Introduction to International

Trade
 International Trade

• Exports—goods and services produced in one

country and sold to other countries.
• Imports—goods and services consumed in a
country but which have been purchased from
other countries.
• Trade Deficit (Surplus)—a country has a trade
deficit (surplus) if its imports (exports)
exceeds its exports (imports).
 Index of Openness

• Index of Openness—a measure of how much a

country participates in international trade;
defined as the ratio of a country’s exports to
its GDP (or GNP).
• Open Economy—a country with a high value
of the index of openness.
• Closed Economy—a country with a relatively
low index of openness.
 Causes of Differences in Economic
Growth of Countries

• Quantity and quality of resource

endowments, particularly human capital
• Investment in plant and equipment (capital)
• Political and socioeconomic environment that
is stable and conducive to competition
 Growth of World Exports

• What has caused the explosion of world

trade?
– Reduction in trade barriers
– Advances in transportation, communication and
technology
– Proliferation of trade agreements
FIGURE 1.1 World Exports and Output
in Real Terms: 1950–2007
 Geographic Trade Patterns
• Developed countries account for the bulk of
world trade (largest exporters and importers).
• Developed countries trade primarily with each
other.
• Developing countries rely on developed
countries for their export markets.
• Countries trade mainly with neighbors.
TABLE 1.2 Top Ten Trading Partners of
Selected Countries, 2007
 Commodity Composition

• Top three most traded products

– Petroleum
– Office machines, computers, and parts
– Automobiles
• Increased role of global production (or
outsourcing)
World Trade in Major Products: 1994, 1999, 2003, 2006
(Rank, value in billions of $, percent share)
 GLOBALIZATION

• Globalization is the term used to convey

the idea that international factors are
becoming a more important part of the
world economy
• The simplest measure of globalization is
the ratio of exports to GDP
– Countries with a high ratio of exports to
GDP are generally more open to the world
economy than countries with a low ratio
 GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP for Selected
Countries
Country Real Export plus Imports as a Percent of GDP
Singapore 462.9%
Hong Kong 334.4
Luxembourg 282.0
Hungary 180.0
Ireland 176.7
Belgium 174.0
Netherlands 146.9
Taiwan 118.1
Honduras 109.7
Philippines 107.7
Austria 103.0
Costa Rica 96.4
Korea 95.5
 GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP for Selected
Countries
Country Real Export plus Imports as a Percent of GDP
Denmark 94.5
Switzerland 90.7
Sweden 88.9
Canada 81.8
Indonesia 81.7
Portugal 79.9
Nicaragua 79.3
Iceland 78.9
Israel 78.3
Finland 77.9
Ecuador 76.9
Germany 76.6
Norway 76.4
 GLOBALIZATION
Table 1.6 Exports Plus Imports as a Percentage of GDP for Selected
Countries
Country Real Export plus Imports as a Percent of GDP
Turkey 71.2
Chile 71.1
Poland 69.5
Mexico 66.8
Spain 65.1
U.K. 59.9
France 57.5
Italy 54.5
China 54.4
South Africa 54.4
Greece 54.3
Australia 48.9
U.S. 26.6
Japan 23.4
 GLOBALIZATION
Figure 1.4 Real World Exports of Goods as a Percentage of Real World
GDP

25% –

20% –

15% –

10% –

5% –

0% –
1975 1980 1985 1990 1995 2000 2005
Exports as a Percent of GDP
 GLOBALIZATION

• Globalization or the increasing openness

of an economy, means changes that are
not universally positive
• Globalization involves not only the goods
and service but the movement of people
and money as well
• International transactions occur because
both parties expect the transaction to
improve their welfare