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1 Trade Theories and Economic Development 2007 10 03

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2 Chapter Outline Basis for International Trade Production Possibility Curve Principle of Absolute Advantage Principle of Comparative/Relative Advantage Exchange Ratios, Trade and Gain Factor Endowment Theory

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3 Chapter Outline The Competitive Advantage of Nations Economic Cooperation Levels of Economic Integration Economic and Marketing Implications

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4 Basis for International Trade Principle of Absolute Advantage A country should export a commodity that can be produced at a lower cost than can other nations Or import a commodity that can only be produced at a higher cost than can other nations

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5 Basis for International Trade Principle of Comparative/Relative Advantage A country should export either a product with the greatest comparative advantage (or with the least comparative disadvantage) Or import either a product for which it has the greatest comparative disadvantage (or the least comparative advantage)

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6 Factor Endowment Theory Factor of Production Labor Land Capital Others (technology, educations, etc.) Ineruality of relative prices is a function of regional factor endowments Comparative advantage is determined by relative abundance of such endowments

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7 Michael Porter The Competitive Advantage of Nations Determinants of International Competitiveness Factor conditions Demand conditions Related and supporting industries Firm strategy, structure and rivalry Chance Government

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8 (WTO ) WTO ( ) ( ) WTO Economic Cooperation WTO

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9 WTO GATT/WTO 148 123 99 60 45 34 33 23 050100150200 2002-04 1986-93 1973-79 1964-67 1960-61 1956 1950 1949 1947 1995 WTO Economic Cooperation

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10 WTO WTO (Regional Trade Agreement RTA) RTA WTO (MFN) RTA RTA WTO RTA WTO WTO RTA (1) (GATT) 24 (2) (GATS) 5 (3) (Enabling Clause) Economic Cooperation

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11 ( ) ( ) ( ) 4 (1) (FTA,Free Trade Agreement) (2) (Customs Union) (3) (Common Market) (4) (Economic Union) Economic Cooperation

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12 (Free Trade Agreement) C C BB A 1. 2. 3. : (NAFTA) (AFTA) 12% 15% 5% Regional Economic Integration

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13 (Customs Union) A B B C C 1. 2. 3. : (SACU) 10% 0% Regional Economic Integration

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14 (Common Market) A B B C C T=10% 1. 2. : (MERCOSUR) Regional Economic Integration

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15 (Economic Union) A B B C C T=10% (European Union)

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16 (NAFTA,CAFTA , 280 ) (SACU 10 ) (MERCOSUR 6 ) European Union

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17 WTO WTO PLUS

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18 ( - ) ( - - - - ) ( EU-Mercosur - EU- ) (RTA)

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19 (RTA)

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20 1. (Trade Creation) 2. (Trade diversion) 3. 4.

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21 ( )AFTA 1993-2003 A 130.05% B 2003 16.1% 12.3% ( )EU 1992-2000 A 14 B 11 ( )NAFTA 1994-2003 A B 1.6 C 2000 D 44%

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22 WTO FTAs/RTAs 290 2005 1 162 101 FTA 2005 300 FTAs/RTAs WTO FTA FTAs/RTAs FTAs/RTAs

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23 :WTO 1995 WTO 1999 2003 1967 EC 2005 FTA/RTA ,2005 300

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24 1999 2003

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25 EU 25 4 5530 GDP 12 6906 12 9650 GDP 1 6493 (AFTA) 5 4436 GDP 7844 NAFTA( ) 4 2921 GDP 13 3237 EU EU ACP *2 -EU SACU EU SACU GCC ( ) UAE *1 GCC EU GCC EU.GC C SAFTA + + FTAA ( ) + + + ( ) ( ) EU ( ) SACU EU DR-CAFTA * GDP 2004 *1 UAE= *2 ACP= 70 25

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26 15 1957 1992 1995 15 1960 (EFTA) 1999 1999 1975 9 2002 25 1957 (EC) 1992 (EU) 2004 5 25 FTA (EEA) 1994 ( ) FTA

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27 (1994) (1995) FTAA 34 ( ) & DR-CAFTA(2005) (1985) (2000) (2003) (2003) (2004) (2004)

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28 AFTA(1992) CER(1983) CEPA(2003) FTA (2012 ) FTA (2010 ) ( ) (2002) (2005) (2003) (2002) (2000) EFTA (2002) (2003) (2003) (2004 ) (1983) (2000) (1983) (2003) (2004) (2004)

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29 FTAAEU-25ASEAN+3 ( ) 851.3 (13.32%) 442.4 (6.92%) 2028.4 (31.73%) GDP ( ) 13,537.7 (37.36%) 10989.9 (30.33%) 7373.5 (20.35%) ( ) 1,393.7 (18.63%) 3084.4 (41.22%) 1561.7 (20.87%) ( ) 1,899.6 (24.46%) 3029.5 (39.01%) 1365.1 (17.58%) 50.9%67.6%38.6% :IFS year book 2003;Direction of Trade,year book 2003. /10

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30 :CEP EPA FTA EPA CEP Closer Economic Partnership FTA Economic Partnership Agreement JSEPA

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31 1997 EU NAFTA WTO

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32 (ASEAN) 1967 1984 1 8 ( ) 1995 7 28 1997 7 23 1999 4 1992 ASEAN Agreement on the Common Effective Preferential Tariff Scheme for AFTA 2008 (AFTA) 1995 AFTA 2003 1999 2010 2018 2003 10 7 9 (Bali Concord ) 2020 (ASEAN Economic Community, AEC)

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33

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34 2001 11 2002 11 10 ASEAN- CHINA FTA 2003 10 6 2010 2004 1 1 (Early Harvest Programme,EHP) 2004 11 29

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35 (ASEAN+3) 1998 2000 11 ( ) 2020 2001 2 27 2002

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36 ( ) ( ) ( ) WTO-PLUS

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37 1. 2.ASEAN 1 3. FTA

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38 4. FTA 5. 6.

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39 1 WTO 2 APEC 3 FTA 4 5 ,

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40 6 7 8 9 10 ,