Why Nations Trade
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Transcript of Why Nations Trade
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Why Nations Trade
• How does resource distribution affect trade?• What are the differences between absolute
and comparative advantage?• What are the major imports and exports of
the countries of the world?• How does trade affect employment?
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Settling in to Penang
• Kia Rio
• pizza
• Beer• Petrol
• Green tea
• udon
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Advantages to Trade
• Lower Prices• Different Factor Endowments• Economies of Scale• Increased variety/choice• Ability to acquire needed resources• Competition aiding efficiency• Political Benefits• Growth and development
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• Each country of the world possesses different types and quantities of land, labor, and capital resources.
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Resource Distribution/Factor Endowments
• By specializing in the production of certain goods and services, nations can use their resources more efficiently.
• Specialization and trade can benefit all nations.
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Economies of Scale (and lower prices/increased efficiency)
• As firms get larger the specialization of their workforce and the introduction of technology improves productivity.
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Acquisition of needed resources
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Competition improves efficiency
• In 1984, the year before Proton started, Japanese brands dominated the market. Swedish brands, represented by Volvo (though some Saabs were also sold) were the only other brands which had a significant share. There were no Korean brands sold in Malaysia at that time.
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Increased variety/choices
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Growth and Development• http://www.gapminder.org/world/
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Flaws in Theory ofComparative Advantage
Doesn’t address winners and losers in the country
Assumes factors within the country are perfectly mobile
Static model - doesn’t address potential for changes
Ignores externalities – positive and negative
Ignores economies of scale
Ignores national security and issues of inter-dependence
Many others….
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Protectionism and Trade Liberalisation
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Why Do Countries Limit Trade?Protect domestic business interests or employmentHealth, safety or environmental concernsSupport infant “sunrise” industriesAvoid overspecializationPrevent dumpingRaise revenueProtect strategic industryTo improve terms of trade
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Protect domestic business interests or employment
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Health, safety or environmental concerns
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Support infant “sunrise” industries
Protect strategic industry
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Avoid overspecialization
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Prevent dumping
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Raise revenue
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Why Do Countries Trade Freely?Allocate resources more efficientlyAvoid trade warProtectionism is a corruption magnetDomestic complacency causes higher costsHigher import costs
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Allocate resources more efficiently
Domestic complacency causes higher costs
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Avoid trade war
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Protectionism is a corruption magnet
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International Cooperation
• Recent trends have been toward lowering trade barriers and increasing trade through international trade agreements.
• In 1948, the General Agreement on Tariffs and Trade (GATT) was established to reduce tariffs and expand world trade.
• In 1995, the World Trade Organization (WTO) was founded to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes.
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Major Trade Organization Members
EUCARICOMMERCOSURAPECNAFTA & APEC
PACIFIC OCEAN
ATLANTIC OCEAN
INDIAN OCEAN
PACIFIC OCEAN
Global Trade AgreementsMany nations have formed regional trade organizations. These trade organizations establish free-trade zones, or regions where a group of countries has agreed to reduce trade barriers among themselves.