Lecture International trade and investment (2/e): Chapter 2 - John Gionea

Chapter 2
International trade in goods and
services

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An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–1


Lecture plan
• Changes in merchandise trade patterns
–
–
–
–
–

changes in value, volume
reasons for changes in trade composition
processing trade
intra-industry trade
prices trends

• Services trade patterns
–
–

changes in product composition

leading players

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–2


World exports growth, by value
(merchandise and services)
Value
(US$b.)
2004

Annual change (% p.a.)
1990–
2000

‘01

‘02

‘03

’04

Merchandise

8880

6.0 –4

5

17

21

Services

2100

6.0

7

13

16

0

Source: PRESS/401,14 April 2005
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–3


Annual real growth rates of world
merchandise exports and production, %
8
6
% p.a.

4
2
0
-2

1991-00

2001

2002

2003

Exports

7.4

-0.5

3.5

5

Production

2.9

-0.7

0.8

2.8

Source:adapted from WTO International Trade Statistics 2004

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–4


International merchandise trade
value vs volume (Table 2.1)
• Value growth factors
–
–
–
–
–

physical demand
variations in international prices
product mix and product quality
exchange rates (‘the valuation effect’)
capital flows and trade policy

• Volume growth
–

e.g. measured at constant prices and exchange rates

–

more realistic expression of trade growth

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–5


Product composition of world
merchandise exports, (% by product
group)
80

% of world exports

70
60
50

Agricultural products

40

Mining products

30

Manufactures

20
10
0
1970

1980

1985

1990

1995

2003

Source: adapted from GATT Annual Reports 1987–88, WTO International Trade
Statistics 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–6


World manufactured exports as % of
world merchandise exports, 1990, 2003

2003
1990

0.0

5.0

10.0

15.0

20.0

%

Source: adapted from WTO International Trade Statistics 2001 and 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:

An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–7


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
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–8


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)

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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Leading global exporters of services,
2003 (Fig. 2.4)
US
16%

UK
7%

Other
43%

Germany
6%
France
6%
Hong Kong
3%

Netherlands

4%
China
3%

Italy
4%

Spain
4%

Source: adapted from WTO International Trade Statistics 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–10


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)

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–11


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
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–12


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.

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–13


Terms of trade
• Terms of trade index = export price index/
import price index x 100
- TTI > 100

favourable

- TTI < 100

unfavourable

- TTI = 100

unchanged

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–14


Terms of trade index, 2001
(1995 = 100)
Economy

Terms of Trade
1990

Movement
1995–2001

2001

USA

98

99

unfavourable

Japan

91

88

unfavourable

Australia

117

105

favourable

New Zealand

103

106

favourable

Hong Kong

101

102

favourable

Thailand

102

78

unfavourable

Singapore

111

92

unfavourable

Source: adapted from World Bank Development Indicators 2004, Table 4.4
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–15


% of world exports

Share of world merchandise exports,
by region, 1983, 2003
50
45
40
35
30
25
20
15
10
5
0

1983
2003

Source: adapted from WTO International Trade Statistics 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–16


Merchandise trade recovery in Asia
(5)*, 1997–2000
Year

Exports (% p.a.)

Imports (% p.a.)

1997

5.1

-3.1

1998

-3.5

-30.9

1999

10.2

15.1

2000

18.5

27.9

* Indonesia, Korea Rep., Malaysia, Philippines Thailand
Source: adapted from WTO data

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–17


% Share of main regions in world
merchandise imports, 1983, 2003
Economy

% share

% share

1983

2003

North America

17.8

20.5

Latin America

4.5

4.8

Western Europe

40.1

42.0

Eastern Europe

8.4

5.0

Africa

4.6

2.2

Middle East

6.2

2.5

Asia

4.5

18.5

Source: adapted from WTO International Trade Statistics 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–18


Reasons for changes in trade patterns
•
•
•
•
•

Engel’s law
Price trends
Technological developments
Multinational enterprises
Regional trading blocks

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–19

Merchandise and services as a
percentage of world exports
1970

1980

2000

2004

Merchandise

81

83

81

81

Services

19

17

19

19

Source: adapted from WTO data

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–20


Exports of commercial services by
category, %, 1990, 2003
50
40
30
% of total services
20
10
0

Transportation

Travel

Other Services

1990

28.5

33.9

37.6

2003

22.6

29.4

48

Source: adapted from WTO International Trade Statistics 2004
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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2–21


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
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

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