Tài liệu TRADE:INSTITUTIONS AND IMPACT- Why and how do countries trade? pdf

Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 1 Lecture 1 Ari Kokko TRADE: INSTITUTIONS AND IMPACT Why and how do countries trade? Outline and schedule Ari Kokko Why do countries trade? • Get goods and services that cannot be produced at home • To accumulate gold • Get cheaper goods and services • Efficiency and growth • Different theories and policies for different motives Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 2 Lecture 1 Ari Kokko Gains from trade: the simple view • Clear gains if countries are strong in different areas: absolute advantages • Less obvious - but undisputed - gains even if one country is “better” in all areas: comparative advantages Ari Kokko Absolute advantages Motorbikes Rice Vietnam 20 10 Laos 10 20 Labor requirements for one unit of output Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 3 Lecture 1 Ari Kokko Comparative advantages Motorbikes Rice Vietnam 20 10 Laos 100 20 Labor requirements for one unit of output Ari Kokko Comparative advantages  Trade is profitable as soon as relative prices differ between countries  Why are there differences in relative prices?  Classical and neoclassical theory: – technology differences (Adam Smith 1776 / David Ricardo 1815) – differences in factor endowments (Heckscher- Ohlin 1930) Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 4 Lecture 1 Ari Kokko Policy conclusions: neoclassical theory  Free trade and specialization is optimal  pattern of comparative advantages is given by nature  all industries are equally “desirable”  International framework should support development of free trade  unilateral liberalization more difficult because of protectionist interest groups and lack of coordination Ari Kokko Institutions: Bretton-Woods solutions  Four cornerstones of international economy after WWII to support growth of free trade – International Bank for Reconstruction and Development – International Monetary Fund – International Trade Organization – Price stabilization fund Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 5 Lecture 1 Ari Kokko But why is world trade not free? • Protectionism leads to higher prices, lower consumption, and lower welfare both at home and abroad . • …so why is there still a lot of protectionism? Ari Kokko Unequal gains from trade at the micro level • Interest groups matter: trade benefits some groups but hurts others • trade raises the rewards of a country’s abundant factor of production and reduces the rewards of the scarce factor (Stolper-Samuelson theorem) • the groups that lose may oppose free trade • the transition to free trade may have troublesome social consequences Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 6 Lecture 1 Ari Kokko Shortcomings in neoclassical trade theory  What if the assumptions of the neoclassical theory aren’t true? – all industries are not equally valuable: better to produce micro chips than potato chips – comparative advantages can be created: economies of scale and agglomeration effects Ari Kokko Modern trade theory  Economies of scale – Bigger is better – Hard to manage in free trade environment if American and Japanese companies will always be stronger  Need to manipulate comparative advantages – Strategic trade policy? Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 7 Lecture 1 Ari Kokko Why strategic trade policy may be useful in theory • The location of industries with scale economies / agglomeration effects may be determined by history and chance. Strategic policy intervention may decide where the next cluster is located. • Protection of the local market and support to exporters may influence the location decisions of firms • FDI of central importance Ari Kokko Instruments of active trade policy • Tariffs and quotas • Domestic product standards, product regulations, and other NTBs • Subsidies for R&D, investments, production, labor training education, etc - what we often call industrial policy Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 8 Lecture 1 Ari Kokko Problems with strategic trade policy • Will hurt other industries • Not consistent with WTO: trade partners may retaliate. • Domestic interest groups will spend lots of money to be next in line for protection. • Very hard to be strategic • Policy alternative: become a big country Ari Kokko Institutions for modern trade policy • WTO • Regional integration • FDI policy • Industrial policy Fulbright Economics Teaching Program 2006-2007 Trade: Institutions and impact Ari Kokko 9 Lecture 1 Ari Kokko Course outline • First part: WTO and “traditional” trade policy Global trade institutions GATT and WTO WTO and developing countries Trade policy reform Export-led growth in East Asia Trade disputes Vietnamese trade policy WTO accession Ari Kokko Course outline, cont’d • Second part: “Modern” trade policy topics Strategic trade policy options Regional integration: principles Regional integration: cases Foreign direct investment Effects of FDI From trade policy to industrial policy . Institutions and impact Ari Kokko 1 Lecture 1 Ari Kokko TRADE: INSTITUTIONS AND IMPACT Why and how do countries trade? Outline and schedule Ari Kokko Why do countries. countries trade? • Get goods and services that cannot be produced at home • To accumulate gold • Get cheaper goods and services • Efficiency and growth