MALAYSIAN ECONOMY - International Trade

8/17/2019 MALAYSIAN ECONOMY - International Trade

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Chapter 7:INTERNATIONAL TRADE


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1. WHAT is International Trade?

2. WHY is International Trade?3. HOW to calculate Internationaltrade?


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Why?• Why do we export our goods and ser ices

to other countries?

• Why do we i!port goods and ser ices"ro! other countries?


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• International trade is the exchange o"goods and ser ices #etween countries.

• This type o" trade gi es rise to a worldecono!y$ in which prices or supply andde!and $ a""ect and are a""ected #y glo#ale ents

http://www.investopedia.com/terms/s/supply.asphttp://www.investopedia.com/terms/d/demand.asphttp://www.investopedia.com/terms/d/demand.asphttp://www.investopedia.com/terms/s/supply.asp


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Open economy % &ealings or

transact with other countries

Closed economy % &oes nottransact with other countries


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'()(*IT+ *,O- I)T(,)ATIO)A

T,A&(• To get goods not produce within country• To get #ene"it/pro"it "ro! speciali0ation produce large

uantity will #e expert4•

-eans o" production can #e used e""iciently !assproduction% land$ la#or4

• ( ery country a#le to used !ore goods co!pare i" it isproduce outside the country

• (xpand the local industries5 !ar6et• )ew technology i!posed and increase the local

producti ity le el


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I)T(,)ATIO)A T,A&( 7 -A AY+IA)

(89(,I():(&'e"ore and early independence 1; 4

• Agricultural co!!odities ru##er$ tin$iron$ !etal$ are the !ain contri#utorto the export acti ity

• *oods$ !anu"actured goods$ raw!aterial 7 the !ain products #eingi!ported 7 econo!ic de elop!ent.


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1;;3 2@@@• I!portant to the national econo!ic de elop!ent• -anu"acturing goods "oods$ cloth$ !ining industries$ !etal$

electric and electronic appliances4 contri#ute highest in theexport acti ity A+$ apan4

• Agricultural goods to #e exported declined ru##er$ pal! oil$ tin$cocoa4 #ut li uid petrol and other petroleu! output still re!ain atthe higher le el o" de!and "ro! the "oreign countries.

• The i!port acti ity has declined• I!ported electronic and electric appliances declined$ only "ocus

on the !achines and the transportation e uip!ent• :onsu!er products exported increase especially rice$ "lour$

sugar$ !il6 industries/product 7 due to the a#olish!ent o" i!portduties


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I-9 I:ATIO)+ O) I)T(,)ATIO)A

T,A&(

• &epend on "oreign trade$ "inancial and

technology• A""ected the export earning• &e"icit in the current account and #alance

o" pay!ent%


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• I!plication on output% due to the decreasein de!and "or our exports$ the growth rateo" the pri!ary products slowed down.

• I!plication on the econo!ic growth%

A""ected the B&9• I!plication on inco!e%

9rice o" co!!odities is unsta#le

The de!and and supply o" pri!aryco!!odities are inelastic


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• Comparative advantage 7 the a#ility o" a countryto produce a goods at a lower opportunity costthan another country

• Absol te advantage 7 the a#ility o" a country toproduce a good using "ewer resources than

another country

(cono!ic 9rinciple that deter!inesspeciali0ation and trade


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*ree Trade s. 9rotectionis!• *ree trade is the "low o" goods #etween

countries without restrictions or specialtaxes


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Trade #arriers/9rotectionis!• Bo ern!ent policy that has #een

"or!ulated to control or to tax the goodsand ser ices.

• ,estrictions to protect do!estic producers"ro! "oreign co!petition


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(!#argothe strongest li!it on trade. A law that #ars trade withanother country. (g. -alaysia i!poses trade e!#argoagainst Israel

! ota %

-axi!u! uantity o" output that can #e i!ported withincertain duration o" ti!e$ eg. A year. )ot increase thenational inco!e.

"oreign e#change control % !onetary policy to controli!port acti ities. )o loan "acilities pro ided "or the i!portacti ity or #y controlling the "oreign !oney e.g. selling the"oreign !oney with higher price "ro! the "or!al exchangerate4.


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,eason "or 9rotectionis! 9olicies• The in"ant industry argu!ent• The senile industry argu!ent• To pre ent du!ping and other un"air trade practices• To pre ent esta#lish!ent o" a "oreign #ased !onopoly• To reduce reliance on goods with little dyna!ic potential• To spread the ris6s o" "luctuating !ar6ets• To reduce the in"luence o" trade on consu!er tastes• To pre ent the i!portant o" har!"ul goods• To ta6e account o" externalities


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'alance o" 9ay!ents• When trade occurs #etween -alaysia and

other countries$ !any types o" "inancialtransactions are recorded in a su!!arycalled%

#alance o" pay!ents


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What is 'O9?• A #oo66eeping record o" all the

international transactions #etween a

country and other countries during a gi enperiod o" ti!e• It records the alue o" a nations5 spending

in"lows and out"lows !ade #y indi iduals$"ir!s and go ern!ent


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• 'O9 can #e categori0ed into twoaccounts%

• :urrent account• :apital account


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'alance o" 9ay!ents 'O94• Account state!ent that contains the transaction and

the "low o" !oney #etween one country to anothercountry.

• 'O9 D )et :urrent Account E )et :apital Account• I*%a. 'O9 F @ D 'O9 +urplus#. 'O9 G @ D 'O9 &e"icit

c. 'O9 D @ 7 'O9 'rea6 ( en


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:urrent Account• :o!prises o" !erchandise exports and

i!ports goods account4 and receipts andpay!ents in respect o" ser ices renderedto and recei ed "ro! a#road ser icesaccount4

• argest part o" the current account is#alance o" trade 'OT4


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The state!ent structure

:urrent Account• (xport and i!port o" tangi#le goods

output "ro! the agricultural$

!anu"acturing$ !ining and others sectors.• (xport and i!port o" intangi#le goods

(.g. insurance "ro! the export or i!port o"tangi#le goods$ inco!es "ro! in est!ent.• Trans"er o" pay!ent


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:apital Account• It records pay!ent "lows "or "inancial

capital such as real estate$ corporatestoc6s$ #onds$ go ern!ent securities andother de#t instru!ents

• (g% when apanese in estors #uy "ar!land in edah$ there is an in"low o" ringgitinto -alaysia


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:apital Account• ong Ter! :apital O""icial loans%

#orrowing and pay!ent #etweencountries 9ri ate in est!ent

• +hort ter! capital% :o!!ercial #an6

– Other "inancial institution% (9*$ Ta#ungHa i$ 9)'

• :hange in central #an6 reser es


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'alance o" Trade

• The alue o" a nation5s goods i!portssu#tracted "ro! its goods exports


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'alance o" Trade 'OT4• 'OT D net alue o" current tangi#le

account• 'OT D tangi#le export 7 tangi#le i!portI* %a. 'OT F @ 7 'OT +urplus

#. 'OT G @ 7 'OT &e"icitc. 'OT D @ 7 'OT 'rea6 ( en


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Why huge surplus in trade #alance?

• 1. produce !ore goods internally and ha ing lessi!ported products.

• 2. high dd "or export !ar6et 7 slow i!port growth.• 3. econo!ies o" scale 7 produce huge uantity and

reduction in a erage cost. 9rice will #e cheaper andwill increase the dd.

•

MALAYSIAN ECONOMY - International Trade

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