International Trade

and Investment
Reporters:
Buela, Justine Mae
Casambros, Hannah Cathrina
Señora, Ma. Andrea Venice
Silvestre, Missy Grace
Tobias, Mark Richard
Paquis, Laurence Ralph
 TOPICS::
• INTERNATIONAL TRADE THEORIES
• TRADE EXPERIENCE OF EAST ASIA
• ISSUES/CONSIDERATION IN TRADE
• INSTITUTIONAL FRAMEWORKS THAT FACILITATE TRADE
• ASIAN EXPERIENCE IN INTRA INDUSTRY AND INTRAREGIONAL TRADE.
• TRADE IN SERVICES
• ISSUES IN INTERNATIONAL TRADE AND THE BALANCE PAYMENT.
INTERNATIONAL
TRADE THEORIES
CLASSICAL COUNTRY- BASED THEORY
MODERN FIRM- BASED THEORY

PRESENTED BY:
PAQUIS, LAURENCE RALPH P.
INTERNATIONAL TRADE
• International Trade is the exchanging of goods and services across
the international border. In 1600 and 1700 centuries, mercantilism
concerned that countries ought to at the same time encourage
exports and discourage imports. Smith argues that the invisible
hand of the market mechanism, instead of government policy,
ought to ought to confirm what a rustic imports and what it
exports.
When does International Trade Theories start?

• In the early 1900s, a theory of international trade was

developed by two Swedish economists, Eli Heckscher and
Bertil Ohlin. This theory has subsequently become known
as the Heckscher–Ohlin model (H–O model).
INTERNATIONAL TRADE THEORIES
• International trade is the process of exchanging goods and services
between two people or entities in two different countries. People or
entities trade because they believe that they benefit from the
exchange and may need or want the goods or services that are
being exchanged. There is a great deal of theory, policy, and
strategy that constitutes international trade.
 2 Based theories of International Trade

• Classical Country – Based • Modern Firm – Based

Theories Theories
( produced and exported goods ( an industry depends on the
that required resources or capacity of the industry and firm
factors) to innovate and upgrade)
• Classical Country – Based Theories
- states that nations would pick up comparative advantage in the
event they created and sent out merchandise that
required assets or components that they had in extraordinary supply and
so were cheaper generation factors.
Example of Classical Country-Based Theories:
• Mercantilism
• Absolute Advantage
• Comparative Advantage
• Heckscher Ohlin
 Mercantilism
• This theory stated that a country`s wealth was determined by
the amount of its gold and silver holdings. In its simplest sense,
mercantilists believed that a country should increase its
holdings of gold and silver by promoting exports
and discouraging imports. In other words, if people in
other countries buy more from you (exports) than they sell to
you (imports), then they pay you the difference in gold and
silver. By increasing exports and trade, these rulers were able
to amass more gold and wealth for their countries. One way
that many of these new nations promoted exports
was to impose restrictions on imports.
 Absolute Advantage
• In a hypothetical two-country world, if Country A could produce a good cheaper or
faster (or both) than Country B, then Country A had the advantage and could focus on
specializing on producing that good. Smith’s theory reasoned that with increased
efficiencies, people in both countries would benefit and trade should be encouraged.
His theory stated that a nation’s wealth shouldn’t be judged by how much gold and
silver it had but rather by the living standards of its people. Similarly, if Country B was
better at producing another good, it could focus on specialization as well. Smith
reasoned that trade between countries shouldn’t be regulated or restricted by
government policy or intervention.
 Comparative Advantage
• The challenge to the absolute advantage theory was that some countries
may be better at producing both goods and, therefore, have an advantage in many
areas. To answer this challenge, David Ricardo, an English economist, introduced
the theory of comparative advantage in 1817. Ricardo reasoned that even if
Country A had the absolute advantage in the production of both products,
specialization and trade could still occur between two countries.
• Miranda can also type faster than the administrative assistants in her office, who
are paid $40 per hour. Her productivity and income will be highest if she specializes
in the higher-paid legal services and hires the most qualified administrative
assistant, who can type fast, although a little slower than Miranda. A person or a
country will specialize in doing what they do relatively better. However, this
simplistic example demonstrates the basis of the comparative advantage theory.
 Heckscher-Ohlin
• They determined that the cost of any factor or resource was a function of supply
and demand. Their theory, also called the factor proportions theory, stated that
countries would produce and export goods that required resources or factors that
were in great supply and, therefore, cheaper production factors. In
contrast, countries would import goods that required resources that were in short
supply, but higher demand.
 • Modern Firm – Based Theories
- states that a nation's or firm's competitiveness in an industry depends on
the capacity of the industry and firm to improve and update.
Example of MFBT;
• Country Similarity Theory
• Product Life Cycle Theory
• Global Strategic Rivalry Theory
• Porter's National Competitive Advantage Theory
 Country Similarity Theory
• When they explore exporting, the companies often find that markets that look
similar in their domestic one, in terms of customer preferences, offer the most
potential for success.

• Swedish economist Steffan Linder developed the country similarity theory in 1961,
as he tried to explain the concept of in train industry trade. Linder`s theory
proposed that consumers in countries that are in the same or similar stage of
development would have similar preferences.
•
 Product Life Cycle Theory
• Raymond Vernon, a Harvard Business School professor, developed the product
life cycle theory in the 1960s. In the 1960s this was a useful theory to explain the
manufacturing success of the United States. The theory assumed that production
of the new product will occur completely in the home country of its innovation. It
has also been used to describe how the personal computer (PC) went through its
product cycle. The PC was a new product in the 1970s and developed into a
mature product during the 1980s and 1990s. Today, the PC is in the standardized
product stage, and the majority of manufacturing and production process is done
in low-cost countries in Asia and Mexico.
 Global Strategic Rivalry Theory
• The critical ways that firms can obtain a sustainable competitive advantage
are called the barriers to entry for that industry. The barriers to entry refer to
the obstacles a new firm may face when trying to enter into an industry or
new market.
• research and development,
• the ownership of intellectual property rights,
• economies of scale,
• unique business processes or methods as well as extensive experience in the
industry, and
• the control of resources or favorable access to raw materials.
 Porter's National Competitive Advantage
Theory
• In the continuing evolution of international trade theories, Michael Porter of
Harvard Business School developed a new model to explain national competitive
advantage in 1990. His theory focused on explaining why some nations are more
competitive in certain industries.
TRADE EXPERIENCE
OF EAST ASIA
• Growth Pattern of International Trade
• Actual Evolution of Trade
• Import-substitution and Export promotion
• The “Flying Geese” Developmemtal Paradigm

Presenter: Ma. Andrea Venice Señora

 Definition of Terms:
Primary Products: a product consisting of a natural raw
material; an unprocessed product.

Manufactured Products: finished goods from raw materials.

Capital-intensive: business processes or industries that

require large amounts of investment to produce a good or
service.

Labor-intensive: process or industry that requires a large

amount of labor to produce its goods or services.
Growth Pattern of International Trade

International trade volume has grown faster

than income in the past 30 years for the world
as a whole and also for Asia. The share of East
and Southeast Asia in world exports is now
more than 20% compared with 12% in 1990.
Growth Pattern of International Trade

• Income elasticity of demand for primary

products has been low and falling over time.
• Prices for primary products have also been
on a downward trend for the last century.
• Lower prices for exports of primary
products contrast with stable or rising
prices for manufactured goods.
Growth Pattern of International Trade

In the face of this trend and as a natural

consequence of economic development and
growth, the developing countries in general
have reduced primary exports and built-up
manufactured exports. This is true of Asia, and
to a lesser extent, Latin America but not Africa.
Growth Pattern of International Trade

The share of exports in GDP has continued to rise

as a region become more industrialized. A greater
reliance on export has helped to sustain rapid rates
of growth, but at the same time, has made a region
more dependent upon import demand from the
rest of the world particularly the industrial
countries.
2 Streotypical Trade Regimes

EXPORT PROMOTION
IMPORT-SUBSTITUTION
• Production undertaken
• Laying restrictions on
primarily for export and not
imports and prioritizing
concerned with domestic
domestic industry.
market.
ISSUES IN TRADE
EUROPEAN UNION (EU)
SOUTHERN COMMON MARKET (MERCOSUR)
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

PRESENTED BY: JUSTINE MAE B. BUELA

 Trade issues occasionally dominate and
are a continuing theme of the
international scene are:
European Union (EU), Southern Common
Market (Mercosur) North American Free
Trade Agreement (NAFTA).
EUROPEAN UNION (EU)

- It has one of the most globally outward-looking

economies. It is also the largest single market region in the
entire planet. One of the basic foundations of the EU was
free trade among its members, and it is dedicated to
opening up world trade as well. EU international commerce
increased between 1999 and 2010, and it currently makes
up more than 30% of the EU's GDP (GDP).
- The EU actively engages with countries or regional groupings to
negotiate trade agreements. These agreements grant mutually-beneficial
access to the markets of both the EU and the countries concerned. EU
companies can grow their business, and can also more easily import the
raw materials they use to make their products.

- Each agreement is unique and can include tariff reductions, rules on

matters such as intellectual property or sustainable development, or
clauses on human rights. The EU also gets input from the public,
businesses, and non-government bodies when negotiating trade
agreements or rules.
TRADE NEGOTIATIONS AND AGREEMENTS
- The EU supports and defends EU industry and business by
working to remove trade barriers so that European exporters
gain fair conditions and access to other markets. At the same
time, the EU supports foreign companies with practical
information on how to access the EU market.
The Southern Common Market “Mercosur”

Mercosur was established in 1991 and encompasses

Argentina, Brazil, Paraguay, Uruguay. Venezuela,
which officially joined in July 2012, was suspended
from membership in 2017.

In December 2012, the Protocol of Accession of Bolivia

to Mercosur was signed. This protocol is pending
ratification by the parliaments of Mercosur countries.
THE EU TRADE RELATION WITH MERCOSUR

The EU has concluded a trade agreement with the four

founding members of Mercosur (Argentina, Brazil, Paraguay,
and Uruguay) as part of a bi-regional Association Agreement.
Current trade relations between the EU and Mercosur are
based on an inter-regional Framework Cooperation
Agreement which entered into force from 1999.
The EU and individual Mercosur countries also have bilateral
framework cooperation agreements, which also deal with
trade-related matters.
The EU-Mercosur negotiations for a Trade Agreement
The EU-Mercosur negotiations started in 2000 and over the years
experienced different phases.
In May 2016, the EU and Mercosur relaunched the negotiation process,
exchanged new market access offers and intensified the pace of
negotiations by holding negotiation rounds and meetings at regular
intervals. On 28 June 2019 the European Union and Mercosur reached a
political agreement for an ambitious, balanced and comprehensive trade
agreement covering issues such as: tariffs, rules of origin, technical
barriers to trade, sanitary and phytosanitary measures, services,
government procurement, intellectual property, sustainable
development, small- and medium-sized enterprises
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

- NAFTA was replaced by the United States-Mexico-Canada

USMCA agreement as of July 1, 2020. While it accomplished
some good things for the economy, NAFTA also had six major
weaknesses. These disadvantages had a negative impact on
both American and Mexican workers and even the
environment.

- NAFTA was also controversial. Politicians don't agree on

whether the free trade agreement's benefits outweighed its
drawbacks.
WHAT ARE THE 4 CONS OF THE NAFTA AGREEMENT?

Job losses: Certain estimates indicate that it led to job losses.

A 2011 report from the Economic Policy Institute estimated a
loss of 682,900 jobs.

Lower wages: Job migration suppressed wages.

Companies threatened to move to Mexico to keep workers
from joining unions. Without the unions, workers could not
bargain for better wages.
Poorer working conditions: Unemployed
Mexican farmers went to work in substandard
conditions in the maquiladora program.

Environmental damage: U.S.

companies degraded the Mexican environment to
keep costs low. Agribusiness in Mexico used more
fertilizers and other chemicals.
Institutional
Frameworks that
Facilitate Trade
1. Currency exchange rate
2. Capital movement
3. Other factors
- Current account deficit
- Absorptive capacity
- Price stability and competitiveness

PRESENTED BY: Casambros, Hannah Cathrina Q.

 1. Currency Exchange rate
• Currency exchange rate is the cost of a unit of foreign
currency in terms of the local currency known as the
exchange rate.

• Using the exchange rate, we can compare prices of goods,

services, and assets quoted in different currencies. A
country's currency will be in great demand if its exports
exceed its imports.

• When demand is high, prices increase and the value of the

currency increases. On the other hand, if a nation imports
more than it exports, there will be less of a demand for its
currency.
Equilibrium exchange rate

The purchasing power parity

(PPP) between two countries'
currencies is the exchange rate at
which a given basket of goods and
services would cost the same
amount in each country.
 In the Philippines In US

What would happen to the cost of those American goods? • Philippine goods are
• In a world where PHP depreciates against the dollar, the going to be less
amount of PHP needed to equal 20,000 US dollars has now expensive to American
increased. buyers.

• American goods will be more expensive in the Philippines• Philippine exports into
the US are going to go
How might people decide to trade off those between Us up
and PH?
• If American cars become relatively more expensive, then
they’re likely to buy fewer American cars.
 2. Capital Movement

- It refers to the circulation of capital

between countries with different currencies.

- International capital allows countries to

finance more investment than can be
supported by domestic saving, thereby
increasing output and employment.
 3. Other factors: 3. Other factors:
Current Account Deficit Absorptive Capacity

• A current account deficit occurs when - It is the capacity of an organization to

the total value of goods and recognize, absorb, transform, and
services a country imports exceeds apply outside information, research,
the total value of goods and and practice.
services it exports.
- The entire quantity of money, foreign
capital, or foreign aid that a developing
country can utilize effectively.
 3. Other factors:
Price stability & competitiveness

• Price stability: It preserves the integrity and purchasing power of

the nation's money. It supports higher living standards by reducing
uncertainty about general price developments, thereby improving
the transparency of the price mechanism. Those countries that
maintained stable price regimes benefited the most, since their
domestic inflation rates were as low as or lower than their trading
partners.
 3. Other factors:
Price stability & competitiveness

• Price competitiveness: International trade allows countries to

expand their markets and access goods and services that otherwise
may not have been available domestically. As a result of
international trade, the market is more competitive. This ultimately
results in more competitive pricing and brings a cheaper product
home to the consumer.
ASIAN EXPERIENCE IN
INTRA-INDUSTRY AND
INTRAREGIONAL TRADE
PRESENTED BY: SILVESTRE, MISSY GRACE M.
INTER-INDUSTRY TRADE INTRA-INDUSTRY TRADE

• One way trade in a sector • The Trade of good in the same

• A trade of goods in different Industry of one country to
another.
Industry of one country to
• Also called two-way Trade
another.
• When a country exports and
• When A country export and imports similar goods in the
import different goods. same industry.
 INTRAREGIONAL TRADE EXTRAREGIONAL TRADE

• The trade of goods and • Trade between economies in

services happens within a the same group and all
specific region of the economies outside the group.
world economy.
ECONOMIC INTEGRATION
• Economic integration or Regional Integration is a treaty
between countries that often includes the reduction or
elimination of trade barriers as well as the coordination
of monetary and fiscal policies.
Why has the share of Intra-Asian Trade Increased so
much overtime?

1. Growth Income and Geographical Proximity

2. Rapid Growth in Different Kind of Regional Corporation
3. Developing Asia begun to Manufactured More
4. Other Factors
Rapid Economic Growth and Proximity

• Through Intraregional and Intra industry trade the economic

development in Asia increases.
• Improvement of transportation Infrastructure
Shift in The Direction Trade

• Expansion of Intraregional trade

increases rapidly than Extra-regional
Trade
Triangle Pattern of Trade

• Back – and Forth trading of

intermediate good
Shift in Commodity Composition in Trade

• From light manufacturing

to machinery, and telecommunication
equipment.
RESPONDING TO CHINA
• China is now the sixth largest economy in the world and the third
largest in trade (behind the United States and Germany).
• China has managed to latch on to the production of advanced, high-
productivity exports beyond what is normally expected of a poor,
labor-abundant country
ECONOMIC GROWTH, EXPORT, and PRODUCT
VARIATION
• Economic Growth – by increasing efficiency, innovation, and
productivity.
• Intense competition in export resulted in high technology exports
Rapid Growth in Different Kind of Regional Corporation

• Regional And Subregional Corporation

▪ Subregional Corp. - Greater Mekong Subregion (GMS); Southeastern
countries ( Cambodia, Laos, Myanmar, Thailand, Vietnam, Yunman province
of China.
▪ Asian Development Bank (ADB), begins to assist regional corporation in
1993.
Rapid Growth in Different Kind of Regional Corporation

• Bilateral Trade Agreement

▪ (FTA) Signed between Asian Nation and Industrial Nation
▪ Tariff reduction

• ASEAN (Association of Southeast Asian Nations) AND SAARCC (South Asian Association
for Regional Cooperation)
▪ Only formal viable organization within developing Asia

• APEC (Asia-Pacific Economic Cooperation)

▪ Open Regionalism – an international agreement whereby tariff are lowered among APEC member.

• AFTA (ASEAN FREE TRADE AREA)

▪ ASEAN member agreed to reduce tariff through a common effective preferential tariff (CEPT)
Other Factor
• Exchange Rate Adjustment
• Reduction of Transport Cost
• Improved Telecommunication
• Liberation of Regulation on Foreign Direct Investment
Trade in
services
PRESENTED BY: Tobias, Mark Richard
What is Trade in Services?
• Trade in services is the value of services exchanged between
residents and non-residents of an economy. Services include
transport, travel, communications services and insurance and
financial services.
• According to Yusuf and Evenett, they estimate that by 2001, the
value of services in all international trade and service transactions
reached around US $1 trillion, or nearly a fifth of all trade and
service transactions.

• The majority of business services are in the financial sector and

support trade in manufactured goods, which has been vital to Asia's
economic growth. In some Asian nations by 1997, trade in services
represented a substantial portion of total exports, nearly equaling
the OECD average.
Trade in Services
ISSUES IN
INTERNATIONAL
TRADE AND
BALANCE PAYMENT
ISSUES IN INTERNATIONAL TRADE
INTERNATIONAL TRADE AND BALANCE PAYMENT

PRESENTED BY:
PAQUIS, LAURENCE RALPH P.
 WHAT IS INTERNATIONAL TRADE?
• Trade is the lifeblood of the global economy. Policies and practices
put in place by the U.S. and its global economic partners, however,
can often restrict the flow of goods in commerce. Recent actions by
the Administration on trade issues have ramped up pressure on
other nations and caused disruption in the global economic pattern
of trade. This has created a greater need for our clients to seek
Bergeson & Campbell, expertise on navigating the channels of
turbulent trade waters.
WHAT ARE THE ISSUES IN INTERNATIONAL
TRADE?
➢ prohibitive tariffs
➢ intellectual property theft
➢ lack of a trade agreement
➢ unfair or illegal trade practices
 WHAT IS INTERNATIONAL TRADE AND
BALANCE PAYMENT?
• Balance of payments statistics record economic transactions between residents and non-residents. They
provide a series of balances between inward and outward transitions and show how these flows of transactions
are funded. The balance of payments is an important set of macro-economic statistics for a country, describing
its economic and financial relationships with the Rest of the World.
• The OECD collects and disseminates balance of payments statistics for all OECD countries, the major emerging
economies and key aggregates e.g. the OECD total, G7. Data are collected for all the major balances, inflows
and outflows in the current, capital and financial accounts. The current account components are also presented
seasonally adjusted. In most cases time series start in 1995. The OECD works closely with national agencies in
countries to ensure both the quality and the timeliness of the balance of payments statistics supplied and
disseminated.
BALANCE PAYMENT CURRENT ACCOUNT