introduction to trade
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Introduction to Trade. HESO 449B – 002 Aneil Jaswal. Learning Outcomes. 1) Understand what is meant by the term trade 2) Understand the history and reasons behind trade 3) Understand trade in the context of development – begin to see potential connections to health - PowerPoint PPT PresentationTRANSCRIPT
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Introduction to TradeHESO 449B – 002
Aneil Jaswal
+Learning Outcomes
1) Understand what is meant by the term trade 2) Understand the history and reasons behind trade 3) Understand trade in the context of development –
begin to see potential connections to health 4) Understand the issues that are being debated, in the
context of globalization
+What is Trade?
Exchange of good and/or services Voluntary -> mutually beneficial Facilitated by the markets Barter Money
+Who Trades?
Individuals Households Firms States
+Why Trade?
specialization and division of labor concentrate on a small aspect of production economies of scale
COMPARTIVE ADVANTAGE
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Absolute Advantage(two countries, two products, one production input (labour)
1 roll of cloth 1 Bushel of wheat
Canada 9 hours 7 hours (more efficient)
India 3 hours (more efficient) 12 hours
If Canada and India trade, both countries can divert labour to the good they produce most efficiently. For example: Canada diverts 100 hours of labour from cloth production to
wheat India diverts 100 hours of labour from wheat production to
cloth
Absolute Advantage(two countries, two products, one production input (labour)
Rolls of cloth Bushels of wheat
Canada (100 hours from cloth production to wheat)
-11 rolls (-100 hours divided by 9)
+14 bushels (+100 hours divided by 7)
India (100 hours from wheat production to cloth)
+33 rolls (+100 hours divided by 3)
-8 bushels (-100 hours divided by 12)
Net gain from trade for Canada and India: 22 rolls of cloth and 6 bushels of wheat
Comparative Advantage(two countries, two products, one production input (labour)
1 roll of cloth 1 Bushel of wheat
Canada 9 hours 7 hours
Mexico 3 hours (more efficient) 6 hours (more efficient)
Mexico has absolute advantage in cloth and wheat Canada has comparative advantage in wheat If Canada and Mexico trade, both countries can divert labour to the good they produce comparatively efficiently. For example:
Canada diverts 100 hours of labour from cloth production to wheat India diverts 50 hours of labour from wheat production to cloth
Comparative Advantage(two countries, two products, one production input (labour)
Rolls of cloth Bushels of wheat
Canada (100 hours from cloth production to wheat)
-11 rolls (-100 hours divided by 9)
+14 bushels (+100 hours divided by 7)
Mexico (50 hours from wheat production to cloth)
+17 rolls (+50 hours divided by 3)
-8 bushels (-50 hours divided by 6)
Net gain from trade for Canada and Mexico: 6 rolls of cloth and 6 bushels of wheat
+History of Trade
Silk Road Mercantilism Adam Smith David Ricardo
+Development of the Modern Trading System Bretton Woods Agreement International Political
Economy Free trade advanced further in the late 20th century
and early 2000s: 1992 EU lifts barriers to internal trade of goods and
labor 1994 NAFTA 1995 WTO is Born
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+WTO
Created in 1995 After the Uruguay Round GATT (General Agreement on
Tariffs and Trade..1947-1994 Trade Disputes – mechanism Covers 95% of World Trade Current Round – DOHA Committees Voting System
+Encouraging Trade
Tariff Reductions Reciprocity Non-Discrimination (most favored nation principle) National Treatment Non-Tariff Barrier Reductions
+INTERNATIONAL TRADE
Bilateral Multilateral G7/8,G20 G77
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+Collapse of Doha
US, India and China Agriculture Environment
+Other Doha Issues
Access to patented medicines Trade Related Aspects of Intellectual Property Rights
(TRIPS)
- On August 30, 2003, WTO members reached agreement on the TRIPS and medicines issue.
+The Golden Straight Jacket
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+Fair Trade
Social + Environmental Standards Example: Kenyan Farmers
+Development
Agglomeration – Africa left behind Capital Investment – aid for infrastructure...but how
about equipment/machinery? Econ theory suggests low capital countries provide high
returns… Poorest 49 countries =10% of population = 0.4% world
trade
+IMF
Oversees global financial system SAPs – Structural Adjustment Policies…cut health
care…
+Regional Trade Agreements
Moving Away from Global? NAFTA, EU, ASEAN
+Free Trade Debate
For Economic Gains growth, increase avg income Interdependence peace Freedom Against nationalism Share culture/knowledge
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+Free Trade Debate
Against
Against development
Cost of distribution
Harm young industry
Uneven wealth distribution
Excess dislocation
Dependency theory
Sovereignty
Instability
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+On the Global Economy