Import and Export Management

Muhammad Zahid Malik

zahid.malik@iqra.edu.pk
Globalization and Import Export
Policy
 Globalization-What is it?
General Perspective: Globalization is a complex series of
Economic, Social, Technological and Political changes taking place

throughout the world. People have positive and negative connotations

of Globalization. In a nutshell, Globalization is what makes this

World, one big unit. It is not just Import and Export.

Course Perspective: For the purpose of our Course, we shall focus on Globalization
with emphasis on Import and Export, which together, is called International Trade.

Glocalization: Another important term is Glocalization which is, as the name suggests,
is a combination of “Globalization” and “Localization”. This means thinking on Global, world

Market Scale, but adapting to local wants as appropriate.

 Globalization
• Globalization is the process of international integration arising from the interchange of
world views, products, ideas, and other aspects of culture.
• Advances in transportation (such as the steam locomotive, steamship, jet engine, and
container ships) and in telecommunications infrastructure (including the Internet, and
mobile phones) have been major factors in globalization, generating further
interdependence of economic and cultural activities.
• In 2000, the International Monetary Fund (IMF) identified four basic aspects of
globalization: (a) trade and transactions, (b) capital and investment movements, (c)
migration and movement of people, and (d) the dissemination of knowledge.
• Academic literature commonly subdivides globalization into three major areas:
economic globalization, cultural globalization, and political globalization.
Economic Globalization: Economic globalization is the increasing economic
interdependence of nations across the world through a rapid increase in cross-border
movement of goods, services, technology, and capital. Whereas the globalization of
business is centered around the diminution of international trade regulations as well as
tariffs, taxes, and other impediments that suppresses global trade, economic globalization
is the process of increasing economic integration between countries, leading to the
emergence of a global marketplace or a single world market. Depending on the paradigm,
economic globalization can be viewed as either a positive or a negative phenomenon.
 Globalization
Economic globalization comprises the globalization of production, markets,
competition, technology, and corporations and industries.
Current globalization trends can be largely viewed as developed economies
integrating with less developed economies by means of foreign direct investment,
the reduction of trade barriers as well as other economic reforms, and, in many
cases, immigration.

Cultural Globalization: Cultural globalization refers to the transmission of

ideas, meanings, and values around the world in such a way as to extend and intensify
social relations. This process is marked by the common consumption of cultures that have
been diffused by the Internet, popular culture media, and international travel.
Cultural globalization has increased cross-cultural contacts, but may be accompanied by a
decrease in the uniqueness of once-isolated communities.

Political Globalization: In general, globalization may ultimately reduce

the importance of nation states. Supranational institutions such as the European Union,
the WTO, the G8 or the International Criminal Court replace or extend national functions to
facilitate international agreement
Why International Trade?
 Why International Trade
1. Specialization
2. Variety to consumer
3. Shortage relief
4. Prevention of Monopolies
5. Improvement in Local production/Fear of competition
6. Industrial and Agricultural Development
7. Facilities of External Payment
8. International Relations
9. Transfer of Technology
10. Minimization of political clashes
11. Increase of National Income
12. Reduction in unemployment
13. Unbalanced Natural Resource allocation (including Human Resource)
14. Benefit of economies of Scale
15. Movement of Resources/Factors of Production more difficult than Good and Services
16. Absolute vs Comparative Advantage
 Absolute vs. Comparative Advantage
Absolute Advantage
When one country can produce goods/services with less resources than another country, it
is said to have an absolute advantage.
If Pakistan can produce sugarcane with less resources than India and India can produce
onion with less resources than Pakistan, then Pakistan shall be having absolute advantage
on Sugarcane and India shall be having absolute advantage on Onion.
Production of both Sugarcane and Onion shall be maximized in respective country and then
traded with the other country; both countries will gain.

Comparative Advantage
When on country can produce goods/services with less opportunity cost (relative cost)
than the other country, it is said to have a comparative advantage, even if it can produce
both goods with less resources than the other country.
In such a case, countries will specialize in products in which they have comparative
advantage and then trading will benefit both.
 Absolute vs. Comparative Advantage
The Concept of Absolute vs. comparative advantage is based on Specialization and
exchange (that is, Trade). When we specialize in what we do better, we gain. And when
we specialize AND Trade, we gain further. Same applies to individuals, Companies and
nations.

Assumptions and Conditions:

1. There are only 2 parties.
2. Only 2 commodities can be produced.
3. No barriers to trade
4. No Currency issues
5. No tariffs (Duties and taxes)
6. No Transport cost
7. Resources are freely transferable (industry to industry and use)
 Absolute vs. Comparative Advantage
Absolute Advantage: Suppose each country has 10 resources and they allocate is 50% to each
product.. Country A can produce 20 tractors and 100 bales of Wool with one resource.
Country B can produce 10 tractors and 150 bales of Wool per resource. Countries do no
specialize and do not trade. What is the Output?
No specialization, No Trading
Tractors Wool
Country A 100 500
Country B 50 750
Total output 150 1,250

Specialization Specialization + Trading **

Tractor Wool Tractor Wool
Country A 200 -0- 130 700
Country B -0- 1,500 70 800
Total 200 1,500 200 1,500
** trading @ 1 tractor for 10 bales of wool
 Absolute vs. Comparative Advantage
Comparative Advantage: Suppose each country has 10 resources and allocate half the
resources to one product. Also assume that Country A is more efficient in both the Products
(20 Tractors and 200 Bales /Unit). Countries do no specialize and do not trade. What is the
Output?
No specialization, No Trading
Tractors Wool
Country A 100 1,000
Country B 50 750
Total output 150 1,750
Opportunity Cost Wool/Tractor Tractor/Wool
Country A 1 tractor=10 bales 1 bales=0.1 tractor
Country B 1 tractor=15 bales 1 bales =0.067 tractors
Country A has comparative advantage in tractor and Country B is Wool. With specialization
(Country A give 2 resources to wool and 8 to tractors and Country B gives all resources to
Wool) , following may be the picture: Tractor Wool

Country A 160 400

Country B -0- 1,500
Total 160 1,900