International Trade:

Facts and Queries

 Today, we will talk about…

• Facts about International Trade

• Questions to be considered

2 of 72
World Exports in Goods (1980-2018)

3 of 72
World Exports in Services (2005-2018)

4 of 72
Facts: World Trade/GDP (1980-2017)

5 of 72
Facts: Export Import Ranking (2018)

Rank Exporters Value Rank Importers Value

1 EUROPEAN UNION 6465 1 EUROPEAN UNION 6494

2 CHINA 2487 2 UNITED STATES 2614

3 UNITED STATES 1664 3 CHINA 2135

4 GERMANY 1560 4 GERMANY 1285

5 JAPAN 738 5 JAPAN 748

6 NETHERLANDS 722 6 UNITED KINGDOM 673

7 KOREA, SOUTH 604 7 FRANCE 672

8 FRANCE 581 8 NETHERLANDS 646

9 HONG KONG 569 9 HONG KONG 627

10 ITALY 546 10 KOREA, SOUTH 535

11 UNITED KINGDOM 485 11 INDIA 510
12 BELGIUM 466 12 ITALY 500

13 MEXICO 450 13 MEXICO 476

Source: WTO Database 6 of 72

 Facts: Trade/GDP (2017)
Rank Country Name Trade/GDP(%)
1 Luxembourg 412.9
2 Hong Kong SAR, China 376.4
3 Singapore 317.8
4 Malta 280.4
5 Ireland 209.4
6 Vietnam 200.4
7 Seychelles 192.0
8 Slovak Republic 190.7
9 United Arab Emirates 172.8
10 Belgium 170.4
82 European Union 85.3
94 Korea, Rep. 80.8
207 China 38.1
211 Japan 34.6
216 United States 27.1

Source: World Bank (2019) 7 of 72

 Facts: Trade /GDP

• The value-added can be much less than the total

value of exports.
 This is why trade can be greater than GDP.
• The countries with the lowest ratio are those with
large economic values or those that have just
started trading.
• Although China was the world’s largest trader in
2017, it had one of the smallest ratio to GDP.

8 of 72
 Facts: Trade/GDP

• In 2018 trade/GDP for the U.S. was 27%.

• Most other countries have a higher ratio.
• Countries that are important shipping and
processing centers are much higher.
 Hong Kong, Malaysia, and Singapore

9 of 72
 Trade what?

• Merchandise goods: includes manufacturing,

mining, and agricultural products.

• Service: includes business services like eBay,

travel, insurance, and transportation.

10 of 72
 Trade what?: Movement of Factors

• Migration is the flow of people across borders as

they move from one country to another.

• Foreign Direct Investment is the flow of capital

across borders when a firm owns a company in
another country.

11 of 72
Facts: Composition of Goods Trade

Unit: billion USD, Source: UNCTAD Database, Bang(2008) 12 of 72

 Questions to Consider

• Why do countries trade?

• Determinants of the volume and pattern of trade?
• The effects of trade?
• Why trade policy?
• How to implement trade policy?
• The effects of trade policy?
• Any role of trade in development?

13 of 72
 Why Trade?

• Why do countries trade?

 Gains from Trade!!

14 of 72
 Why Trade?

• Gains from trade based on the Ideas..

1. When a buyer and a seller engage in a voluntary

transaction, both receive something that they want
and both can be made better off.

 Korean consumers could buy Chilean wine through

international trade that they otherwise would have a difficult
time producing.

 The Chilean producer of the wine receives income that it can

use to buy the things that it desires.

15 of 72
 Why Trade?

2. With a finite amount of resources, countries can

use those resources to produce what they are
most productive at (compared to their other
production choices), then trade those products
for goods and services that they want to
consume.

 Countries can specialize in production, while consuming many

goods and services through trade.

16 of 72
 Why Trade?
3. Trade is predicted to benefit a country by making
it more efficient when it exports goods which
use abundant resources and imports goods
which use scarce resources.

4. When countries specialize, they may also be

more efficient due to large scale production.

17 of 72
What Determines the Volume of Trade?

• Gravity Model:
Trade between countries may be similar to the
force of gravity between objects.

 The force of gravity between two masses :

Fg = G[M1M2/d2]

 Gravity Equation in Trade between two countries:

Trade₁₂= B[GDP₁GDP₂/D₁₂] Z₁₂

18 of 72
What Determines the Pattern of Trade?

• Pattern of Trade
Who exports (imports) what to (from) whom?

19 of 72
 Source of Comparative Advantage?

• Differences in labor productivity may explain

why some countries export certain products.

Ricardian Model

20 of 72
 Source of Comparative Advantage?

• How relative supplies of capital, labor and land

are used in the production of different goods and
services may also explain why some countries
export certain products.

 Hecksher-Ohlin Model

21 of 72
What Determines Pattern of Intra-Industry Trade?

• Then, what about exporting Hyundai Sonata and

importing BMW? (Intra-industry Trade)

Increasing Returns
Imperfect Competition
Love for Variety

22 of 72
 The Effects of Trade: Only Gains from Trade?

• Trade is predicted to benefit countries as a whole

in several ways, but trade may harm particular
groups within a country.
 International trade can adversely affect the owners of
resources that are used intensively in industries that
compete with imports. (pain for somebody, some
sector)
 Trade may therefore have effects on the distribution
of income within a country.
 Conflicts about trade should occur between groups
within countries rather than between countries.

23 of 72
 What are the Determinants and Effects of
International Factor Movement?

• Labor Movement (Migration)

• Capital Movement (Foreign Direct Investment)
• International Outsourcing

24 of 72
 Trade Policy
• To protect certain industries, policy makers affect the
amount of trade through
 tariffs: a tax on imports or exports,
 quotas: a quantity restriction on imports or exports,
 export subsidies: a payment to producers that export,
 or through other regulations (ex., product specifications, TBT,
SPS)
that exclude foreign products from the market, but still allow
domestic products.

25 of 72
 Barriers to Trade
Average Worldwide Tariffs, 1995-2017

Source: World Development Indicators, World Bank 2019

26 of 72
 Barriers to Trade
Shares of Non-Tariff Barriers (up to 2016)

Source: The Evolution of Non-Tariff Measures and their Diverse

Effects on Trade, WTO ITIP, wiiw calculations.

27 of 72
 Barriers to Trade
Number of Technical Barriers to Trade (1996-2014)

Source: wiiwNTM Database (2018)

28 of 72
Trade Policy: Economists design models of Trade
Policy considering…

• If a government must restrict trade, which policy

should it use?
• If a government must restrict trade, how much
should it restrict trade?
• What are the costs and benefits of these
policies?
• If a government restricts trade, what are the
Optimal Policies if foreign governments respond
likewise?

29 of 72
 International Trade Agreements

• Multilateral vs. Bilateral Trading System

• What are the Effects of International Trade

Agreements?

30 of 72
 Any Role of Trade in Development?

• Does Trade facilitate Economic Growth and

Development?

• Some Empirical Results

• Import-Substituting vs. Export-Oriented

Industrialization

• Role of Trade in Development in Korea

31 of 72