of world trade. It only looks at three major elements contributing to the
transformation of the world trade, especially in last decade.
For more specifically, the paper progressively introduces the following sections:
Section 1 provides a broad context for the analysis with some discussion of the
theory of international trade;
Section 2 mainly describes the economical factors, namely Preferential Trade
Agreements, Global production networks, Growth of developing countries
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Section 3 concentrates on how the development of Internet, International Payment
System and Transportation, called Technological factors, influences that of World trade.
Section 4 illustrates the impacts of Globalization trend, WTO and local policies by
analyzing some situations and decisions that shape the global trade.
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TABLE OF CONTENTS
Abstract
Introduction
Chapter 1: Overview of theories of international trade 5
I. Classical theories of international trade 5
1. Mercantilism 5
2. The absolute advantage 5
3. The comparative advantage 6
4. Factor proportions theory 6
II. New theories of international trade 7
Chapter 2: Analyzing factors affecting the world trade pattern 12
I. Economical factors 12
1. Preferential trade agreements 12
2. Global production networks 15
3. Growth of developing countries 17
II. Technological factors 20
1. Internet 20
2. International payment system 21
3. International transportation 23
III. Political factors 26
1. Local policies 26
2. Globalization trend and World Organization's influences 27
IV. Forecast about the future of world trade pattern 29
Conclusion 30
Reference
Duty chart
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CHAPTER 1: OVERVIEW OF THEORIES OF INTERNATIONAL
TRADE
Classical theories of international trade
Mercantilism (William Petty, Thomas Mun and Antoine de Montchrtien
model)
Mercantilism is a philosophy from about 300 years ago. The base of this theory was the
commercial revolution, the transition from local economies to national economies, from
feudalism to capitalism, from a rudimentary trade to a larger international trade.
Mercantilism was the economic system of the major trading nations during the 16th, 17th,
and 18th century, based on the premise that national wealth and power were best served by
increasing exports and collecting precious metals in return. It superseded the medieval
feudal organization in Western Europe, especially in Holland, France, United Kingdom,
Belgium, Portugal and Spain. The monarch controlled everything. Their policy was to
export in the countries that they controlled and not to import (to have a positive Balance of
Trade). Geographical discoveries not only stimulated the international trade, but alsoproduced an affluent flow of gold and silver, which could be used to encourage the
economy based on money and prices. The state exercised much control over economic life,
chiefly through corporations and trading companies. Production was carefully regulated
with the object of securing goods of high quality and low cost, thus enabling the nation to
hold its place in foreign markets. The theory states that the world only contained a fixed
amount of wealth and that to increase a country wealth; one country had to take some
wealth from another, either through having a higher import/export ratio. So, this tendency,
to export more and import less and to receive in exchange gold (the deficit is paid in gold)
is called MERCANTILISM. The theory was criticized by the newly appeared class. More
money was associated with less products and inflation. The standard of living is weaker.
Mercantilist ideas did not decline until the coming of the Industrial Revolution and of
laissez-faire.
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The Absolute Advantage (Adam Smith model)
In the second half of the XVIII century, mercantilist policies became an obstacle for the
economic progress. Adam Smith (father of liberalism and economical science) brought the
argument in his book The Wealth of Nations, published in 1776, that the mercantilist
policies favorised producers and disadvantaged the interests of consumers. Adam Smiths
theory starts with the idea that export is profitable if you can import goods that could
satisfy better the necessities of consumers instead of producing them on the internal
market. The essence of Adam Smith theory is that the rule that leads the exchanges from
any market, internal or external, is to determine the value of goods by measuring the labour
incorporated in them. In order to demonstrate its theory, Adam Smith analyzed for the
beginning country A, using one factor of production, the productivity of labour, evaluated
in the necessary of hours needed to produce a unit of measure of the products X and Y. He
used a unifactorial system of economy. Symbolizing H-hours, L-labour, the unitary
necessary of labour for product X is HLX and for Y HLY. Because all the economies have
limited resources, there are limits in the level of production, and if a country wants to
produce much of one product it has to give up producing another goods, existing in this
case renounce of trade. Renounces can be illustrated by a graphic.
The Comparative Advantage (David Ricardo model)
David Ricardo theory demonstrates that countries can gain from trade even if one of themis less productive then another to all goods that it produce
Country A is more productive in X than in Y
Country B is more productive in Y than in X
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Then, each country should specialize in the production for which it has less opportunity
cost.
Factor proportions theory
A country should choose what to produce on the basis of the relative scarcity of labor, land,
and capital. Basically, on this view the relative scarcity of a factor or of factors determines
the comparative advantage of the country. Leontief Paradox - There are instances of
reversal of this common sense. An example is a capital intensive country exporting labor-
intensive goods. The reaction is to save the theory by pointing out a possible weakness, in
this case that the Heckscher-Ohlin theory erroneously assumes that the factors of
production are homogeneous. The use of different production methods rests on the
heterogeneity of factors of production. For example, recently Canada and Egypt were net
exporters of wheat. Clearly, wheat can be produced in at least two ways. Multiple
production methods presents a difficulty for the Heckscher-Ohlin theory.
II) New theories of international trade
A new body of international trade theory emerged in the 1980s. The foundations of
this theory were that competition in markets was imperfect, and that firms and
governments could act strategically to affect trade flows and national welfare. For
many economists, this growing body of literature represented a radical departure from
previous scholarship. Rigorous mathematical models were developed which questionedthe heart and soul of classical comparative advantage. Respectable academic
economists began asking whether unconditional free trade was a countrys best policy
choice.
This case reviews the background and central hypotheses of these new theories,
which have also been called theories of strategic trade policy. The case looks at why
many economists and policymakers thought alternative approaches were necessary, at
what the contributions of industrial organization to this new theory were, and at what
some of the tentative results in the 1980s were. The case ends with a questions about
the value of classical comparative advantage and the role of firm and industry-level
variables in determining who competes successfully in international trade.
Changes in the trading environment.
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Several economic changes in the international trading system stimulated executives,
policymakers, to revisit international trade theory in the 1980s. The first was growing
economic interdependence among nations, especially the increasing importance of trade
for the United States. The rapid growth of imports into the United States, for instance,
meant that trade suddenly became a primary concern for executives and policymakers
alike. For the first time, virtually all American companies began facing serious foreign
competition at home; at the same time, U.S. government policymakers found that
policies for such diverse activities as antitrust or innovation could no longer be set in
isolation from the world economy. Moreover, the possibility that foreign governments
were providing assistance to their domestically-based firms raised the question of
whether the U.S. government should counter such assistance through its own initiatives.
By the 1980s, some governments had demonstrated an ability to affect the welfare ofAmericans through policy actions.
Traditional predictions of trade patterns were further confounded by the emergence of
huge scale economies in some industries, and the growth of very large firms (usually
multinationals) which dominated selected global markets. Classical theory assumed that
firms did not have the power to affect prices. As long as there were many firms
operating at arms length, theory did not have to account for strategic behavior; all
firms could be assumed to be price takers. But as industries became increasingly
concentrated, with large firms capable of affecting the structure and conduct of the
market, firms and governments had the opportunity to make strategic choices that
could build competitive advantage in global markets.
Demand for government intervention.
A second stimulus to the new trade theory was shifting political and policy
dynamics. Rising demands for protectionism and growing pressures for regional trade
blocs, especially in Europe and North America, led economists and politicians to
search for solutions as well as justifications for their preferred policies. Mature
industries continued lobbying for more protection while normally free traders,
such as semiconductors, telecommunications, and airframe firms, actively started to
seek government assistance.
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New analytical tools.
While some economists had questioned classical trade theory for many years, they
were never able to provide rigorous alternatives. As a result, theories such as the
product life cycle, which incorporated ideas about imperfect competition, remained
outside the mainstream of academic economics. Industrial organization theorists had
developed new tools for analyzing economies of scale, economies of scope, learning
effects, R&D races and technological spillovers. These tools could explain why it
was sometimes beneficial for firms to engage in certain activities that otherwise did
not seem feasible or rational. A few economists began to speculate that if these models
of imperfect competition could be applied to international trade, we might better
understand the new patterns of international flows.
Origins of the New Trade Theory: Industrial Organization
While theories of trade under imperfect competition are a phenomenon of the 1980s,
the roots of these theories can be traced back 150 years to when industrial
organization (IO) first began describing how firms might behave when excess
profits were available
These types of behavior were referred to as strategic because firms could
consciously undertake them to capture control of markets and could anticipate the
reactions of rivals to their actions. Among the types of strategic behavior firms
could engage in were dumping (selling in markets below cost to develop
economies of scale), preemption in R&D, product introduction, market penetration, etc.
(moving before rivals to capture competitive advantage), and predation (incurring
losses from price cutting to drive rivals out of the marketplace).
Crossing Over From Industrial Organization to International Trade
An iconoclastic handful of trade theorists realized that there were reasons to be
concerned with market imperfections and with strategic behavior in the
international arena. The central proposition of the new trade theorists was that
firms and governments could behave in strategically self-conscious ways in
imperfect global markets, and thereby affect a countrys balance of trade and
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The profit-shifting argument was built on the assumption that a domestic
government seeks to maximize national welfare, and not the welfare of the world or
foreign consumers and producers. Based on the new trade theory, economists
believed that governments could help domestic firms to capture profits that would
otherwise accrue to foreign firms. Governments could use tax relief or subsidies,
for example, to increase the profitability of private investments. If government
policy facilitated domestically-based firms to make a credible commitment to
expand production facilities, foreign firms might be discouraged from expanding
their own operations. The result would be increased market shares and profits for
the domestic firms.
Empirical Research
By developing clear, mathematical formulations, the new trade theorists gave strategic
trade policy academic respectability. However, the models remained very tightly
tied to narrow and unrealistic sets of assumptions, which reduced their usefulness
for prescribing policy. To sort out which models were more or less robust,
economists turned to empirical research.
Research on trade under imperfect competition faced daunting obstacles such as the
lack of data. As a result, theorists mixed modeling techniques and relied on
educated guesswork to set missing parameters.
Implications for Trade Policy
These empirical limitations of the new trade theory left theorists cautious
about its application to real-world problems. What concerned economists most
was that governments generally lacked sources of unbiased data upon which to
base their decisions. Even when data was available there was a great deal of
uncertainty about its veracity. Mistaken estimates could lead to misguided policies. A
second concern was that few believed the models captured enough of the key
elements of real-world behavior to provide a satisfactory guide to decision making.
Even if the theory was refined sufficiently, it was unlikely that frontline policy
analysts would have the time and resources necessary to build models of sufficient
sophistication. Third, the sensitivity of the models to assumptions about the
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reactions of foreign firms and governments reduced the confidence of
policymakers and academics in making prescriptions. R&D investment that was
intended to be preemptive, as in the aircraft example, could also trigger an R&D
subsidy war rather than preclude entry. And fourth, the complexity of the
modelling could have made the policy process less transparent and, therefore,
more difficult to monitor for fairness.
Given these hesitations, some new trade theorists concluded that governments
would be wisest to follow a rule of conditional, cooperative trade initiatives.
Unconditional cooperative strategies (such as the U.S. will always support free
trade regardless of the behavior of other countries) invited foreign governments
to take a free ride at Americas expense. Conditional strategies which offered
the carrot of liberalized trade backed up by the stick of retaliation wereconsidered the most likely to induce cooperation as the foreign response.
Moreover, cooperative strategies avoided the potentially severe consequences of
miscalculating the foreign response to a noncooperative move.
Implications for Government Policy
Porter based his prescriptions for government policy on a number of premises that
differed from standard economic analyses. First, since firms competed, not
nations, the policies of governments should be set to encourage an environment
which creates competitive opportunities and pressures for continued innovations.
Governments were discouraged from undertaking direct interventions. Second,
sustaining national advantage demanded continuous innovation and change. Thus,
governments were discouraged from resorting to policies that conveyed short-
term, static advantages because they undermined innovation and dynamism. Third,
some bases for national competitive advantage were more sustainable than others.
As a consequence, governments were advised to encourage the development ofspecialized and advanced factors of production, superior product differentiation, and
unserved market segments. Fourth, national competitive advantage was created over
decades, not over one- or two-year business cycles. Thus, the most
beneficial government policies were the slow and patient ones, based on a long
planning horizon, not on short- term economic fluctuations. Finally, a nations
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firms and work force could not be relied upon to understand their own long-
term self interest. This meant that governments were encouraged to choose their
policies without undue regard for the immediate comfort or desires of their
constituents.
Summary
By the end of the 1980s, relatively few scholars or practitioners accepted the theory
of factor proportions and comparative advantage as an adequate explanation of the
observed patterns of trade, particularly for manufactured goods traded among
industrialized countries. To provide a new explanation, two very different types of
research were undertaken. Trade economists developed a new set of theoretical tools
for examining trade under imperfect competition and produced an eclectic basket of
models. Despite a growing number of empirical studies, inadequate data continued
to plague the field. In contrast to the trade theorists research, Michael Porter
chose an inductive approach and built a complex framework for analyzing the
competitiveness of nations.
While no definitive theory of international trade had yet emerged by the late
1980s, the decade produced significant advancement into new ideas and promising
areas of research. Perhaps the only certain policy conclusion was that free
trade had fallen from being considered an unequivocally superior policy to
being the preferred policy of economists in an imperfect world. Academic research
continued on work towards identifying the exceptions to this rule.
CHAPTER 2: ANALYZING FACTORS AFFECTING THE WORLD
TRADE PATTERN
Economical factors
Preferential Trade Agreements
Overview about preferential trade agreements
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Preferential Trade Agreements (PTAs) are agreements among a set of countries
involving
preferential treatment of bilateral trade between any two parties to the agreement relative to
their trade with the rest of the world.
Types of Trade Agreements
Financial Pact
Free Trade Agreement
Single External Tariff
Common Market
Monetary Areas
An overview of the economic effects of PTAs
The basic economic effects of preferential agreements can be illustrated in a simple model
(Baldwin, 2009). Consider a world composed of three identical countries called Home,
Partner and Rest of the World (RoW). Each country imports two goods from the other two
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nations, and exports one good to both destinations. The trade patterns of this model
economy are depicted in Figure C.1 below. Further assume that in an initial situation, all
countries impose on each other the same (non-discriminatory) tariff, referred to as the
Most- Favoured Nation (MFN) tariff. In this scenario, the domestic price is higher than the
border price faced by the two suppliers and imports are lower compared to open trade.
Importantly, however, the two suppliers share equally the reduction in exports due to the
imposition of an MFN tariff.
What are the effects of a preferential trade agreement? To help answer this question,
consider the case where Home and Partner form a free trade area (or a customs
union), so that Partner producers get duty-free access in the Home market, and Home
producers get duty free access in the Partner market
Focusing first on the market for good 1, the good that is imported by the Home economy,
the following price and volume effects take place. The domestic price falls relative to the
situation where there is a single MFN tariff as the supply of the good in the Home economy
is increased, but now there are two distinct border prices. The border price faced by Partner
is higher, as exporters no longer face a tariff in the Home market, while the border price
faced by exporters in RoW is lower, as they still face a tariff but the domestic price in the
Home economy is lower. As a result, exports from Partner expand, while exports from
RoW contract.
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As the PTA is reciprocal, the effects discussed above on the market for good 1 materialize
symmetrically for good 2. The only difference, intuitively, is that in this market the Home
economy is an exporter, while Partner is the importer. Therefore, in this market, Home
gains from a higher border price and greater exports to Partner, while RoW loses from the
drop in border price and the reduction in its exports in sector 2. Finally, the formation of a
preferential arrangement has no effect on the market for good 3, where RoW is the
importer, as that country is assumed to maintain the same MFN tariff.
A PTA has two types of effects on the export side. First, exporters in member countries
gain from improved market access as the tariff is removed. Secondly, these exporters also
benefit from the fact that tariff discrimination reduces imports from RoW. The latter effect
is sometimes referred to as the preference rent, as it would not exist if tariff liberalization
were carried out in a non-discriminatory fashion. On the import side, the preferential
agreement has ambiguous effects on member countries. Consider the market for good 1,
where the Home economy is the importer (the effects on Partner for good 2 are analogous).
The formation of the PTA has offsetting volume and price effects. The increased imports
allow the Home economy to benefit from the replacement of high-cost domestic production
with more efficient imports. The terms of trade (i.e. the price of exports relative to imports)
of Home improve relative to RoW and falls relative to Partner. Overall, whether the
members of a PTA gain or lose depends on the level of the initial MFN tariff and on the
elasticities of demand and supply (i.e. to what extent the demand and supply of a product is
sensitive to changes in its price).
A final consideration relates to the welfare effect of a PTA on non-members. As discussed
above, RoW suffers a reduction of its exports to the PTA member countries. In addition,
the non-member is hurt by a negative terms-of-trade effect, as the price of its exports
declines while the prices of its imports are unaltered. In other words, a preferential
agreement can be interpreted as a negative externality that PTA members impose on non-
members.
Trade creation and trade diversion
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In this theory, preferential liberalization has two main effects trade creation and trade
diversion and the net balance between the two determines whether a PTA increases
welfare for its members. As tariffs on trade between partners fall, some domestic
production is replaced by imports from more efficient producers from partners thus
resulting in trade creation and welfare gains. But since the PTA also discriminates
against non-members, imports from partners replace imports from more efficient outside
producers and the member countries end up paying more for the same good. This second
effect which harms members' welfare is known as trade diversion.
Global production networks
The global production network is a conceptual framework that is capable of grasping the
global, regional and local economic and social dimensions of the processes involved in
many (though by no means all) forms of economic globalization. Production networks
the nexus of interconnected functions and operations through which goods and services are
produced, distributed and consumed have become both organizationally more complex
and also increasingly global in their geographic extent. Such networks not only integrate
firms (and parts of firms) into structures which blur traditional organizational boundaries
through the development of diverse forms of equity and non-equity relationships but also
integrate national economies (or parts of such economies) in ways which have enormous
implications for their well-being. At the same time, the precise nature and articulation of
firm-centred production networks are deeply influenced by the concrete socio-political
contexts within which they are embedded. The process is especially complex because while
the latter are essentially territorially specific (primarily, though not exclusively, at the level
of the nation-state) the production networks themselves are not. They cut through state
boundaries in highly differentiated ways, influenced in part by regulatory and non-
regulatory barriers and local socio-cultural conditions, to create structures which arediscontinuously territorial.
In recent years there has been important development of production networks as firms
outsource parts of their production to lower wage locations. This phenomenon has
important implications for trade flows, involving increased trade in parts and components,
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and for trade policy, as location may be very sensitive to small trade frictions. Due to the
variety of forms in which international fragmentation of production can take place, the
phenomenon has been measured adopting very different indicators. First, the fragmentation
of production by MNEs (Multinational Enterprises) has been documented focusing on
parent-affiliates relationships and intra-firm trade. Intra-firm trade covers a large share of
total exports of US (45%), Japanese (30%) and Swedish (50%) parent companies.
Moreover, a large share of exports from US and Swedish parents to their subsidiaries is
made of parts and components for further reprocessing.
Second, a number of studies measure international fragmentation of production taking
place among independent firms acting as a network. One approach applied by Feenstra and
Hanson (1999) for the US and by Campa and Goldberg (1997) for Canada, Japan, the
United Kingdom and the US estimates the imported intermediate inputs used in production.
Also in this case the share of imported inputs is large and rising. Hummels, Ishii and Yi
(2001), use input-output tables to estimate the degree of vertical specialization of
international trade; that is the use of imported inputs in producing goods that are exported.
The role of imported intermediate inputs was also analysed by these authors. They find a
growth in vertical specialization between 1970 and 1990 for ten OECD countries and four
emerging market countries.
Finally, Yeats (2001), Ng and Yeats (1999) and Kaminski and Ng (2001) use foreign trade
statistics that classify goods in parts and components (a subset of intermediate goods) and
finished products. This distinction can be applied to a subset of products, mostly machinery
and equipment (SITC 7 and 8 categories), still accounting for a large share of world trade.
Yeats (2001) shows that, for the OECD countries, trade in parts and components has been
growing faster than total trade over 1976-1996 and that it now accounts for around 30% of
OECD trade. Ng and Yeats (1999) and Kaminski and Ng (2001) find similar results for
Eastern and Central Europe and East Asia.
In this section, we turn to the role of international production networks in encouraging the
establishment of deep PTAs that go beyond reducing tariffs. The econometric results
show that greater trade in parts and components is associated with the greater depth of
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newly signed agreements among PTA members. In addition, the analysis shows that the
greater the depth of an agreement, the bigger the increase in trade among PTA members.
The theoretical literature on PTAs suggests that the relationship between deep integration
and trade goes in both directions. On the one hand, PTAs may stimulate the creation ofproduction networks by facilitating trade among potential members of a supply chain. On
the other hand, countries already involved in the international fragmentation of production
are willing to sign preferential trade agreements with their partners in order to secure their
trading relationships as providers of intermediate goods and services.
Growth of developing countries
The changes in trade policies and the reductions in trade barriers that have occurred in
recent years have been associated with major changes in developing countries role in the
world economy. In particular, over the period in which developing countries have been
reducing their trade barriers, the composition of developing country exports has changed in
fundamental ways. Since the 1980s, developing countries have drastically increased their
reliance on manufactures exports, and increased their reliance on exports to other
developing countries. Further, exports of services have become much more important for
developing countries.
In details, we would mention the changes in export pattern of selected groups of relatively
commodity-dependent economies. Figure 1 shows the changes that have occurred in the
pattern of merchandise exports from developing countries as a group over the period from
1965 to 1998. This figure reveals the dramatic nature of the transformation in the
commodity specialization of developing country.
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Along with the changes in the commodity composition of exports have come substantial
changes in the direction of exports. As is shown in Figure 2, the shares of agricultural and
mineral products exported to other developing countries have risen substantially over time.
This increase in the importance of developing countries as markets for each others goods
reflects a number of factors, including growth in the share of developing countries in world
trade, and the liberalization of the developing country trade.
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Another important change in the pattern of world trade has been a substantial increase in
the importance of services trade. Figure 3 presents data on the shares of commercial5
services in exports of goods and services from major country groups.
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In summarized, the developing country export patterns enjoyed three striking changes
through brief survey of patterns of trade before.. The first is a rapid increase in the
importance of manufactures exports from developing countries. The second is a marked
shift in the direction of developing country exports towards other developing countries.
The third is a sharp increase in the importance of services exports from developing
countries. Together, these changes mean that there has been a fundamental shift away from
the traditional north-south model of the world economy in which developing countries
exporting commodities in return for imports of manufactures. This diversification of
exports and shift away from commodities has many important advantages. In particular, it
helps reduce the volatility of export returns, and diminishes the concerns about potential
price declines as exports expand (Martin 1993b).
Technological factors
Internet
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Although Internet came out in the 1960s, it is undoubtedly that Internet has proved its
motive role in world trade pattern. Probably, nowadays, people has become familiar with
two kinds of trade known as e-business and traditional business.. It is generally believed
that commercial use of the Internet has been a significant stimulant to the development of
international trade. The free, costless, and instantaneous flow of information is seen as a
critical factor in developing trading relationships. In additional, one result suggests that a
10 percentage point increase in the growth of web hosts in a country leads to about a 0.2
percentage point increase in export growth. Figure 4 shows that out of 20 countries with
highest number of internet users, there are 6 countries which are developing countries. It
also indicates the potential development of these countries, and lead to a rapid change in
the way people trade in a country or even across national borders. Thus, as you may know
that probably almost young milionares over the world today are businessmen in terms oftechnology-related field.
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International Payment System
Payment is an integral part of mercantile process. Negotiating the payment method is
equally as important as negotiating the additional aspects of transaction such as quantity,
price, shipping method of whether or not it is a recurring transaction.
Since the advent of the Internet, and in particular, the increase of emarketplaces since the
start of 21st century there have been a number of methods adopted in relation to payment
methods using online marketplaces. All payment methods carry a certain degree of risk,
and it is only by carrying out accurate due diligence on a potential business partner do you
alleviate some of that risk to your company.
One of the most widely available payment methods for participants in emarketplaces is that
of escrow services. Escrow services such as www.escrow.com, and Alibabas China-based
escrow services, Alipay, are available to companies for a free which is normally based as a
percentage cost of the overall transaction value.
An escrow service, in relation to an emarketplace, operates essentially as follows. The
buyer and seller participate in online negotiations over a particular material or service.
After negotiation the participants finalize the transaction online: normally agreeing on a
purchase order which would detail fields such as price, quantity, shipping method, buyers
inspection period. These finalized details would be passed to the Escrow service. The buyer
issues payment for merchandise to the escrow service once payment is confirming by the
escrow service, it is the escrow service who notifies the seller to ship the goods or services
to the buyer. On arrival, the buyer then has a set number of days to inspect the merchandise
as was previously set out in the purchase order. They buyer can accept of reject the goods
or services during this period. If they accept the seller is paid by the escrow service and
transaction is concluded. If the buyer rejects the merchandise, the buyer returns the goods
to the seller and payment is returned to the buyer by the escrow service. The risk toparticipants is lessened in comparison to using a method such as a wire transfer, for
example. Currently, the main risk in relation to escrow services is the proliferation of
fake escrow websites.
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From experience, one of reasons why some SMEs (small and medium-sized enterprise) do
not engage in escrow services is the additional fee charged by the escrow provider. Once
the fee is factored-in to the profit on the transaction, unless its a particularly large
transaction, the transaction itself becomes economically unviable. Therefore, SMEs may
engage in more high risk payment methods in order to sustain a potential higher profit.
Paypal, and other online payment sites such as 2checkout.com, are prominent alternatives
used for making online payments. However, in relation to emarketplaces, currently, it
would appear that SMEs prefer to meet, negotiate and conclude business using the more
traditional payment methods that were outlined. This trend may change in future years,
however, as the next generation of business leaders will be much more comfortable in
using the various ebusiness solutions offered on the Internet.
Additional payment methods such as wire transfer, and payment using credit cards are also
available to SMEs, however, they also include a high degree of risk, particularly from a
buyer perspective.
As all payment methods carry a degree of risk, it is imperative that appropriate due
diligence is carried out on any prospective trading partner with particular focus on that
trading partners credit worthiness. After due diligence has been successfully finalized,
selection of an appropriate payment method whilst using an e-marketplace will be an
easier task.
International Transportation
The growth of the amount of freight being traded as well as a great variety of origins and
destinations promotes the importance of international transportation as a fundamental
element supporting the global economy. Economic development in Pacific Asia and in
China in particular has been the dominant factor behind the growth of international
transportation in recent years. Since the trading distances involved are often considerable,this has resulted in increasing demands on the maritime shipping industry and on port
activities. As its industrial and manufacturing activities develop, China is importing
growing quantities of raw materials and energy and exporting growing quantities of
manufactured goods. The outcome has been a surge in demands for long distance
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international transportation. The ports in the Pearl River delta in Guangdong province now
handle almost as many containers as all the ports in the United States combined.
International transportation systems have been under increasing pressures to support
additional demands in freights volume and the distance at which this freight is being
carried. This could not have occurred without considerable technical improvements
permitting to transport larger quantities of passengers and freight, and this more quickly
and more efficiently. Few other technical improvements than containerization have
contributed to this environment of growing mobility of freight. Since containers and their
intermodal transport systems improve the efficiency of global distribution, a growing share
of general cargo moving globally is containerized.
Consequently, transportation is often referred to as an enabling factorthat is not necessarily
the cause of international trade, but as a condition without which globalization could not
have occurred. A common development problem is the inability of international
transportation infrastructures to support flows, undermining access to the global market and
the benefits that can be derived from international trade.
International trade requires distribution infrastructures that can support trade between
several partners. Three components of international transportation facilitate trade:
Transportation infrastructure. Concerns physical infrastructures such as terminals,vehicles and networks. Efficiencies or deficiencies in transport infrastructures will
either promote or inhibit international trade.
Transportation services. Concerns the complex set of services involved in the
international circulation of passengers and freight. It includes activities such as
distribution, logistics, finance, insurance and marketing.
Transactional environment. Concerns the complex legal, political, financial and
cultural setting in which international transport systems operate. It includes aspectssuch as exchange rates, regulations, quotas and tariffs, but also consumer
preferences.
About half of all global trade takes place between locations of more than 3,000 km apart.
Because of this geography, most international freight movements involve several modes
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since it is impossible to have a physical continuity in freight flows. Transport chainsmust
thus be established to service these flows which reinforce the importance of intermodal
transportation modes and terminals at strategic locations. Among the numerous transport
modes, two are specifically concerned with international trade:
Ports and maritime shipping. The importance of maritime transportation in global
freight trade in unmistakable, particularly in terms oftonnageas it handles about
90% of the global trade. Thus, globalization is the realm of maritime shipping, with
containerized shipping at the forefront of the process. Theglobal maritime transport
systemis composed of a series of major gateways granting access to major
production and consumption regions. Between those gateways are major hubs
acting as points of interconnection and transshipment between systems of maritime
circulation.
Airports and air transport. Although in terms tonnage air transportation carries an
insignificant amount of freight (0.2% of total tonnage) compared with maritime
transportation, its importance in terms of the total value is much more significant;
15% of the value of global trade. International air freight is about 70 times more
valuable than its maritime counterpart and about 30 times more valuable than
freight carried overland, which is linked with the types of goods it transports (e.g.
electronics). The location of freight airportscorrespond to high technology
manufacturing clusters as well as intermediary locations where freight planes are
refueled and/or cargo is transshipped.
Road and railway modes tend to occupy a more marginal portion of international
transportation since they are above all modes for national or regional transport services.
Their importance is focused on their role in the "first and last miles" of global distribution.
Freight is mainly brought to port and airport terminals by trucking or rail. There are
however notable exceptions in the role of overland transportation in international trade. A
substantial share of theNAFTA trade between Canada, United States and Mexico is
supported by trucking, as well as large share of the Western European trade. In spite of
this, these exchanges are at priori regional by definition, although intermodal transportation
confers a more complex setting in the interpretation of these flows.
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Still, many challenges a impacting future developments in international trade and
transportation, mostly in terms of demographic, energy and environmental issues. While
the global population and its derived demand will continue to grow and reach around 9
billion by 2050, the aging of the population, particularly in developed countries, will
transform consumption patterns as a growing share of the population shifts from wealth
producing (working and saving) to wealth consuming (selling saved assets). The
demographic dividend in terms of peak share of working age population that many
countries benefited from, particularly China, will recede. As both maritime and air freight
transportation depend on petroleum, the expected scarcity of this fossil fuel will impose a
rationalization of international trade and its underlying supply chains. Environmental issues
have also become more salient with the growing tendency of the public sector to regulate
components of international transportation that are judged to have negative externalities.Also, international trade enables several countries to mask their energy consumption and
pollutant emissions by importing goods that are produced elsewhere and where
environmental externalities are generated. Thus international trade has permitted a shift in
the international division of production, but also a division between the generation of
environmental externalities and the consumption of the goods related to these externalities.
Political factors
Local policies
Figure 1 Predicted increase of world imports if all countries were democratic
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Figure 2 Predicted increase of world imports if all countries were democratic, accountingfor official trade policy
We re-examine the influence of a countrys political regime on its involvement in
international trade. Democratisation leads to trade liberalisation because political power
falls into the hands of a median voter who is in favour of free trade .Autocratic states dotrade less.
Globalization trend and World Organizations influences
Globalization
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Economic globalization is the life of a world economy that is open and does not recognize
territorial boundaries, or land between yanglain regions with each region. Here the world is
considered as a whole in which all regions can quickly and easily affordable. Side of trade
movements and inventory towards liberalization of capital so that all people are free to try any
time and place in this world.Economic globalization is a process of economic activity and trade, where countries in the world
of market forces increasingly integrated within the territorial limits without hindrance. The
globalization of the economy requires the removal of all restrictions and barriers to capital flows
of goods and services.
Impact of globalization on international trade
Positive impact:
World production could be improved
Prosperity in a country of the Community.
The development of the domestic market.
Can obtain more capital and better technology.
Provide additional funding for economic development.
Negative impact: Because the development of the foreign trade becomes more free, which can
inhibit the growth of the industry.
Can worsen the balance of payments.
The financial sector is increasingly unstable.
Exacerbate the process of long-term economic growth.
World Organization
The international organizations to strengthen international trade. Since its creation, the
WTO has promoted market access for corporations with trade agreements. These
agreements circumvent the democratic national rights of a country to determine domestic
polices regarding trade, natural resources and service provision.It includes GATT,GATS
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and TRIPS.For example: The General Agreement on Trade in Services (GATS) was agreed
at the World Trade Organization (WTO) in 1994. Its aim is to remove any restrictions and
internal government regulations in the area of service delivery that can be+ considered
barriers to trade". Such services include everything from marine fishing to provisions for
health and education. The agreement affectively abolishes a governments sovereign right
to regulate, subsidise and provide essential national services on behalf of its citizens.
The International Monetary Fund was conceived in July 1944 with a goal to stabilize
exchange rates and assist the reconstruction of the worlds international payment system.
Countries contributed to a pool which could be borrowed from, on a temporary basis, by
countries with payment imbalances. The IMF was important when it was first created
because it helped the world stabilize the economic system. The IMF works to improve the
economies of its member countries.The IMF working to foster global monetary
cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty.
The World Bank is one of two major institutions created as a result of the Bretton Woods
Conference in 1944. The World Bank (WB) is a multinational corporation aiming at the
alleviation of poverty. It facilitates various economies of the world in following sustainable
economic growth. The World Bank comprises of the following two institutions:
International Bank for Reconstruction and Development: The IBRD focuses
on low-income economies that have little access to global credit markets.
International Development Association: The IDA focuses on helping the
poorest nations.
Forecast about the future of world trade pattern
From above analyzing, we can see that international trade develop likely nowaday due to
factors such as: economical factors, technological factors, political factors. When nations
join free trade areas or sign bilatiral agreements with each other, they create an advantage
business environment for enterprises, and help reduce tariff barriers, non-tariff barriers.
And these things helped increase export and import of nations. For example, when
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VietNam join WTO, export and import increased 25%/year. Inaddition, global production
networks, foreign direct investment (FDI) helped enterprises reduce cost of production
because of cheap price of employee, materials, promote effective production, receive
technology. A clearly sample about these economical fators is the development of LDCs
such as VietNam with 8,5% growth in 2007 after joining WTO.
Technological factors promoted development of international trade. Internet helped
enterprises promote sales. Enterprises can sign contract with each other in two place have
far distance. Modern payment systems of banks helped transactions performed faster,
safer, easier Development of international transportation such as: ship, air plane, train
helped goods come to export faster, more convenient.
Political factors also help development of international trade. Open policies, integrate,globalization trend created opportunities for enterprises performed business actions in
potential market. For example, with motto integrate, coopration, development togather, and
stable political environment, VietNam is ideal destination for investors.
From above factors we can forecast future of development of world trade pattern when
economical factors, political factors and technological develop. Therefore, integrate
international trade is unique way so that nations develop.
Conclusion
Globalization has brought economic interaction among nations closer than ever before,
thanks in no small part to revolutions in information and transport technology and growing
openness in government policy. The trend towards increased inter- dependency has
rendered international economic co-operation more complex and multi-faceted.
This assignment has attempted to provide a better understanding of what factors have been
changing the world trade. This may seem a simple question, but it turns out to have several
answers. An historical review of trade relations since the establishment of the GATT/ WTO
strongly points to the importance of building and sustaining institutional arrangements to
underwrite international trade relations. At the same time, it has been repeatedly
demonstrated that if institutions and nations do not adapt to change, the will wither,
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becoming increasingly regarded as vestiges of an older world driven by different interests
than those that shape the present.
The recent global economic crisis has accelerated the rise of the BRICs, Brazil-Russia-
India-China. The forum for discussing issues of global economic governance has shiftedfrom the G-8 to a more comprehensive G-20. The G-20 has been praised for its more
balanced membership, as it brings together important industrial and emerging-market
countries from all regions of the world. Collectively, these countries represent around 90
per cent of global gross national product, 80 per cent of world trade and two-thirds of the
world's population. These numbers give the G-20 a considerable degree of legitimacy. The
raising voice of these countries has made the world trade balance to be shifted from
Developed countries to a more balanced point. The poorer country can gain from world
trade, not loss as we used to know.
Last but not least, technology always has it influences in many fields, and world trade is
one of them. The achievement of transport, information, payment systems revolutions
could be one of the root causes that turn international trade into a different one, in
compared with that in the past. These factors have made the world flat, exchange goods
and services in various ways our ancestors could have never imagined in last century.
But what of future challenges, of issues that are beginning to call a new effort and evolve
the world trade? We should concern more about the environmental factors as there are a lot
of human efforts to deal with the global warming and more government are introducing
laws and policies in protecting the contamination and pollution. How trade will contribute
to managing environmental challenges and vice versa is doubtless an issue about which we
shall hear a lot more.
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REFERENCES
Michael Porters book, Competitive Advantage of Nations
David Yoffie, American Trade Policy: An Obsolete Bargain?, in John Chubb,
ed., Can the Government Govern?, Washington, D.C.: The Brookings Institute,
1989
Paul Krugmans Rethinking International Trade, Business Economics, April
1988
Is Free Trade Pass?, Journal of Economic Perspectives, 1.2, Fall 1987
Intra-industry Specialization and the Gains From Trade, Journal of Political
Economy, 89.51, 1981
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The Theory of Intra-industry Trade which was published in I.A. McDougall
and Richard H. Snape
John von Neumann and Oskar Morgenstern, Theory of Games and Economic
Behavior
J. David Richardson, Empirical Research on Trade Liberalization with Imperfect
Competition: A Survey, Cambridge, MA: NBER Working Paper No. 2883
Alasdair Smith and Anthony Venables, Trade and Industrial Policy under
Imperfect Competition, Economic Policy, v. 1
Avinash Dixit, Optimal Trade and Industrial Policies for the U.S. Automobile
Industry,
World Trade Report 2011: The WTO and preferential trade agreements: From co-
existence to coherence
Multinational Corporations and Global Production Networks: The Implications forTrade Policy
Global production networks and the analysis of economic development
Aidt, T.S. and M. Gassebner. 2007. Do Autocratic States Trade Less?, CambridgeWorking Papers in Economics 0742, Faculty of Economics, University of Cambridge
Mansfield, E.D., H.V. Milner and B.P. Rosendorff. 2000. Free to Trade: Democracies,Autocracies, and International Trade,American Political Science Review
And other sources.
DUTY CHART
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Members name Task
V Th Thu Hng Title & abstract, Introduction and Conclusion
Kathkeo Vogpadith Nothing
L Thch Anh New theories of international trade
L Th NgcPreferential Trade Agreements + Global productionnetworks
Ng Th Ngc BchGrowth of developing countries + Internet + Classicaltheories of international trade + Edit the draft
Nguyn Khnh LinhInternational Payment System + InternationalTransportation
Phm Vn HLocal policies + Globalization trend and WorldOrganizations influences
Nguyn Vn Thin Forecast about the future of world trade pattern
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