International Trade
Univ.Prof. Dr. Gerhard Clemenz
Institut für Volkswirtschaftslehre
Universität Wien
0. Introduction
0.1 Subject
0.1.1 International Economics
Special branch of economics for a long time Merkantilists
(Jean Baptiste Colbert, Adviser of Louis XIV,
Classical Economists (D. Hume, D. Ricardo [Free Trade],
F. List [Infant Industry], J.St.Mill) Neoclassical Economists
(B. Ohlin, P. Samuelson, J.Meade, W. Leontieff),
New Trade Theory (P. Krugman, E. Helpman,
G.Grossman…)
Origin: Emergence of modern national states (beginning in
the 16th century).
Difference to general equilibrium models (micro and macro
economic models):
 Factors of production not mobile between states
 National borders, tariffs, quotas, standards etc.
 National currencies – additional risks.
Because of international trade agreements (GATT, WTO,
NAFTA), currency unions, free capital movements,
„globalization“ distinction between international and
interregional trade blurred.
0.1.2 Branches of International Economics
0.1.2.1 Monetary International Economics
Focus on macroeconomic issues –
macroeconomics of open economies
Exchange rates
Balance of payments
Optimal Currency Areas
Monetary and fiscal policies in open economies
0.1.2.2 International Trade
Microeconomic focus
Flows of goods and services are usually treated
like in a pure barter economy
Why is trade taking place?
What determines the composition of the flows of
goods and services into and out of countries?
How does trade affect domestic production?
What determines the volume of trade?
Who benefits from trade?
What determines the terms of trade ([index of export
prices]/[index of import prices])
What are the effects of trade policies (quotas, tariffs,
Voluntary Export Restraints)
What is the (potential) role of strategic trade policy?
How are trade policies determined?
What is the role of multinational enterprises?
What are the causes and consequences of migration?
Country
Population
(millions)
GDP
Imports
($ billions) merchandise
Exports
I/GDP
merchandise (%)
U.S.A.
263
7,245.8
771
584.7
10.6
Germany
81.6*
1,922.6
444.5
508.3
23.1
U.K.
58.4*
1,086.4
263.7
242
24.3
Singapore
3
85.3
124.5
96.8
146
Brazil
159.2*
395**
53.8
46.5
6**
India
901.5*
301.3
34.5
30.7
11.5
Austria (in S)
8*
233.2
55.3*
45.2*
23.7
*1994 data
**1991 data
Source:
IMF
Trade Statistics 2011 in Billions US Dollars
Austria
Germany
USA
Canada
Brazil
India
Singapore
Japan
Imports
Exports Population
180,4
1.255,40
2.565,40
452,1
214,1
447,4
365,8
854,1
169,7
1.475,50
1.480,40
451,7
258,9
298
409,5
822,7
Sources: WTO, World Bank
8.5
82
312
35
197
1.241
5.2
128
GDP
418,5
3570,1
15094,0
1736,1
2476,7
1848,0
239,7
5867,2
IM/GDP
43,1
35,2
17,0
26,0
8,6
24,2
152,6
14,6
2004 data
United States
Germany
Japan
United
Canada
Singapore
Brazil
India
Austria
Population Nominal GDP Export, FOB
(millions)
($ billions) ($ billions)
295,4
11.734,3
818,5
82,6
2.744,3
911,6
127,9
4.672,0
565,7
59,5
2.133,0
341,6
32,0
993,4
304,5
4,3
106,8
179,6
183,9
604,9
96,5
1.087,1
686,2
71,8
8,2
292,7
109,0
Source: IMF-International Financial Statistics
Import, CIF
($ billions)
1.525,7
718,0
454,5
451,7
273,1
163,9
65,9
94,1
108,9
Imports
% of GDP
13,0
26,2
9,7
21,2
27,5
153,4
10,9
13,7
37,2
2003 data (from IMF-IFS National Accounts)
United States
Germany
Japan
United Kingdom
Canada
Singapore
Brazil
India
Austria
Exports of goods and
services ($ billion)
1.045,7
858,9
508,8
461,3
329,0
..
83,3
87,6
123,1
Imports of goods and
services ($ billion)
1.546,5
756,8
439,9
511,9
293,5
..
65,0
95,2
112,9
Global daily turnover in traditional foreign exchange
markets:
2004: $1.9 trillion (dt.Billionen)
2001: $1.1 trillion (57% nominal rise, 36% at
constant exchange rates)
Global daily turnover in foreign exchange and interest
rate derivatives contracts:
2004: $2.4 trillion, growth since 2001 in real terms:
51%.
Both segments are nearly the same
Financial centers: London, New York, Paris
Reasons for growth of world trade
Liberalization (GATT, WTO)
Regional Trade Agreements (EFTA, NAFTA)
Opening up of several countries (China)
Improved Transport Facilities
Multinational Corporations
0.3 Comparative Advantage
Core of international trade theory: Every country exports (on average)
those goods whose relative prices in autarky are below their relative
world market prices.
Example: two countries – two goods: beer and notebooks.
•Autarky prices in Germany: 800 €/barrel, 2400 € , relative price of beer:
1/3
•Autarky prices in Austria: 900 €/barrel, 4500 €, relative price of beer :
1/5;
•Germany: forego 3 barrels of beer for 1 notebook,
•Austria: forego 5 barrels of beer for 1 notebook 
•At any relative price of beer between 1/3 und 1/5 Pareto-improvement, if
Austria exports beer and Germany exports notebooks.
Reasons for comparative advantages:
1. Different preferences,
2. different technologies,
3. different factor endowments,
4. increasing returns to scale,
5. others.
First reason: of little theoretical interest, reasons
two and three: subject of traditional theory,
remaining reasons dealt with in recent theories
(imperfect competition, IO).
0.4 Contents
0. Introduction
1. Two-Sector Models
2. The Heckscher-Ohlin Model
3. Many Goods and Factors
4. Increasing Returns and the Gravity Equation
5. Strategic Trade Policy
6. Political Economy of Trade Policy
7. Multinationals and Organization of the Firm
0.5 Literature
Feenstra, Robert C., Advanced International Trade,
Princeton University Press, Princeton 2004.
Falvey, Rod and Udo Kreickemeier (eds.), Recent
Developments in International Trade Theory, Edward
Elgar, Cheltenham, UK, 2005
Kar-yiu WONG, International Trade in Goods and Factor
Mobility, The MIT Press, Cambridge, Mass. und
London, 1995;
Helpman, E. and P. Krugman, Market Structure and
Foreign Trade, Harvester Press, 1985;
Dixit, A. and V. Norman, Theory of International
Trade, Cambridge UP, 1980;
Woodland, A.D., International Trade and Resource
Allocation, North-Holland, 1982;
Greenaway, D. and L.A.Winters (eds.), Surveys in
International Trade, Blackwell, Oxford, 1994;
Krugman, P.R. and M. Obstfeld, International
Economics, Harper Collins, New York, 1994.
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