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Lecture 2 International Trade
Hyun-Hoon Lee Professor
Kangwon National University
2
Contents 1. Trend of world trade
2. What are the reasons for fast expansion of international trade?
3. What are the fundamental reasons for international trade?
4. What are the consequences (i.e. benefits and costs) of international trade?
5. Who are the major trade partners?
6. What are the consequences of (i.e. benefits and costs) of trade policy?
1. Trend of World Trade
Source: WTO, World Trade Report 2013.
■ Growth of World trade
1. Trend of World Trade
Source: WTO, World Trade Report 2013.
■ Growth of World trade
Source: WTO, World Trade Statistical Review 2016.
1. Trend of World Trade
Source: Bank of Korea
■ Growth of Korea’s trade
■ Growth of Korea’s trade in recent years
Source: www.kita.net
한국무역
1. Trend of World Trade
Source: WTO, World Trade Report 2013.
1. Trend of World Trade
Source: WTO, World Trade Report 2013.
1. Trend of World Trade
Source: WTO, World Trade Report 2013.
Case Study 1-1: The Dell PCs, iPhones, and iPads sold in the United States Are Anything but American
Salvatore: International Economics, 11th Edition © 2013 John Wiley & Sons, Inc.
2. What are the Reasons for Fast Expansion of International Trade?
Liberalization of Trade GATT/WTO Economic Integration
Development of Transport Sea Transport Air Transport
Development of Telecommunication Telephone Internet
2. Reasons for Fast Expansion of International Trade
Container shipping dramatically reduced shipping costs making it much easier and cost effective to ship world-wide.
3. What are the Fundamental Reasons for International Trade?
16
Top 10 export items of Korea (%)
Source : KOTIS
3. Fundamental Reasons for International Trade
17
Top 10 import items of Korea
Source : KOTIS
3. Fundamental Reasons for International Trade
Comparative advantage Difference in technology - David Ricardo Difference in factor endowments – Heckscher-Ohlin Inter-industry trade
Economies of scale and product differentiation Economies of scale Product differentiation Intra-industry trade
3. Fundamental Reasons for International Trade
■ Costs of International Trade
4. What are the Consequences (Benefits and Costs) of International Trade?
■ Benefits of International Trade
■ Benefits of International Trade Individuals Consumption of better quality products with lower prices Consumption of diverse products
Firms Greater business opportunities Greater profit
Nation Fast economic growth Job creation
4. What are the Consequences (Benefits and Costs) of International Trade?
■ Relation between Growth Rates of GDP and Trade
AUSCAN
CHL
HKG
CHN
IDN
JPN
KORMYS MEX
NZL
PNG
PER
PHL
SGP
THA
USA
VNM
TWN
0.0
5.1
.15
0 .05 .1 .15 .2Trade_growth
GDP_growth Fitted values
4. What are the Consequences (Benefits and Costs) of International Trade?
■ Costs of International Trade
Individuals Loss of jobs employed in the less competitive industries
Firms Face stronger competition and may lose competitive edge
Nation Greater income disparity Possibility of environmental degradation in developing
countries Greater vulnerability to foreign shocks
4. What are the Consequences (Benefits and Costs) of International Trade?
■ Net Benefit of International Trade Firms Greater business opportunity but may lose competitive
edge
Individuals As consumers, individuals become better off, but as
workers, individuals may become worse off.
Nation Overall national welfare becomes greater, but the nation
may face the problems of income disparity, environmental degradation, etc.
4. What are the Consequences (Benefits and Costs) of International Trade?
24
Top 10 export markets for Korea
Source : KOTIS
5. Who are the major trade partners
Rank
1970 1980 1990 2000 2010 2012
Country % Country % Country % Country % Country % Country %
1
2
3
4
5
6
7
8
9
10
U.S.
Japan
Hong Kong
Germany
Canada
Netherlands
U.K.
Vietnam
Singapore
Sweden
47.3
28.1
3.3
3.3
2.3
1.6
1.6
1.5
1.3
0.9
U.S.
Japan
Saudi Arabia
Germany
Hong Kong
Iran
U.K.
Indonesia
Netherlands
Canada
26.3
17.4
5.4
5.0
4.7
3.5
3.3
2.1
2.0
2.0
U.S.
Japan
Hong Kong
Germany
Singapore
U.K.
Canada
Taiwan
France
Indonesia
29.8
19.4
5.8
4.4
2.8
2.7
2.7
1.9
1.7
1.7
U.S.
Japan
China
Hong Kong
Taiwan
Singapore
U.K.
Germany
Malaysia
Indonesia
21.8
11.9
10.7
6.2
4.7
3.3
3.1
3.0
2.0
2.0
China
U.S.
Japan
Hong Kong
Singapore
Taiwan
Germany
India
Mexico
Indonesia
25.1
10.7
6.0
5.4
3.3
3.2
2.5
2.3
2.1
1.9
China
U.S.
Japan
Hong Kong
Singapore
Vietnam
Taiwan
Indonesia
India
Russia
24.5
10.7
7.1
6.0
4.2
2.9
2.7
2.5
2.2
2.0
Total 91.4 71.6 72.9 68.8 62.4 64.8
25
Top 10 import markets for Korea
Source : KOTIS
5. Who are the major trade partners
Rank
1980 1990 2000 2010 2012
Country % Country % Country % Country % Country %
1
2
3
4
5
6
7
8
9
10
Japan
U.S
Saudi Arabia
Kuwait
Australia
Ira
Germany
Malaysia
Canada
U.K
26.3
21.9
14.8
7.9
3.1
2.9
2.9
2.1
1.7
1.4
Japn
U.S
Germany
Australia
China
Saudi Arabia
Indonesia
Malaysia
Canada
U.K
26.6
24.3
4.7
3.7
3.2
2.5
2.3
2.3
2.1
1.8
Japan
U.S
China
Saudi Arabia
Australia
Indonesia
Malaysia
Arab Emirate
Taiwan
Germany
19.8
18.2
8.0
6.0
3.7
3.3
3.0
2.9
2.9
2.9
China
Japan
U.S
Saudi Arabia
Australia
Germany
Indonesia
Arab Emirate
Qatar
Kuwait
16.8
15.1
9.5
6.3
4.8
3.4
3.3
2.9
2.8
2.6
China
Japan
U.S
Saudi Arabia
Qatar
Australia
Kuwait
Germany
Arab Emirate
Taiwan
15.5
12.4
8.3
7.6
4.9
4.4
3.5
3.4
2.9
2.7
Total 84.8 73.4 70.8 67.4 65.8
Gravity Model Other things equal, the bilateral trade between two
countries is proportional, or at least positively related, to the product of the two countries’ GDPs, and the greater the distance between the two countries, the smaller is their bilateral trade.
That is, the larger (and more equal in size) and the closer two countries are, the larger the volume of trade between them is expected to be.
Salvatore: International Economics, 10th Edition © 2010 John Wiley & Sons, Inc.
5. Who are the major trade partners
■ Multilateralism vs. regionalism
6. What are the Consequences (Benefits and Costs) of Trade Policy?
■ Free trade vs. non-free trade
■ Tariff and non-tariff barriers
