INTERNATIONAL TRADE AND BUSINESS

Sanna-Randaccio (1) •International Economics as a Distinct Subject

•Trade Theory and International Monetary Economics •Recent trends in international trade •Main drivers of international economic integration •Terminology •Course outline •Assessment (final grade)

Globalization Increasing economic integration among nations, resulting in greater interdependence among countries and among citizens of different countries Economic channels •Flows of goods and services •Capital flows •Migration International trade Exchange across national borders of goods and services

US Democratic trade divide will reverberate worldwide Financial Times 30 January 2014 (website)

• Trans-Pacific Partnership • Transatlantic Trade and Investment Partnership ..trade remains an intensely divisive issue within the party ...yet trade unions are wholly unconvinced ..they argue that (previous

agreements) contributed to (income) Inequality World Trade Report 2014 p. 13: Trade is good for jobs but it can put labour markets under pressure to adjust

In the global market: Interaction between sovereign states National borders matters. Institutional context more complex. Asymmetry between factors and goods markets is more relevant than in a close economy Goods Perfect mobility within a single country Perfect mobility between countries (assuming no trade restrictions) Factors Perfect mobility within a single country Perfect immobility between countries

International Economics as a Distinct Subject

International Monetary Theory and Trade Theory

International Monetary Theory Financial transactions, money and the financial assets market have a crucial role essentially of a macroeconomic nature International Trade Theory Real transactions (money is only a veil), exchanges in the form of barter Determinants and impacts of international trade (exchange of goods and services among different countries) microeconomic nature

Recent trends in international trade

• Increasing degree of openness to trade. The phenomenon is not new nor irreversible. • Increasing importance of developing countries in global trade. New major players in the global economy (key role of China). •N-S and S-S trade increase.

• The product mix of developing countries export changes. • Incresing importance of global value chains.

• Trade composition. • FDI growth.

WTO World Trade Report 2014, p. 18

Increasing degree of openness to trade. The phenomenon is not new nor irreversible.

World Trade Report 2007

Increasing degree of openness to trade. The phenomenon is not new nor irreversible.

Increasing degree of openness to trade. The phenomenon is not new nor irreversible.

Baldwin and Martin, 1999

Increasing degree of openness to trade. The rapid increase in recent years.

World trade report 2013, p. 23

Toniolo, 2013

Increasing importance of developing countries in the global economy

Increasing importance of developing countries in the global economy

WTO, World Trade Report 2014, p. 63

New major players in the global economy

World Trade Report 2013 p. 59

New Actors?

World trade report 2013 p. 50

Increasing importance of developing countries in global trade.

Increasing importance of developing countries in global trade

WTO, World Trade Report 2014, p. 34

World Trade Report 2013 p. 65

Increasing importance of developing countries in global trade.

GOODS •Manufacturing Sector •Natural Resources (e.g. minerals and oil) •Agricultural Products SERVICES MANUFACTURING SECTOR • 65% of world export of goods • 20% of world GDP

Trade Composition

Trade Composition

World trade report 2014, p.25

Trade in Goods

World trade report 2013, p. 54

Foreign Direct Investments

UNCTAD, World Investment Report 2013, p. XVI

The increasing integration of global markets: main determinants

•Technological change leads to a fall in natural barriers (ICT technologies result in lower costs for transferring information)

•Liberalization policies reduce/eliminate artificial barriers

Course outline

Part I: Trade Theories Part II: Trade Policy (tariffs, subsidies, etc,) Part III: Multinational Enterprises and Foreign Direct investments

Course outline ( Part I)

Microeconomics tools for the neoclassic general equilibrium theory Determinants: differences between countries and comparative advantage (perfect competition). 1) The Classical Theory The Ricardian model (focus on the technological differences between countries ) 2) The Neoclassical Theory The Heckscher-Ohlin model (focus on differences in factor endowments) Determinants: economies of scale and imperfect competition. Countries trade to exploit economies of scale in production and more in general due to imperfect competion in product markets - Monopolistic competition - Oligopoly and international trade

Inter-industry trade: simultaneous import and export of commodities belonging to different industries (textiles and computers, etc.)

Intra-industry trade: simultaneous import and export of commodities belonging to the same industry (import and export of automobiles with different characteristics, different types of beers, etc.)

AUTARCHY FREE TRADE (Closed economy) (No barriers)

Protectionism

Exchange Liberalization

International trade is given by the difference between production and consumption of each good in a specific country. Considering two goods X and Y

If the country import X

If the country export Y

We need a general equilibrium model to analyze production and demand in the given economy and the interaction between the different markets.

Production: Transformation Curve Demand: Social (Community) Indifference Curves

Programme: course website. Syllabus. Textbooks.

Exercises: Tuesday in class.

Assessment: written exam after the completion of the course (90%), class participation (10%). Four questions.