1 / 19

PART 6: AUSTRALIA IN THE INTERNATIONAL ECONOMY Chapter 12: Australia’s international trade

PART 6: AUSTRALIA IN THE INTERNATIONAL ECONOMY Chapter 12: Australia’s international trade. Goods. Services. A$. FDI. Benefits of exporting goods and services. Increased employment Specialisation, economies of scale

bonnie
Download Presentation

PART 6: AUSTRALIA IN THE INTERNATIONAL ECONOMY Chapter 12: Australia’s international trade

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. PART 6: AUSTRALIA IN THE INTERNATIONAL ECONOMY Chapter 12: Australia’s international trade Goods Services A$ FDI

  2. Benefits of exporting goods and services • Increased employment • Specialisation, economies of scale • Export firms able to divert greater funds into the development of existing land, plant and machinery

  3. Reasons for Imports • Goods cannot be produced within the country • Lack of resources and/or technology • Goods can be produced, but not in sufficient quantities (e.g. oil) • Goods are available more cheaply overseas (e.g. electrical/electronics goods) • Benefits: quality enhancement, increase in efficiency and competitiveness for local goods, higher standard of living

  4. Theories of International Trade:Absolute Advantage • The exporting country holds a superiority in the availability of certain goods because of • Climate, quality of land and natural resources • Differences in labour, capital, technology and entrepreneurship

  5. Theories of International Trade: Theory of Comparative Advantage • David Ricardo (1817) • One country has a comparative advantage over another in the production of a certain commodity if its opportunity of producing that commodity is lower

  6. Alternative Production Possibilities(100 Units of Resources) • Australia has an absolute advantage in both goods (see example in text, p. 211) • On a relative basis Australia’s comparative advantage is greatest in cheese (2.5 to 1 versus 1.33 to 1) • The United Kingdom’s comparative disadvantage is least in cloth (1 to 1.33 versus 1 to 2.5 for cheese)

  7. Trade Under Constant Opportunity Costs Opportunity cost Australia United Kingdom 1 kg cheese = 0.80 m cloth 1.5 m cloth 1 m cloth = 1.25 kg cheese 0.67 kg cheese • Trade ratio: 1 kg of cheese = 1 m of cloth • Australia’s benefit: domestic opportunity cost for 1 m cloth is 1.25 kg of cheese (> 1) • United Kingdom can procure 1 kg of cheese for 1 m cloth (> 0.67)

  8. Factor Endowments(Heckscher and Ohlin) • Explains differences in opportunity costs • Factor endowment: a country’s share of factors of production (e.g. land, capital, labour, enterprise) • Countries will specialise in those goods that make more intensive use of the abundant/cheap factors • Cheese: land intensive • Cloth: labour intensive • Australia–Japan trade patterns (land intensive versus capital-intensive goods)

  9. Limitations of the Trade Theory • The theory disregards a number of considerations: • The difficulty in moving resources in the desired industries • Fluctuations in demand • Trade barriers • Other political restraints

  10. Exports of Goods and Services as a % of GDP, %, 2001 Source: Compiled from World Bank, World Development Indicators, 2003 and World Development Report 1994.

  11. Australia’s Rankings and % Share of World Trade 1980, 2003 Source: Adapted from WTO, International Trade Statistics, 1990 and 2004.

  12. Changes in Product Composition of Exports, Australia, 1979–80, 2002–03 (%) *ABS three-year average Financial years Adapted from Table 12.5, Economics for Business 3e, p. 216. Source: ABS, Balance of Payments and International Investment Position data, cat. no. 5302.0.

  13. Composition of Australia’s Merchandise Imports, A$ Bill, % Source: Compiled from Australian Bureau of Statistics, cat. no. 5302.0.

  14. Geographic Distribution of Australia’s Merchandise Exports, 1969 to 1972, 1995 to 1997, 2000 to 2002, % Source: Adapted from the Australian Bureau of Statistics data.

  15. Australia’s major merchandise trade partners, % of total, 2002 Source: Adapted from the Australian Bureau of Statistics data.

  16. 20.0 18.0 16.0 14.0 12.0 10.0 US$ billion 8.0 6.0 4.0 2.0 0.0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Exports Imports Australia’s services trade, US$ billion, 1992 to 2002 Source: Adapted from World Trade Organization, 2002 International Trade Statistics.

  17. Australian Trade Policies: Export Promotion • Multilateral negotiations within GATT/WTO • ‘The Cairns Group’ • Regional initiatives (e.g. APEC) • Bilateral agreements (e.g. New Zealand, United States, Singapore) • Trade promotion and publicity (AUSTRADE) • Export incentives (e.g. export grants, MiB scheme)

  18. Import Protection The nominal rate of assistance (NRA) The effective rate of assistance (ERA) (cont.)

  19. Import Protection (cont.) • Arguments pro-protection • The ‘infant industry’ argument • The ‘self-sufficiency’ argument • The ‘employment’ argument • Arguments against protection • Insufficient allocation of resources • Income redistribution • Well-being reduction Current government policies on protection • Tariff debate • Industry assistance

More Related