Globalization and International Trade Author: Jean-Paul Rodrigue International trade is an exchange of goods or services across national jurisdictions. Inbound trade is defined as imports and outbound trade is defined as exports. International trade is subject to the regulatory oversight and taxation of the involved nations, namely through customs.
Globalization and International Trade Author: Jean-Paul Rodrigue International trade is an exchange of goods or services across national jurisdictions. Inbound trade is defined as imports and outbound trade is defined as exports.
International trade is subject to the regulatory oversight and taxation of the involved nations, namely through customs.
The Flows of Globalization In a global economy, no nation is self-sufficient, which is associated with specific flows of goods, people and information. Each nation is involved at different levels in trade to sell what it produces, to acquire what it lacks and also to produce more efficiently in some economic sectors than its trade partners.
It now plays an even more active part in the economic life of nations and regions, but trade should be taking place only if there is a benefit for the partners involved. Trade can be a convenience, but also a necessity. It is a convenience, as supported by conventional economic theorywhen trade promotes economic efficiency by providing a wider variety of goods, often at lower costs, notably because of specialization, economies of scale and the related comparative advantages.
It is a necessity when trade enables to acquire goods that would otherwise not be available in a national economy such as energy, minerals or food. However, the benefits of trade can be subject to contention with several theoretical foundations of international trade articulated to provide an explanation of its rationale: A trade system where a nation tried to impose a positive trade balance more exports than imports, particularly value-wise on other nations to favor the accumulation of wealth.
This system was prevalent during the colonial era and often undertaken by charter companies receiving a monopoly on trade. Mercantilism represents the antithesis of free trade since trade relations are controlled and aligned to benefit one partner at the expense of the other.
Still, mercantilism established the foundations of a global trading system, albeit an unequal one. A more recent trade system, which like mercantilism leans on establishing a positive trade balance to meet economic development goals.
Export-oriented strategies can be considered a form of neomercantilism, particularly if a government establish an incentive and subsidy system e. Neomercantilism can also be a response by some governments to the competitive and disruptive consequences of free trade, particularly if the trade partners are engaged in neomercantilist strategies.
The outcome is tariff and non-tariff measures regulating trade and protecting national commercial sectors that are perceived to be subject to unfair competition.
Therefore, neomercantilist strategies can be controversial and subject to contention. Based on a nation or a firm able to produce more effectively in an economic sector while using less resources e.
It therefore has an absolute advantage. Global efficiency can thus be improved with trade as a nation can focus on its absolute advantages, trade its surplus and import what it lacks. The drawback of this perspective is that in theory nations having no absolute advantages should not be involved in trade since they may have little to gain from it.
Absolute advantages tend to be an enduring characteristic, particularly for resources where large producers keep an advantage as long as a resource is available or has a market.
Even if a nation or a firm has absolute advantages over a wide array of economic sectors, it can focus on the sectors it has the highest comparative advantages the difference of its production costs and those of its competitors and import goods in sectors it has less comparative advantages.
The comparative productivity increases the total production level since that even if a nation or a firm has no absolute advantages, it can focus on sectors where the total productivity gains are the most significant. A comparative advantage can also be the outcome of economies of scale applied to a product or sector where the resulting lower costs provides competitiveness.
Comparative advantages tend to be a temporary characteristic, that can change with the evolution of labor costs and technology. Expands the comparative advantages perspective by underlining that trade is related to the factors endowments of a nation.
The most basic endowments are capital, land and labor.
A nation will export goods to which it has notable factor endowments and imports goods in which it has scarce factor endowments. As such, nations that have low cost labor available will focus in labor intensive activities while nations having high capital endowments will focus in capital intensive activities.
Factor endowments can be improved through capital and human resources investments. This process has been facilitated by significant technical changes in the transport sector. It has become increasingly possible to trade between parts of the world that previously had limited access to international transportation systems.
Further, the division and the fragmentation of production that went along with these processes also expanded trade.Macroeconomics in Context Growth in the size of corporations.
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With technology aiding rapid expansion and conduct of business activities across the globe, the blurring lines between local and global operations for a business or an individual are leading to.
However, the benefits of trade can be subject to contention with several theoretical foundations of international trade articulated to provide an explanation of its rationale: but mostly corporations with the end products consumed in majority United Nations estimates have underlined that for developing countries a 10% reduction in.