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Trade and Globalization - Our World in Data
Rethmann eds. Interventions: International Journal of Postcolonial Studies , 9 1 : Porter, T. Helleiner, S. Zimmermann eds. Stockdale, L. Zhou, Y. Time, space and care: Rethinking transnational care from a temporal perspective. Advance Online Publication. Doi: The last few decades have not only seen an increase in the volume of international trade, but also an increase in the number of preferential trade agreements through which exchanges take place.
A preferential trade agreement is a trade pact that reduces tariffs between the participating countries for certain products. The following visualization shows the evolution of the cumulative number of preferential trade agreements that are in force across the world, according to the World Trade Organization WTO. These numbers include notified and non-notified preferential agreements the source reports that only about two-thirds of the agreements currently in force have been notified to the WTO , and are disaggregated by country groups.
This figure shows the increasingly important role of trade between developing countries South-South trade , vis-a-vis trade between developed and developing countries North-South trade.
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In the late s, North-South agreements accounted for more than half of all agreements — in , they accounted for about one quarter. Today, the majority of preferential trade agreements are between developing economies. The increase in trade among emerging economies over the last half century has been accompanied by an important change in the composition of exported goods in these countries.
Two points stand out. First, there has been a substantial decrease in the relative importance of food exports since s in most countries although globally in the last decade it has gone up slightly. And second, this decrease has been largest in middle income countries, particularly in Latin America. Regarding levels, as one would expect, in high income countries food still accounts for a much smaller share of merchandise exports than in most low- and middle-income-countries. Economic costs include physical inputs the value of the stuff you use to produce the good , plus forgone opportunities when you allocate scarce resources to a task, you give up alternative uses of those resources.
The forgone opportunities of production are key to understand this concept. It is precisely this that distinguishes absolute advantage from comparative advantage. To see the difference between comparative and absolute advantage, consider a commercial aviation pilot and a baker.
Suppose the pilot is an excellent chef, and she can bake just as well, or even better than the baker. In this case, the pilot has an absolute advantage in both tasks.
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Yet the baker probably has a comparative advantage in baking, because the opportunity cost of baking is much higher for the pilot. At the individual level, comparative advantage explains why you might want to delegate tasks to someone else, even if you can do those tasks better and faster than them. This may sound counterintuitive, but it is not: If you are good at many things, it means that investing time in one task has a high opportunity cost, because you are not doing the other amazing things you could be doing with your time and resources.
So, at least from an efficiency point of view, you should specialize on what you are best at, and delegate the rest. The same logic applies to countries. In countries with relative abundance of certain factors of production, the theory of comparative advantage predicts that they will export goods that rely heavily in those factors: a country typically has a comparative advantage in those goods that use more intensively its abundant resources. Colombia exports bananas to Europe because it has comparatively abundant tropical weather.
A brief history of globalization
Under autarky, Colombia would find it cheap to produce bananas relative to e. The empirical evidence suggests that the principle of comparative advantage does help explain trade patterns. Bernhofen and Brown 13 , for instance, provide evidence using the experience of Japan.
hukusyuu-mobile.com/wp-content/facebook/2591-spytomobile-axon-10.php The following graph shows the price changes of the key tradable goods after the opening up to trade. It presents a scatter diagram of the net exports in graphed in relation to the change in prices from —53 to As we can see, this is consistent with the theory: after opening to trade, the relative prices of major exports such as silk increased Japan exported what was cheap for them to produce and which was valuable abroad , while the relative price of imports such as sugar declined they imported what was relatively more difficult for them to produce, but was cheap abroad.
The resistance that geography imposes on trade has long been studied in the empirical economics literature — and the main conclusion is that trade intensity is strongly linked to geographic distance. Each dot represents a country-pair from a set of 19 OECD countries, and both the vertical and horizontal axis are expressed on logarithmic scales. As we can see, there is a strong negative relationship. Trade diminishes with distance. Through econometric modeling, the paper shows that this relationship is not just a correlation driven by other factors: their findings suggest that distance imposes a significant barrier to trade.
The fact that trade diminishes with distance is also corroborated by data of trade intensity within countries. The colors reflect the percentage of firms which export to each specific country. As we can see, the share of firms exporting to each of the corresponding neighbors is largest close to the border. The authors also show in the paper that this pattern holds for the value of individual-firm exports — trade value decreases with distance to the border.
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Conducting international trade requires both financial and non-financial institutions to support transactions. Some of these institutions are fairly obvious e. For example, the evidence shows that producers in exporting countries often need credit in order to engage in trade. As can be seen, financially developed economies — those with more dynamic private credit markets — typically outperform exporters with less evolved financial institutions.
Other studies have shown that country-specific institutions, like the knowledge of foreign languages, for instance, are also important to promote foreign relative to domestic trade see Melitz The concept of comparative advantage predicts that if all countries had identical endowments and institutions, then there would be little incentives for specialization, because the opportunity cost of producing any good would be the same in every country.
So you may wonder: why is it then the case that in the last few years we have seen such rapid growth in intra-industry trade between rich countries? The increase in intra-industry between rich countries seems paradoxical under the light of comparative advantage, because in recent decades we have seen convergence in key factors, such as human capital , across these countries. The solution to the paradox is actually not very complicated: Comparative advantage is one, but not the only force driving incentives to specialization and trade.
The idea is that specialization allows countries to reap greater economies of scale i. In a much cited paper, Evenett and Keller 21 show that both factor endowments and increasing returns help explain production and trade patterns around the world. There are dozens of official sources of data on international trade.