Why Nations Trade

2. 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?

3. Settling in to Penang • Kia Rio • Green tea • udon • pizza • Beer • Petrol

4. 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

5. Each country of the world possesses different types and quantities of land, labor, and capital resources.

6. 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.

7. Economies of Scale (and lower prices/increased efficiency) • As firms get larger the specialization of their workforce and the introduction of technology improves productivity.

8. Acquisition of needed resources

9. 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.

10. Political Benefits • The iphone supply chain Theory • http://sourcemap.com/

11. Increased variety/choices

12. Growth and Development • http://www.gapminder.org/world/#$majorMode=chart$is;shi=t;ly=2003;lb=f;il=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts;sp=5.59290322580644;ti=2010$zpv;v=1$inc_x;mmid=XCOORDS;iid=tyadrylIpQ1K%5FiHP407374Q;by=ind$inc_y;mmid=YCOORDS;iid=0AkBd6lyS3EmpdHZSTVMxaVdxQlFLR3NMbnBEWnVuTXc;by=ind$inc_s;uniValue=8.21;iid=phAwcNAVuyj0XOoBL%5Fn5tAQ;by=ind$inc_c;uniValue=255;gid=CATID0;by=grp$map_x;scale=lin;dataMin=0.1401;dataMax=0.9376$map_y;scale=lin;dataMin=0.1102;dataMax=234$map_s;sma=49;smi=2.65$cd;bd=0$inds=

13. Flaws in Theory of Comparative 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….

14. Protectionism and Trade Liberalisation

15. Why Do Countries Limit Trade? Protect domestic business interests or employment Health, safety or environmental concerns Support infant “sunrise” industries Avoid overspecialization Prevent dumping Raise revenue Protect strategic industry To improve terms of trade

16. Protect domestic business interests or employment

17. Health, safety or environmental concerns

18. Support infant “sunrise” industries Protect strategic industry

19. Avoid overspecialization

20. Prevent dumping

21. Raise revenue

22. Why Do Countries Trade Freely? Allocate resources more efficiently Avoid trade war Protectionism is a corruption magnet Domestic complacency causes higher costs Higher import costs

23. Allocate resources more efficiently Domestic complacency causes higher costs

24. Avoid trade war

25. Protectionism is a corruption magnet

26. 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.

27. Major Trade Organization Members ATLANTIC OCEAN PACIFIC OCEAN PACIFIC OCEAN INDIAN OCEAN EU CARICOM MERCOSUR APEC NAFTA & APEC Global Trade Agreements Many 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.