International Trade

MacroeconomicsThe study of the behavior and decisions of entire economies.GlobalizationA modern term used to describe the changes in societies and the world economy that result from dramatically increased international trade and cultural exchange.Why do nations trade?Countries engage in international trade for two basic reasons, each of which contributes to their gain from trade. First, countries trade because they are different from each other. Nations, like individuals, can benefit from their differences by reaching an arrangement in which each does the things it does relatively well. Second, countries trade to achieve economies of scale in production. That is, if each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. In the real world, patterns of international trade reflect the interaction of both these motives.~Paul Krugman, International Economics

3Fostering and Limiting TradeFostering TradeWorld Trade Organization (1995)~ Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.European Union (1951/1999)~ A regional economic agreement among 27 countries across the European continent. NAFTA (1994)~ This agreement removed most barriers to trade and investment among the United States, Canada, and Mexico.

Limiting TradeProtectionism- The use of trade barriers to protect industries from foreign competition. Types of Trade BarriersImport Quota Voluntary Export RestraintTariffInformal Barriers

4 Levels of Development: Key Content

Development- Process by which a nation improves the economic, political and social well being of its people.Developed-High level of material well being (US)Less Developed- Low level of material well being (Ethiopia)Newly Industrializing- Better performing LDCs (Mexico)Indicators of DevelopmentPer capita GDPEnergy ConsumptionLabor ForceLiteracyInfant MortalityLife ExpectancyConsumer Goods

Levels of DevelopmentSouth AmericaCentral AmericaCaribbeanUnited StatesCanadaSouthern AfricaMiddle AfricaEastern AfricaWestern AfricaNorthern AfricaSouthern EuropeWestern EuropeEastern EuropeNorthern EuropeWestern AsiaSouth Central AsiaEast AsiaSoutheast AsiaOceaniaTropic of CancerTropic of CapricornEquator

Three Levels of DevelopmentDeveloped CountriesLess Developed CountriesNewly Industrialized Countries

**ISSUES IN DEVELOPMENT**Rapid population growthResource distributionLack of physical capitalLack of human capitalPolitical FactorsColonial DependencyCivil War/Social UnrestCorruptionDebt

Rapid population growth Many countries of the world are experiencing rapid population growth and although every case is different one consistent similarity is that these nations are most often less developed countries. Examples: Sudan, Ethiopia and Kenya

Why is population growing in these countries? ~At the core it is simple math - many more people are being born than are dying.

PopulationcontinuedWhy are there more babies being born?Children may be needed to help earn moneyLack of contraceptive devices may lead to unwanted pregnancies and babies.The local or national culture or government may encourage large familiesParents may be fearful of infant mortality (children dying very young) Better medical facilities could be increasing the lives of mothers and therefore increasing their chances of having larger familiesWhy are there fewer deaths now?Better birthing facilitiesMore widely available medicines and medical expertiseA general improvement in diet and nutrition in many countries

Resource DistributionIn parts of Africa, Asia, and Latin America, physical geography makes development more difficult.Only about 10 percent of the worlds land is arable, or suitable for producing crops. Lack of Physical Capital The lack of economic activity typical of LDCs is due in part to a lack of physical capital.

Subsistence agriculture provides little opportunity for individuals or families to save. Lack of Human Capital Health and Nutrition Proper food and nutrition are necessary for physical and mental growth and development. Inadequate nutrition is called malnutrition. Education and TrainingTo be able to use technology and move beyond mere subsistence, a nation must have an educated work force. Brain DrainThe scientists, engineers, teachers, and entrepreneurs of LDCs are often enticed to the benefits of living in a developed nation. The loss of educated citizens to the developed world is called brain drain.

Political Factorsshifting from colonial dependencypolitical instabilityCorruptionDebtShifting from colonial dependency>Many nations, specifically on the African continent, were under colonial domination until recent times.This domination created an economic structure that was export heavy and import light. This unequal balance of trade made nations dependent on the colonial power for manufactured products. In addition to hyper-dependency for manufactured goods, colonies often lacked infrastructure and internal leadership.

Political Instability>Political instability plagues less developed nations with civil wars and social unrest acting to prevent the necessary social stability required for sustained development. Corruption>Corruption is a major cause of poverty as well as a barrier to overcoming it. The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty. ~ Peter Eigen

Corruption limits the amount of access that the people have to their resources.

The Debt IssueWorld Bank

International Monetary Fund

World Trade Organization

World Bank1944; headquartered in Washington, D.C. 186 countriesThey provide low-interest loans, interest-free credits and grants to developing countries.

International Monetary Fund1944; Bretton Woods Conference186 countriesCreates structural adjustment programs (SAP) in less developed nations across the globe.

World Trade Organization January 1, 1995; headquartered inSwitzerland153 countriesThe only global international organization dealing with the rules of trade between nations.