Recent Trends in Global Trade Umera

RECENT TRENDS IN GLOBAL TRADE
INTRODUCTION
Trade globalization is a type of economic globalization and a measure (economic
indicator) of economic integration. On a national scale, it loosely represents the
proportion of all production that crosses the boundaries of a country, as well as the
number of jobs in that country dependent upon external trade. On a global scale, it
represents the proportion of all world production that is used for imports and exports
between countries.
For an individual country, trade globalization is measured as the proportion of

that country's total volume of trade to its Gross Domestic Product (GDP):[1]
For the world as a whole, trade globalization is the share of total world trade in
total world production (GDP), where the sums are taken over all countries:[2]
DEFINITION
Preyer and Bs provide a simple operationalization of trade globalization as "the
proportion of all world production that crosses international boundaries". [2] Chase-Dunn
et al. note that trade globalization is one of the types of economic globalization, and
define trade globalization as "the extent to which the long-distance and global exchange
of commodities has increased (or decreased) relative to the exchange of commodities
within national societies", and precisely operationalize it as "the sum of all international
exports as a percentage of the global product, which is the sum of all the national gross
domestic products (GDPs)."[3] Erreygers and Vermeire define trade globalization as "the
degree of dissimilarity between the actual distribution of bilateral trade flows and their
gravity benchmark, determined only by size and distance."
[4]
They note that trade
globalization would be maximized in a situation where only size and distance affected the
intensity of bilateral trade flows - in other words, in a situation where neither trade
barriers nor other factors would matter.

Babones notes that trade globalization is the indicator of a country's level of globalization
most commonly used in empirical literature.[5] Data for most countries in the modern era
are available from the World Bank World Development Indicators database.
TREND
Chase-Dunn et al. note that there have been cyclical waves of trade globalization, with
declines corresponding to wars and economic depressions, and that there has been a
steady trend over the centuries for trade globalization to increase. [3] With regards to the
modern age, trade globalization increased until 1880, then decreased until 1905,
increased again until 1914, decreased during World War I, increased until 1929,
decreased until the end of World War II, and has been growing steadily since. [3] They note
that the main explanatory factors in this trend are the continued decline in transportation
and communication costs, and stability provided by the "hegemonic system" supportive
of trade in recent world-systems.[3] Decreases can be explained by wars, and periods of
conflict and tension often leading to them, where international actors cannot reach
consensus on trade agreements and usually give into to protectionism
INTERNATIONAL TRADE
International trade is the exchange of capital, goods, and services across international
borders or territories, which could involve the activities of the government and
individual.[1] In most countries, such trade represents a significant share of gross domestic
product (GDP). While international trade has been present throughout much of history
(see Silk Road, Amber Road, salt road), its economic, social, and political importance has
been on the rise in recent centuries. It is the presupposition of international trade that a
sufficient level of geopolitical peace and stability are prevailing in order to allow for the
peaceful exchange of trade and commerce to take place between nations.
Trading globally gives consumers and countries the opportunity to be exposed to new
markets and products. Almost every kind of product can be found on the international
market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water.
Services are also traded: tourism, banking, consulting and transportation. A product that
is sold to the global market is an export, and a product that is bought from the global
market is an import. Imports and exports are accounted for in a country's current account
in the balance of payments.
Ancient Silk Road trade routes across Eurasia

Industrialization,
advanced
technology,
including
transportation,
globalization,
multinational corporations, and outsourcing are all having a major impact on the
international trade system. Increasing international trade is crucial to the continuance of
globalization. Without international trade, nations would be limited to the goods and
services produced within their own borders. International trade is, in principle, not
different from domestic trade as the motivation and the behavior of parties involved in a
trade do not change fundamentally regardless of whether trade is across a border or not.

The main difference is that international trade is typically more costly than domestic
trade. The reason is that a border typically imposes additional costs such as tariffs, time
costs due to border delays and costs associated with country differences such as language,
the legal system or culture.
Another difference between domestic and international trade is that factors of
production such as capital and labor are typically more mobile within a country than
across countries. Thus international trade is mostly restricted to trade in goods and
services, and only to a lesser extent to trade in capital, labor or other factors of
production. Trade in goods and services can serve as a substitute for trade in factors of
production. Instead of importing a factor of production, a country can import goods that
make intensive use of that factor of production and thus embody it. An example is the
import of labor-intensive goods by the United States from China. Instead of importing
Chinese labor, the United States imports goods that were produced with Chinese labor.
One report in 2010 suggested that international trade was increased when a country
hosted a network of immigrants, but the trade effect was weakened when the immigrants
became assimilated into their new country.
International trade is also a branch of economics, which, together with international

finance, forms the larger branch called international economics. Trading is a value-added
function: it is the economic process by which a product finds its market, in which specific
risks are to be borne by the trader.
HISTORY
Roman trade with India according to the Periplus Maris Erythraei, 1st century CE.
The history of international trade chronicles notable events that have affected the trade
between various countries.
In the era before the rise of the nation state, the term 'international' trade cannot be
literally applied, but simply means trade over long distances; the sort of movement in
goods which would represent international trade in the modern world.
Models
The following are noted models of international trade.[4]
Adam Smith's model

Adam Smith displays trade taking place on the basis of countries exercising absolute
advantage over one another.[5][6]

Ricardian model
The law of comparative advantage was first proposed by David Ricardo.

The Ricardian model focuses on comparative advantage, which arises due to differences
in technology or natural resources. The Ricardian model does not directly consider factor
endowments, such as the relative amounts of labor and capital within a country.
The Ricardian model is based on the following assumptions:
Labor is the only primary input to production
The relative ratios of labor at which the production of one good can be traded off
for another differ between countries and governments
HECKSCHEROHLIN MODEL
In the early 1900s a theory of international trade was developed by two Swedish
economists, Eli Heckscher and Bertil Ohlin. This theory has subsequently been known as
the HeckscherOhlin model (HO model). The results of the HO model are that
countries will produce and export goods that require resources (factors) which are
relatively abundant and import goods that require resources which are in relative short
supply.

In the HeckscherOhlin model the pattern of international trade is determined by
differences in factor endowments. It predicts that countries will export those goods that
make intensive use of locally abundant factors and will import goods that make intensive
use of factors that are locally scarce. Empirical problems with the HO model, such as
the Leontief paradox, were noted in empirical tests by Wassily Leontief who found that
the United States tended to export labor-intensive goods despite having an abundance of
capital.
The HO model makes the following core assumptions:
Labor and capital flow freely between sectors
The amount of labor and capital in two countries differ (difference in

endowments)
Technology is the same among countries (a long-term assumption)
Tastes are the same
Applicability
In 1953, Wassily Leontief published a study in which he tested the validity of the
Heckscher-Ohlin theory.[7] The study showed that the United States was more abundant in
capital compared to other countries, therefore the United States would export capitalintensive goods and import labor-intensive goods. Leontief found out that the United
States' exports were less capital intensive than its imports.
After the appearance of Leontief's paradox, many researchers tried to save the HeckscherOhlin theory, either by new methods of measurement, or by new interpretations.
Leamer[8] emphasized that Leontief did not interpret H-O theory properly and claimed
that with a right interpretation, the paradox did not occur. Brecher and Choudri [9] found
that, if Leamer was right, the American workers' consumption per head should be lower
than the workers' world average consumption.[10][11] Many textbook writers, including

Krugman and Obstfeld and Bowen, Hollander and Viane, are negative about the validity
of H-O model.[12][13] After examining the long history of empirical research, Bowen,
Hollander and Viane concluded: "Recent tests of the factor abundance theory [H-O theory
and its developed form into many-commodity and many-factor case] that directly
examine the H-O-V equations also indicate the rejection of the theory.
In the specific factors model, labor mobility among industries is possible while capital is
assumed to be immobile in the short run. Thus, this model can be interpreted as a shortrun version of the Heckscher-Ohlin model. The "specific factors" name refers to the
assumption that in the short run, specific factors of production such as physical capital
are not easily transferable between industries. The theory suggests that if there is an
increase in the price of a good, the owners of the factor of production specific to that
good will profit in real terms.
Example: Finland produces ocean cruisers and leather products such as reindeer fur, mink
and fox coats.Lapland, the northern part of Finland, is sparsely inhabited by mostly
Indians who hunt these wild animals. This cold climate or forest is a factor specific in the
leather goods industry.
In the urban areas Finns are also engaged in cruise ship building and Finland exports
cruisers to European countries. In addition to well educated workers, the ship building
industry requires a large amount of capital, which is specific to that industry in that it
cannot be used in the leather goods industry. Finnish workers are mobile between the two
industries.

Additionally, owners of opposing specific factors of production (i.e., labor and capital)
are likely to have opposing agendas when lobbying for controls over immigration of
labor. Conversely, both owners of capital and labor profit in real terms from an increase
in the capital endowment. This model is ideal for understanding income distribution but
awkward for discussing the pattern of trade.
NEW TRADE THEORY

New Trade Theory tries to explain empirical elements of trade that comparative
advantage-based models above have difficulty with. These include the fact that most
trade is between countries with similar factor endowment and productivity levels, and the
large amount of multinational production (i.e., foreign direct investment) that exists. New
Trade theories are often based on assumptions such as monopolistic competition and
increasing returns to scale. One result of these theories is the home-market effect, which
asserts that, if an industry tends to cluster in one location because of returns to scale and
if that industry faces high transportation costs, the industry will be located in the country
with most of its demand, in order to minimize cost.
Although new trade theory can explain the growing trend of trade volumes of
intermediate goods, Krugman's explanation depends too much on the strict assumption
that all firms are symmetrical, meaning that they all have the same production
coefficients. Shiozawa, based on much more general model, succeeded in giving a new
explanation on why the traded volume increases for intermediate goods when the
transport cost decreases.
GRAVITY MODEL
The Gravity model of trade presents a more empirical analysis of trading patterns. The
gravity model, in its basic form, predicts trade based on the distance between countries
and the interaction of the countries' economic sizes. The model mimics the Newtonian
law of gravity which also considers distance and physical size between two objects. The
model has been proven to be empirically strong through econometric analysis.
10

Ricardian theory of international trade (modern development)
The Ricardian theory of comparative advantage became a basic constituent of
neoclassical trade theory. Any undergraduate course in trade theory includes a
presentation of Ricardo's example of a two-commodity, two-country model. A common
representation of this model is made using an Edgeworth Box.
This model has been expanded to many-country and many-commodity cases. Major
general results were obtained by McKenzie[15][16] and Jones,[17] including his famous
formula. It is a theorem about the possible trade pattern for N-country N-commodity
cases.
Contemporary theories
Ricardo's idea was even expanded to the case of continuum of goods by Dornbusch,
Fischer, and Samuelson[18] This formulation is employed for example by Matsuyama [19]
and others. These theories use a special property that is applicable only for the twocountry case.
NEO-RICARDIAN TRADE THEORY

Inspired by Piero Sraffa, a new strand of trade theory emerged and was named neoRicardian trade theory. The main contributors include Ian Steedman (1941) and Stanley
Metcalfe (1946). They have criticized neoclassical international trade theory, namely the
Heckscher-Ohlin model on the basis that the notion of capital as primary factor has no
method of measuring it before the determination of profit rate (thus trapped in a logical
11

vicious circle).[20] This was a second round of the Cambridge capital controversy, this
time in the field of international trade.
The merit of neo-Ricardian trade theory is that input goods are explicitly included. This is
in accordance with Sraffa's idea that any commodity is a product made by means of
commodities. The limitation of their theory is that the analysis is restricted to smallcountry cases.
TRADED INTERMEDIATE GOODS

Ricardian trade theory ordinarily assumes that the labor is the unique input. This is a
great deficiency as trade theory, for intermediate goods occupy the major part of the
world international trade. Yeats[22] found that 30% of world trade in manufacturing
involves intermediate inputs. Bardhan and Jafee [23] found that intermediate inputs occupy
37 to 38% of U.S. imports for the years 1992 and 1997, whereas the percentage of intrafirm trade grew from 43% in 1992 to 52% in 1997.
McKenzie[24] and Jones[25] emphasized the necessity to expand the Ricardian theory to the
cases of traded inputs. In a famous comment McKenzie (1954, p. 179) pointed that "A
moment's consideration will convince one that Lancashire would be unlikely to produce
cotton cloth if the cotton had to be grown in England." [26] Paul Samuelson[27] coined a
term Sraffa bonus to name the gains from trade of inputs.
12

Ricardo-Sraffa trade theory
Economist John S. Chipman observed in his survey that McKenzie stumbled upon the
questions of intermediate products and postulated that "introduction of trade in
intermediate product necessitates a fundamental alteration in classical analysis". [28] It took
many years until Shiozawa succeeded in removing this deficiency.[29] The Ricardian trade
theory was now constructed in a form to include intermediate input trade for the most
general case of many countries and many goods. Chipman called this the Ricardo-Sraffa
trade theory.
Based on an idea of Takahiro Fujimoto,[30] who is a specialist in automobile industry and

a philosopher of the international competitiveness, Fujimoto and Shiozawa developed a
discussion in which how the factories of the same multi-national firms compete between
them across borders.[31] International intra-firm competition reflects a really new aspect of
international competition in the age of so-called global competition.
International production fragmentation trade theory

In his chapter entitled Li & Fung, Ltd.: An agent of global production (2001), Cheng used
Li & Fung Ltd as a case study in the international production fragmentation trade theory
through which producers in different countries are allocated a specialized slice or
segment of the value chain of the global production. Allocations are determined based on
"technical feasibility" and the ability to keep the lowest final price possible for each
product.[32] Fragmentation widens the scope for "application of Ricardian comparative
advantage".
An example of fragmentation theory in international trade is Li and Fung's garment sector

network with yarn purchased in South Korea, woven and dyed in Taiwan, the fabric cut in
13

Bangladesh, pieces assembled in Thailand and the final product sold in the United States
and Europe to major brands.[34] In 1995 Li & Fung Ltd purchased Inchcape Buying
Services, an established British trading company and widely expanded production in
Asia.[32] Li & Fung supplies dozens of major retailers, including Wal-Mart Stores, Inc.,
branded as Walmart.
Free-Trade Theories
In fact, many countries following mercantilist policy tried to become as self-sufficient as
possible. We discuss two theories supporting free trade: absolute advantage and
comparative advantage. Both theories hold that nations should neither artificially limit
imports nor promote exports. The market will determine which producers survive as
consumers buy those products that best serve their needs. Both free trade theories imply
specialization. Just as individuals and families produce some things that they exchange
for things that others produce, national specialization means producing some things for
domestic consumption and export while using the export earnings to buy imports of
products and services produced abroad.
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LARGEST COUNTRIES BY TOTAL INTERNATIONAL TRADE
Volume of world merchandise exports

List of countries by exports and List of countries by imports
Rank Country
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
World
European Union
China
United States
Germany
Japan
France
United Kingdom
South Korea
Hong Kong
Netherlands
Italy
Canada
India
Russia
Singapore
Mexico
Switzerland
United
Arab
Emirates
Belgium
Spain
International Trade of Date
of %
Goods
information (nominal)
(Billions of USD)
37,706.0
4,485.0
4,201.0
3,944.0
2,866.0
1,522.4
1,212.3
1,189.4
1,170.9
1,088.4
1,041.6
948.6
947.2
850.6
844.2
824.6
813.5
721.8
2013 est.
2013 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
2014 est.
50.5%
24.2%
40.5%
22.6%
74.3%
33.0%
42.6%
40.4%
82.6%
375.8%
120.2%
44.2%
51.1%
41.5%
41.3%
262.8%
61.2%
101.4%
676.4
2014 est.
156.7%
663.6
655.2
2014 est.
2014 est.
181.1%
48.2%
15
GDP

20
Taiwan
595.5
2014 est.
112.5%
Top traded commodities (exports)

Rank Commodity
1
2
3
4
5
6
7
8
9
10
Value in US$('000) Date
Mineral fuels, oils, distillation products, etc.

$2,183,079,941
Electrical, electronic equipment
$1,833,534,414
Machinery, nuclear reactors, boilers, etc.
$1,763,371,813
Vehicles other than railway
$1,076,830,856
Plastics and articles thereof
$470,226,676
Optical, photo, technical, medical, etc. apparatus $465,101,524
Pharmaceutical products
$443,596,577
Iron and steel
$379,113,147
Organic chemicals
$377,462,088
Pearls, precious stones, metals, coins, etc.
$348,155,369
Source: International Trade Centre[36]
EXTERNAL LINKS
16
of
information
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012

Data
Official statistics
Data on the value of exports and imports and their quantities often broken down by
detailed lists of products are available in statistical collections on international trade
published by the statistical services of intergovernmental and supranational organisations
and national statistical institutes:
United Nations Commodity Trade Database
WTO Statistics Portal
Statistical Portal: OECD
European Union International Trade in Goods Data
European Union International Trade in Services Data (sub-collection of the

Balance of payment statistics)
European Union Exports and Imports (sub-collection of the National accounts

statistics)
Food and Agricultural Trade Data by FAO
Brazilian Trade Data
The definitions and methdological concepts applied for the various statistical collections
on international trade often differ in terms of definition (e.g. special trade vs. general
trade) and coverage (reporting thresholds, inclusion of trade in services, estimates for
smuggled goods and cross-border provision of illegal services). Metadata providing
information on definitions and methods are often published along with the data.
Other data sources
Resources for data on trade, including the gravity model
Asia-Pacific Trade Agreements Database (APTIAD)
Asia-Pacific Research and Training Network on Trade (ARTNeT)
International Trade Resources
17
World Integrated Trade Solution (WITS)
Market Access Map, an online database of customs tariffs and market

requirements
Other external links
The Expected Benefits of Trade Liberalization for World Income and

Development: Opening the "Black Box" of Global Trade Modeling by Antoine
Bout (2008)
The McGill Faculty of Law runs a Regional Trade Agreements Database that
contains the text of almost all preferential and regional trade agreements in the
world. ptas.mcgill.ca
Interactive Ricardian Model Simulator
Consumers for World Trade Education Fund electronic trade library
International trade, Encyclopdia Britannica
Benefits of International Trade
Should trade be considered a human right?
Penn Program on Regulation's Import Safety Page
Historical documents on international trade, finance, and economics available on

FRASER
Ott, Mack (2008). "International Capital Flows". In David R. Henderson (ed.).

Concise Encyclopedia of Economics (2nd ed.). Pakistannapolis: Library of
Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
18
GLOBAL TRADE TRENDS

Long-term trends in value and volume of merchandise exports, 1950-2010
(Index numbers, 2000=100)
Source: UNCTAD secretariat calculations, based on UNCTADstat and CPB Netherlands

Bureau of Economic Policy Analysis, World trade database
In the context of the global crisis international merchandise trade registered its greatest
plunge since the Second World War: Between the fall of 2008 and the spring of 2009
global trade collapsed by 20 per cent in volume. Having initially rebounded sharply
beginning in mid 2009, growth in international merchandise trade then slowed again in
the course of 2010. While regaining its pre-crisis peak level in that year, the global crisis
appears to have left a marked impact on the dynamism of global trade, keeping the
volume of global trade well below its pre-crisis growth trajectory (Chart) with global
prospects dimming by year-end 2011.
Apart from remaining unfinished, the trade recovery has also been rather uneven. By the
end of 2011, in developed countries as well as in South-East Europe and the
Commonwealth of Independent States (CIS), where the trade collapse had been sharpest,
19

merchandise trade in volume terms has yet to even reclaim its pre-crisis level. By
contrast, the volume of both imports and exports in most groups of developing countries
had already exceeded their pre-crisis peak in the course of 2010, with East Asia, China in
particular, leading the expansion.
Globalization features the rise in global exports relative to global income, while
individual countries see their respective exports and imports rise as shares of national
income (Motion chart). In other words, a rising proportion of global production of goods
and services is being traded across borders rather than sold at home. The global crisis has
brought the long-run trend of rising global integration through trade to a halt, at least
temporarily. The pre-crisis trend toward more openness and ever-deeper trade integration
might well firmly reestablish itself in due course. But persistence or trend reversal seem
also possible. At a time of high unemployment, fiscal austerity, and complaints of
currency wars, the threat of rising trade protectionism is looming large.
The global crisis and uneven trade recovery have reinforced the ongoing shift in balance
in the world economy, featuring the relative decline of developed countries (Chart). In
2010 the value of total merchandise exports from all countries of the world was $15
trillion (in current United States dollars), of which the share of developed countries was
54 percent, down from 60 percent in 2005. As the worlds leading merchandise exporter
since 2009, Chinas share of world exports climbed to 10 per cent in 2010, ahead of the
United States (8 per cent), Germany (8 per cent), and Japan (5 per cent) (Table). On the
import side, the ranking still shows the United States in first place (13 per cent), followed
by China (9 per cent), Germany (7 per cent), and Japan (4.5 per cent) (Table).
20
Source: UNCTAD secretariat calculations, based on UNCTADstat

Note: South-South trade is also known as intra-trade of developing economies.
The shifting global balance is also visible in the changing distribution of exports by
destination, featuring the rising importance of trade among developing countries. The rise
in South-South trade has been especially pronounced in East Asia and is linked to the
gain in prominence of global supply chains.
While developing countries as a whole have become the key driving force behind global
trade dynamics in the 2000s, and especially so since the recovery from the global trade
collapse in 2008-2009, contributing 54 per cent to the overall rebound from it,
performance varies considerably between regions and countries within the aggregate.
Especially successful were developing economies in Asia. In general, progress in least
developed countries (LDCs) and other low-income economies, after having fallen behind
since the 1960s, has picked up somewhat, as they could recapture some of the lost ground
since the mid-2000s. Helped by improvements in commodity prices, the export share of
the LDCs, the majority of which are in sub-Saharan Africa and commodity-dependent,
rose from 0.6 percent in 2001 to 1.1 percent in 2010 (Chart). Yet commodity price
21

increases have been a mixed blessing even to LDCs, proving harmful rather than
beneficial to some. Especially low-income, food-deficit countries that had suffered
severely in the food crisis of 2007-2008 were again affected negatively in 2010-2011.
While an upward trend in world primary commodity prices asserted itself in the 2000s,
reversing the prior downward trend that had been in place since 1995, the period
surrounding the global crisis witnessed commodity prices taking a roller-coaster ride. The
boom years since 2002 ended with a severe nosedive from their peak level of mid-2008,
followed by a sharp rebound that took prices back to 2007 levels by early 2011 (Chart),
when a sizeable correction began together with soaring volatility. Heightened market
instability and price volatility (Table) have become the norm as uncertainty about the
global recovery is weighing on market participants minds.
Commodity price developments since 2002 came along with sizeable changes to
terms of trade. In general, countries exporting oil and mining products saw substantial
terms-of-trade gains, while those exporting mainly manufactures and importing raw
materials, especially oil, experienced losses. Countries with more diversified exports and
exporters of agriculture products experienced relative stability (Chart) while
manufactured goods exporters were confronted with a decline trend. Terms of trade
changes can have substantial impacts on economies depending on their openness, in
particular, either adding or subtracting from real domestic income. In the aggregate, all
the developing regions gained, with the exception of East, South and South-East Asia
(where manufactures constitute the largest share of exports). Wide differences exist
within each region, however.
22
Highlights
As trade flows have generally grown faster than income since the Second World
War, countries openness and their exposure to external developments have
increased;
Global trade collapsed in the global crisis of 2008-2009, recovery remains

unfinished and uneven; the global crisis appears to have left a marked impact on
the dynamism of global trade;
The global crisis has also brought the long-run trend of rising global integration
through trade to a halt, at least temporarily;
The global crisis and uneven trade recovery have reinforced the ongoing shift in
balance in the world economy, featuring the relative decline of developed
countries;
The shifting global balance is also visible in the changing distribution of exports
by destination, featuring the rising importance of trade among developing
countries;
The rise in South-South trade has been especially pronounced in East Asia;
LDCs have generally participated in these trends to a lesser extent but recovered
some lost ground in recent years;
Related to commodity price developments; many countries have experienced

sizeable terms-of-trade changes since 2002, with both winners (especially oil and
metal exporters) and losers (especially food-deficit countries) among developing
countries including LDCs;
Global governance reform needs to make further progress.
Evolution of world trade and global gross domestic product, 19812010

In 1981, the European Union had the highest share in both global GDP and world
exports with 27.8 per cent and 40.9 per cent, respectively. At the same time, China's share
23

in world exports registered around 1 per cent and its share in global GDP was 2.4 per
cent. Fifteen years later, in 1996, China doubled its exports share to 2.6 per cent, whereas
developing Africa lost its world exports share, which plunged from 4.7 per cent to 2.3 per
cent. In 2010, China's share in world exports stood at 9.2 per cent, a few percentage
points below that of the United States (9.6 per cent), but with a stark contrast in trade
balance. In the period 19812010, the European Union lost shares in both global GDP
and world exports, but it still holds the lion share (25.8 per cent and 35.5 per cent,
respectively). Trade data show that China is on its way to becoming the top merchandise
and services exporter.
24
MAJOR CURRENT TRENDS IN FOREIGN TRADE
Major current trends in foreign trade are as follows:

Current trends are towards the increasing foreign trade and interdependence of firms,
markets and countries.
Image Courtesy :
Intense competition among countries, industries, and firms on a global level is a recent
development owed to the confluence of several major trends. Among these trends are:
1) Forced Dynamism:
International trade is forced to succumb to trends that shape the global political, cultural,
and economic environment. International trade is a complex topic, because the
environment it operates in is constantly changing. First, businesses are constantly pushing
25

the frontiers of economic growth, technology, culture, and politics which also change the
surrounding global society and global economic context. Secondly, factors external to
international trade (e.g., developments in science and information technology) are
constantly forcing international trade to change how they operate.
2) Cooperation among Countries:

Countries cooperate with each other in thousands of ways through international
organisations, treaties, and consultations. Such cooperation generally encourages the
globalization of business by eliminating restrictions on it and by outlining frameworks
that reduce uncertainties about what companies will and will not be allowed to do.
Countries cooperate:
i) To gain reciprocal advantages,
ii) To attack problems they cannot solve alone, and
iii) To deal with concerns that lie outside anyones territory.
Agreements on a variety of commercially related activities, such as transportation and

trade, allow nations to gain reciprocal advantages. For example, groups of countries have
agreed to allow foreign airlines to land in and fly over their territories, such as Canadas
and Russias agreements commencing in 2001 to allow polar over flights that will save
five hours between New York and Hong Kong.
Groups of countries have also agreed to protect the
property of foreign-owned
companies and to permit foreign-made goods and services to enter their territories with
fewer restrictions. In addition, countries cooperate on problems they cannot solve alone,
such as by coordinating national economic programs (including interest rates) so that
26

global economic conditions are minimally disrupted, and by restricting imports of certain
products to protect endangered species.
Finally, countries set agreements on how to commercially exploit areas outside any of
their territories. These include outer space (such as on the transmission of television
programs), non-coastal areas of oceans and seas (such as on exploitation of minerals),
and Antarctica (for example, limits on fishing within its coastal waters).
3) Liberalization of Cross-border Movements:

Every country restricts the movement across its borders of goods and services as well as
of the resources, such as workers and capital, to produce them. Such restrictions make
international trade cumbersome; further, because the restrictions may change at any time,
the ability to sustain international trade is always uncertain. However, governments today
impose fewer restrictions on cross-border movements than they did a decade or two ago,
allowing companies to better take advantage of international opportunities. Governments
have decreased restrictions because they believe that:
i) So-called open economies (having very few international restrictions) will give
consumers better access to a greater variety of goods and services at lower prices,
ii) Producers will become more efficient by competing against foreign companies, and
iii) If they reduce their own restrictions, other countries will do the same.
4) Transfer of Technology:
Technology transfer is the process by which commercial technology is disseminated. This
will take the form of a technology transfer transaction, which may or may not be a legally
27

binding contract, but which will involve the communication, by the transferor, of the
relevant knowledge to the recipient. It also includes non-commercial technology
transfers, such as those found in international cooperation agreements between developed
and developing states. Such agreements may relate to infrastructure or agricultural
development, or to international; cooperation in the fields of research, education,
employment or transport.
5) Growth in Emerging Markets:

The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia and
South America especially) has impacted international trade in every way. The emerging
markets have simultaneously increased the potential size and worth of current major
international trade while also facilitating the emergence of a whole new generation of
innovative companies. According to A special report on innovation in emerging
markets by The Economist magazine, The emerging world, long a source of cheap la,
now rivals the rich countries for business innovation.
INTERNATIONAL
TRADE
AND
INVESTMENT
TRENDS
It is a privilege and pleasure for me to participate in this First Annual Australian
Conference on International Trade, Education and Research. The topic given to me -international trade and investment trends -- is particularly topical, given next week's
WTO Ministerial Conference in Singapore. While the Singapore meeting focuses, of
course, on trade, the question of whether or not investment ought to be put on the agenda
is one of the issues on which the preparatory process could not reach consensus.
In the light of this, my presentation will not deal with trade per se and investment per se
(although I will give some attention to investment trends), but rather on the interaction
28

between investment and trade and the international policy framework in this area. In so
doing, I can draw on the World Investment Report 1996, whose subtitle -- and, hence,
focus -- is "Investment, Trade and International Policy Arrangements".
We all know about the importance of trade as an engine of growth and a mechanism to
link markets internationally. I need not elaborate on this subject as Mr. Bora will speak, in
the next presentation, about changing patterns of global trade. Suffice it to say that trade
has grown rapidly, helped by the liberalizing framework of, first, GATT and, now, the
WTO. The volume of world trade is now some $5 trillion.
Foreign direct investment (FDI), too, has grown rapidly, more rapidly indeed than trade
and domestic production. In the early 1980s, world FDI flows amounted to some $40
billion; in 1995, FDI flows to developing countries alone amounted to $100 billion, with
world flows reaching $315 billion.
These figures mask, of course, a number of important characteristics. Let me briefly look
at them, first from a home country and then from a host country perspective.
1. There has been a considerable diversification of home countries. If, in the past, the
U.S. and the U.K. had been the dominant home countries, today all developed countries
have a significant number of firms that invest abroad. What is more, firms from
developing countries are increasingly becoming outward investors, accounting for 15%
of world outflows in 1995. Most of these outflows take place in a regional context, and
there they can be quite important. In Asia, some 40% of the FDI inflows into the
developing countries of the region originate in other developing countries in the region.
29

As a result, enterprises from Asian developing countries have become the single most
important investors in Asia, ahead of firms from Japan, the U.S. and Europe.
As far as European firms are concerned, one can even say that they neglected Asia.
Today, only some 3% of the total FDI stock and flows of the EU are directed towards
developing Asia. As it happens, this figure is quite similar when it comes to Asian
developing countries' FDI in Europe, which accounts for about 4% of developing Asia's
FDI. In other words, neither Europe nor developing Asia have directed their outward FDI
significantly to each other. But while Europe's low share in Asia arguably reflects a
neglect by European firms of a region that people agree is the most dynamic in the world
today, Asia's low share in Europe, most people would also agree, simply reflects the fact
that Asian firms are only just beginning to build up their outward investment stocks.
2. Looking at FDI flows from the host country side, one finds that the developed
countries continue to dominate the picture. But, again, the more interesting aspect is that
the share of the developing countries has increased, reaching some 30% of world inflows
in 1995. Within the developing world, Asia has attracted the lion's share, some two-thirds
of the $100 billion that went to developing countries in 1995, to be precise. Within Asia,
China has been the star performer (although 1996 may well see a bit of a decline in FDI
inflows), followed by the ASEAN countries.
The dominance of China also draws attention to another characteristic of FDI flows,
namely that they are highly concentrated. To be more specific, the largest ten host
countries receive about two-thirds of FDI inflows, while the smallest 100 recipients
receive only 1%.
30

Australia, incidentally, had average annual FDI inflows of about $4 billion between 19911994, an amount that more than tripled to $13 billion in 1995. This compares to outflows
of about $5 billion in the same year.
There is one more thing that I would like to mention, namely that a good part of FDI
consists of "sequential" and "associated" FDI. "Sequential" FDI is undertaken by foreign
affiliates that are already established, and consists mostly of reinvested earnings.
"Associated" FDI is FDI that is triggered by the establishment or expansion of existing
foreign affiliates; it is typically undertaken by suppliers or by rival firms that follow a
leader into foreign markets. A good part of FDI in the services sector also falls into this
category. Services FDI, incidentally, now accounts for about 50-60% of FDI flows.
As a result of the rapid growth of FDI flows, the world stock of FDI is now nearly $3
trillion, owned by some 40,000 transnational corporations (TNCs) through more than
270,000 foreign affiliates (not counting numerous non-equity forms of controlling assets
abroad, including through strategic alliances). This stock of $ 3 trillion gives rise to some
$6 trillion of sales by foreign affiliates.
What does this all add up to?

I had made reference earlier to trade as an engine of growth and a mechanism to link
markets internationally. I mentioned also that world exports are now worth about $ 5
trillion.
If this $5 trillion of exports is compared with the $6 trillion of sales by foreign affiliates,
it becomes obvious that FDI has become more important than trade in terms of delivering
31

goods and services to foreign markets and, thereby, linking markets internationally. In the
case of the U.S., in fact, three-quarters of all goods and services delivered to foreign
markets are actually delivered by foreign affiliates. This is a situation that is strikingly
different from that which prevailed immediately after World War II, when trade alone
reigned supreme when it came to international economic transactions.
But FDI is not only a mechanism to link markets, it is also a mechanism to link the
production systems of countries internationally. In the past, this linking of production
systems was not very pronounced, as most TNCs pursued stand-alone strategies, in the
framework of which foreign affiliates were largely autonomous units, only loosely
integrated into their overall corporate networks. Today, however, an increasing number of
TNCs is pursuing complex integration strategies that are characterized by a vertical and
increasingly horizontal international intra-firm division of labour in which any part of the
value-added chain can be located abroad while remaining fully integrated in the corporate
network as a whole. Complex corporate integration strategies seek to exploit regional or
global economies of scale and a higher degree of functional specialization. The results are
integrated international production networks at the firm level. The aggregation of these
production networks, in turn, leads to the emergence of an integrated international
production system -- the productive core of the globalizing world economy.
This linking of the productive systems of countries represents deeper integration than that
achieved by trade. Unlike trade -- which normally involves one-off transactions of goods
and services -- FDI, by its very definition, involves the establishment of lasting
relationships that engage the factors of production of the countries involved. At the same
time, the corporate networks that are being established in the process can serve as
conduits between countries -- not only for capital, but also for technology, know-how and
skills, as well as for imports and exports. This underlines that FDI is actually a package
of tangible and intangible resources, all of which can make FDI an engine of growth.
32
The reference I just made to TNC networks being conduits for imports and exports brings
me to the interrelationships between FDI and trade. At the aggregate level, we estimate
that about one-third of world trade is intra-firm trade (i.e., takes place internationally
within the same corporate networks), and that another one-third of world trade is
undertaken by TNCs. These figures show how closely FDI and trade are, indeed,
interrelated -- an interrelatedness that we can expect to increase further with the growing
international integration of corporate production networks.
This raises an important question, namely: how are FDI and trade interrelated? Or, to put
it differently, does trade lead to FDI? Or does FDI lead to trade?
In trying to understand the interlinkages between FDI and trade, it is useful to begin by
noting that, historically, the internationalization process for a product (and, often, for a
firm) has been characterized by a sequential movement running from trade to FDI or
from FDI to trade. In the case of market-seeking manufacturing firms, the sequence
typically runs from domestic production in the country of origin, to exports, often
followed by licensing or other contractual arrangements, and finally, FDI. On the other
hand, in the case of manufacturing firms seeking low cost inputs, the process could begin
with FDI, followed by exports from the host country. This latter sequence is also,
obviously, the one that characterizes the process in many natural resources. In services, of
course, trade (as traditionally understood) is not an option -- or at least it was not, until
recently -- and firms must engage in foreign production if they want to expand into
international markets: the linear sequence of moving comfortably from exporting to FDI
gets truncated; services firms that have built up competitive advantages generally have to
invest abroad in order to exploit these in foreign markets. As services, especially in
information-intensive
industries,
become
transportable
due
to
advances
telecommunications and information technologies, this situation may change.
33
in

The relevance of the traditional sequence of internationalization that I have just
mentioned for the interrelationship between FDI and trade is that, to some extent, the
sequence as it occurred in many manufacturing products is partly responsible for the
notion that FDI and trade are substitutes. Yet, if one looks at the process all the way, it
becomes clear that, by and large, FDI and trade are complementary or mutually
supportive: if one considers the relationship at the level of a single product or a singleproduct firm, the only situation in which FDI substitutes for trade is that of a marketseeking manufacturing investment that might replace exports of a given product or firm.
In all other cases, FDI is either trade-creating or, as in the case of services, neutral. Once
we move to consider the effects at an industry or country level, of course, the relationship
becomes much more complicated, because of associated or secondary effects operating
through exports of intermediate products, machinery or services by parent firms or other
firms in a home country to foreign affiliates, regardless of sector, or through associated
FDI that often follows when investment in a particular product -- whether a good or
service -- has been made. From what we know on the basis of empirical studies, it seems
that the overall impact of the various direct and indirect effects that occur, regardless of
the initial sequence, is that FDI is unlikely to be trade-replacing, either for the home or
the host country, except of course, where policies are implemented with the specific idea
of replacing trade by FDI or FDI by trade.
The expansion of FDI and trade therefore creates, at least globally, a win-win situation. In
the best case, this expansion links the trade engine of growth with the investment engine
of growth.
The complexity of the interrelationship between FDI and trade is increasing significantly
as a result of changes in the economic environment for international transactions that
have taken place in recent decades -- in particular, the reduction of technological and
policy-related barriers to the movement of goods, services, capital, professional and
34

skilled workers and firms. One result has been that international production has grown
significantly and the number of TNC parent-firms and foreign affiliates has increased
substantially. This, coupled with a much more enabling environment both technologically
and policy-wise, has meant that firms are much freer to choose how to serve markets or
how to obtain foreign resources. They can, moreover, start the internationalization
sequence for a new product anywhere within their TNC systems, and skip over steps in
the process. All of this gives firms much greater leeway to take a regional or global view
of markets and to serve them in the most efficient way possible, combining FDI and
trade.
The decision to locate any part of the value-added chain wherever it is best for a firm -be it transnational or national -- to convert global inputs into outputs for global markets
means that FDI and trade flows are determined simultaneously. They are both immediate
consequences of the same locational decision. The question therefore becomes more and
more, no longer whether trade leads to FDI or FDI leads to trade; whether FDI substitutes
for trade or trade substitutes for FDI; or whether they complement each other. Rather, it
becomes: how do firms access resources -- wherever they are located -- in the interest of
organizing production as profitably as possible for the national, regional or global
markets they wish to serve? In these circumstances, the decision where to locate is a
decision where to invest and from where to trade. And it becomes a FDI decision, if a
foreign location is chosen. It follows that, increasingly, what matters are the factors that
make particular locations advantageous for particular activities, for both, domestic and
foreign investors.
This increasingly simultaneous determination of FDI and trade flows and the role of trade
and FDI in development have profound policy implications. To begin with, for
governments this means that, increasingly, they have to make sure that their policies
towards FDI and trade are in harmony with each other if they wish to take advantage of
35

the interrelationships between FDI and trade. Broader, the distinction between domestic
investment and foreign investment becomes more and more blurred. More specifically,
governments need to make it not only attractive for foreign investors to come to their
shores; they increasingly need to make it also attractive for domestic investors to stay onshore, if they wish to fuel economic growth.
In brief, governments have to create an environment in which investment -- be it

domestic or foreign -- can prosper. What is more, they have to do this under conditions in
which all governments are competing -- and are competing fiercely -- to do the same,
namely to entice their own firms as well as foreign firms to locate production facilities on
their territories.
Part of this competition takes the form of policy competition and is aimed at establishing
the best enabling framework for investment. Policy competition takes place at several
levels:
-
First and foremost at the national level. To illustrate, in 1995 alone, 106
out of 112 regulatory changes in the FDI regimes of 64 countries went in
the direction of greater liberalization or promotion. If one takes the period
1991-1995 as a whole, only 11 out of 485 policy changes that could be
identified went into the direction of greater control. This signals a
powerful liberalization trend indeed. In fact, in the highly competitive
world market for FDI, "best practices" by one government in respect to the
regulatory framework for FDI rapidly become "benchmarks" for other
governments. And such benchmarking is particularly relevant in a regional
context.
Something comparable is happening at the bilateral level as well, where

the principal instruments are double-taxation treaties and bilateral
36

investment treaties. As of June 1996, there were 1,160 BITs in existence,
two-thirds of them concluded during the 1990s. Some 158 countries
participate in them, including, increasingly, developing countries
concluding such treaties with other developing countries.
-
At the regional level, too, governments seek to improve the framework for
investment flows, especially in the context of the EU, NAFTA, the Lom
Convention, APEC and Mercosur. In fact, these agreements are no longer
only free trade agreements but more and more free investment agreements
as well.
At the multilateral level, finally, the OECD has embarked on negotiations

on a Multilateral Agreement on Investment. In addition, a number of
issue-specific arrangements
exist, including as
performance
intellectual
requirements,
regards
property rights,
services,
insurance,
settlement of disputes and employment and labour relations. Attention is

also being paid to restrictive business practices, incentives and consumer
protection.
Experience with past efforts suggests that the evolution of international

arrangements for FDI has followed and interacted with developments at the
national level and reflects the priorities and concerns of a particular period.
Progress in the development of international investment rules is linked to the
convergence of rules adopted by individual countries. Furthermore, an approach
to FDI issues that takes into account the interests of all parties is more likely to
gain widespread acceptance and, ultimately, to be more effective. This raises the
question of how an appropriate balance of rights and obligations among the actors
affected can be found.
Widespread recognition is emerging at the present time on the principal issues that
need to be addressed by international discussions on FDI, including general
standards of treatment of foreign investors in relation to entry and establishment
37

and operational conditions; protection standards, including dispute settlement;
issues relating to corporate behaviour; and other issues, such as the promotion of
FDI. Thus, there seems to be some consensus that greater international
cooperation on FDI issues is desirable.
But there are quite keenly-felt differences between governments about how to proceed in
the immediate future. Some favour allowing current arrangements -- which, after all, are
working quite well in providing an enabling framework for FDI to expand and contribute
to growth and development -- to evolve organically, while improving them by deepening
and expanding them. Others favour an approach that involves the construction, through
negotiation, of a comprehensive multilateral framework for FDI, the rationale being that
the globalization of business, increased volumes and the growing importance of FDI, and
the intertwined nature of FDI and trade require a global policy framework.
These differences in approach partly hinge on the question of what consequences a

multilateral framework would have, especially as regards investment flows and their
impact on development. Many developing countries, in particular, look at this issue from
the perspective of the implications of a multilateral framework for national development.
Having said this, it is clear that most efforts at the national and international levels in the
area of investment have one thing in common: they seek to facilitate cross-border
investment, with a view towards attracting FDI, and in recognition that such investment
has an important role to play in the development of countries. This is not to say that
development is not possible without FDI, or that FDI cannot have a negative impact in
individual countries, e.g., where competition is stifled, certain restrictive business
practices are employed or transfer prices are manipulated. As always, governments need
to play a pro-active role in order to increase the contribution that FDI can make to
development. This role, however, needs to be carefully calibrated, and formulated in full
awareness of the constraints -- and opportunities -- created by a liberalizing and
38

globalizing world economy. As the specific configuration of these constraints and
opportunities varies from country to country, it is a true challenge for policy makers to
find the proper policy mix that makes their countries attractive for domestic and foreign
investors and that lets their countries benefit as much as possible from the investments of
these investors.
39
TRENDS IN GLOBAL TRADE FOR 2015
Trends in Global Trade for 2015

Mobile e-commerce and payment solutions have been in the trough of disillusionment for
awhile now, at least within the context of technology hype. However, in the above
infographic which covers global trade trends going into 2015, it is becoming clear that
such solutions are finally coming into their own.
Currently mobile commerce sales are worth $133 billion, but by 2018 this will quadruple
to $626 billion. Only 34% of consumers have bought online through their smartphone,
and this is poised to continue to increase significantly.
40

Previously this year, we talked about the potential of bitcoin and other cryptocurrencies
to disrupt the payment space. Bitcoin is the opposite of PayPal, in the sense that it
actually succeeded in creating a currency says Peter Thiel, the established venture
capitalist and a previous founder of Paypal. However, with the introduction of Apple Pay
and ongoing development of CurrentC, the landscape looks more competitive than ever.
WTO cuts world trade growth forecasts for 2015 and 2016
Global goods trade will grow by 3.3 percent this year and by 4.0 percent in 2016, less
than previously forecast, mainly due to sluggish economic growth, the World Trade
Organization said on Tuesday.
"We expect trade to continue its slow recovery but with economic growth still fragile and
continued geopolitical tensions, this trend could easily be undermined," WTO DirectorGeneral Roberto Azevedo said.
The WTO figures are based on economic growth estimates from organisations including
the International Monetary Fund, which will update its forecasts later on Tuesday.
WTO chief economist Robert Koopman said he had seen the new IMF figures and they
would be "in the same ballpark" and not affect the WTO's forecast.
Although the forecasts do suggest some modest growth in world goods trade, they follow
repeated downward revisions of trade forecasts as the economic outlook worsened.
Trade grew by 2.8 percent in 2014, far less than an original forecast of 4.7 percent and
also below the revised forecast of 3.1 percent that the WTO predicted last September.
41

The new expectation of 3.3 percent growth this year - already revised down twice, from
5.3 percent and then 4.0 percent, is a small acceleration but far below the long term trend.
Growth averaged 2.4 percent over each of the last three years, compared with an annual
average of 6.0 percent between 1990 and the global financial crisis that began in 20072008.
"There has only been one other period since the Second World War in which trade growth
has been so weak, and that was from 1980 to 1984. However, that period included two
outright contractions in trade due to the oil shock and the global recession of 1980-1981,"
Azevedo said.
By contrast, the current trade slump has come during a period of continued but modest
economic growth, he said.
The long-standing trend of trade growing about twice as fast as GDP appears to have
broken, making forecasting particularly difficult, the WTO said.
See also
Global financial system
International marketing
International trade
Internationalization
List of economic communities
List of free trade agreements
42
CONCLUSION
Trade and investment are key drivers of world growth. It will be

important to avoid actions, such as increased protectionism, that might
threaten future trade and investment and to encourage developments
such as the conclusion of the DDA that could boost them.
Over time there are likely to be significant changes to the distribution of global wealth,
growth and trade. Emerging markets, especially China and India, but also many other
emerging and developing countries will contribute a far greater share of global trade and
wealth. Firms will need to adjust to these shifts, but they should not abandon traditional
markets and activities in the process. Developed countries will remain large and
important customers.
Although the likely shifts will pose challenges to developed countries, the faster global
growth that will result will also generate opportunities. Globalisation and especially the
continued fragmentation of production will increase the interconnectedness of the global
economy. This will have many benefits, but may also increase the disruption that shocks
can cause and will make it harder to interpret and explain the complexities of
international trade and investment
43
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The Review of Economic Studies 28 (3): 161175. doi:10.2307/2295945.
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Production".
The
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of
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doi:10.2307/2295770.
Samuelson, Paul (2001). "A Ricardo-Sraffa Paradigm Comparing the Gains from
Trade in Inputs and Finished Goods". Journal of Economic Literature 39 (4):
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Brady, David (19 July 2011). Comparing European Workers: Policies and
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Retrieved 1 February 2013.
Preyer, G.; Mathias Bs (31 March 2002). Borderlines in a Globalized orld: New
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Chase-Dunn, Christopher; Yukio Kawano; Benjamin D. Brewer. 2000. "Trade

globalization since 1795: Waves of integration in the world-system," American
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Beyond: Essays in Honour of Wim Meeusen. Maklu. pp. 165. ISBN 978-90-4412855-0. Retrieved 1 February 2013.
Babones, Salvatore (15 April 2008). "Studying Globalization: Methodological

Issues". In George Ritzer. The Blackwell Companion to Globalization. John
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"Trade - Define Trade at Dictionary.com". Dictionary.com.
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Mundra, Kusum, Immigrant Networks and U.S.
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RECENT TRENDS IN GLOBAL TRADE

For an individual country, trade globalization is measured as the proportion of

They note that trade