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
Exports as a Percent of GDP
2000
2005
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