Impact of the financial crisis on trade within regions
金融危机对区域内贸易的影响

• On a year-on-year basis, during 1st quarter of 2009, steep declines in each region’s export rates, especially so in CIS, Africa and the Middle East
去年同期的基础上，2009年第一季度期间，在每个地区的出口率急剧下降，尤其是在独联体国家，非洲和中东
• By product group, most affected were trade in automotive products, iron and steel, office and telecom equipment and integrated circuits
通过产品组，受影响最严重的汽车产品，铁和钢，办公和电信设备和集成电路的贸易
• Subsequently, recent growth in trade flows due to trade within Asia; China’s imports grew twice as fast as its exports… trade within Asia might have benefited from China’s fiscal stimulus package; China’s merchandise trade surplus narrowed in June 2009 from US$13bn to US$8bn
随后，最近贸易增长流动由于亚洲区内贸易;中国的进口增长了两次作为其出口一样快...亚洲区内的贸易可能已经得益于从中国的财政刺激包;中国的商品贸易盈余收窄于2009年6月从130亿美元到美国80亿美元
• Financial crises tend to redress trade balances and affect the less developed countries most
金融危机往往以纠正贸易平衡，影响欠发达国家最

Mini Case Study: ‘China turns to Africa’
迷你案例分析：“中国转向非洲

• From 2006 onwards, China became an important trade partner of African countries
• China imports from Africa: fuels (70%); other mining products (15%); agriculture products (10%) and manufactures (5%)
• China exports to Africa: machinery and transport equipment (35%); textiles (25%); other manufactures (25%); clothing (10%) and primary products (5%)
• By 2007, approx 800 Chinese state companies were active in Africa, accounting for 50% of all new public works and infrastructure contracts; in some cases infrastructure projects are traded for raw materials contracts; 78,000 Chinese immigrants were brought in to work on infrastructure projects
• China acquired oil-drilling rights in Nigeria, Sudan and Angola, and invested in refineries and pipelines in Nigeria: overall, Africa supplies one-third of China’s oil.
• Chinese trade, loans and aid to Africa are not linked with any other goals such as poverty alleviation, democracy, human rights and corruption.
• What are the benefits to each side in trade between China and African countries?
• Why is there cause for concern about the long-term impacts of China-Africa relations on economic development in Africa?

Patterns of Trade and Implications for IB
• What do you think are the implications for international business or recent changes in
trade patterns?
- …#p#分页标题#e#
- …
• How should the following respond to changes in the patterns of trade? 
- an European MNE
- the government of a developing country
- a MNE from emerging economies

International Trade Theories
国际贸易理论

• Theories of Absolute and Comparative Advantage
• Factor Endowment Theory
• Product Life Cycle Theory
• The Theory of Competitive Advantage
• Newer Trade Theories

Theories of Absolute and Comparative Advantage

• Adam Smith, The Wealth of Nations (1776), promoted the “classical theory” of international
trade based on the concept of absolute advantage: - enjoyed by a country where production of a good involves using fewer productive inputs than would be possible in any other countries
• What if one country has an absolute advantage in all goods? David Ricardo, The Principles of
Political Economy and Taxation (1817),defined the concept of comparative advantage:
- enjoyed by a country where the production of a good involves greater relative advantages in terms of inputs than would be possible anywhere else

Theories of Absolute and Comparative Advantage
• Which country holds an absolute advantage in what good?
• In what goods should country A and country B specialise based on comparative advantage? What
is the emerging pattern of trade between the two countries?

Factor Endowment Theory (Eli Heckscher and Bertil Ohlin, 1933)

• Countries differ in their factor endowments (labour, land, capital and natural resources)
• Products differ in terms of factors of production used and their intensity (textiles are labour-intensive; machinery is capital-intensive)
• The above will determine the comparative advantage of countries: a country will specialise in the production (and export) of the good that uses intensively the factor of production with which the country is relatively well endowed (its abundant factor)
http://www.ukthesis.org/thesis_sample/

Product Life Cycle Theory (R. Vernon, 1966)

• Applied to manufactured consumer products that go through clearly identified stages: from innovation through to standardisation.
• Based on the assumption that all innovation originated from the US
• Explains changes in comparative advantages depending upon the stage of the product life
cycle.
• Provided insight into the links between FDI and international trade

Newer Trade Theories
新的贸易理论

• Take into account recent trends in international trade (Paul Krugman, 1995)
–intra-industry trade: trade in similar
goods between countries of similar levels of economic development
–globalised production: production broken down into different steps in the value chain, each of which can be in a different geographical location; vertical disintegration, increased trade in intermediate products#p#分页标题#e#
–low cost countries as major exporters

Newer Trade Theories (cont.)

• To explain intra-industry trade, two important aspects are essential:
-product differentiation, differences in attributes between products in the same class
-economies of scale, reduction in the unit cost of products based as a result of higher output
• Oligopolies: an industry dominated by a few very large firms
• First-mover advantages: advantages enjoyed by the first entrant in an industry or market which may make it harder for other entrants to follow and act as barrier to entry
• Monopolistic competition: situation in which there are many producers producing products in the same class, where competition is based on product differentiation within the class

The Theory of Competitive Advantage
竞争优势理论

• M. Porter, The Competitive Advantage of Nations (1998) made the link between the comparative advantage of countries and the competitive advantage of firms
• The competitive advantage of firms is linked to their home country environment: factor conditions; demand conditions; related and supporting industries; firm strategy, structure and rivalry; plus two extra dimensions: chance and the role of national government (the ‘diamond’ model)

Government Trade Policy

• Free trade: markets are allowed to operate without government intervention
• Protectionism: governments intervene in determining the volume and/or composition of trade for a variety of reasons:
- national security
- strategic industries
- domestic employment
- culture
- consumer protection

Mini-Case Studies for Seminar Discussions

• Financial Times, Oct 5th , 2010 “Commodities: China’s voracious appetite forces Japan into
race for food security”
• Wall Street Journal, Sept 28th , 2010 “Sweet and Sour Chicken Revenge”
• Wall Street Journal, Oct 8-10th , 2010 “EU textile firms criticize deal on Pakistan imports”
• Financial Times, Sept 23rd , 2010 “Banks steer difficult path through unchartered waters”