Lecture 3

Unilateral track

-new trade opportunities-destroy old ones-gain new ones

Example.

Estonia entering Europe

Unilateral agreement with Ukraine, rice

After entering EU--> EU trade agreements--> End on unilateral agreement

-Estonian relationship with Ukraine got worse

Example 2

French bottles cheaper in Estonia than domestic producers

--> Economies of scale--> Larger economies can produce with lower unit cost

 

WTO

-a weaker multilateral trading system

--> EU, USA, Japan--> historically if they had mutual agreement--> votes trough

-India, China Brazil 

-Intellectual properties, good for Microsoft, Hollywood--> not good for developed countries

---> TRIPS

-Behind the curtains, bigger economies press on the decisions

Example

Cars exported from Japan>USA car manufacturing struggling

The USA brought voluntary Export quota agreement

-> Japan forced to undersign under circumstances something ''worse'' could happen

->Japan chose to limit its exports, USA car manufacturing benefits

->Japan cars built in the USA, Subaru struggling in keeping up with the demand as they built the cars in Japan--> Export limits limit their possibility to supply and the increasing demand 

-Minilaterialism 

-WTO, IMF and World Bank criticized by Opponents of globalization and corporations. Developing countries for dominance by US, rich countries, and corporations

--> Scholars for institutional flaws IMF: has imposed misguided policies World Bank: Wates resources on corrupt elites, WTO: Dominated by rich countries, corporations

-World bank more aid organization than bank

 

Why countries trade

-price difference

-Autarky price--> completely protected markets--> no trade

FREE TRADE

Exports=imports,

country with lower price exports-> prices rise-> suppliers grain

a country with higher price imports-> prices go down->demanders gain, suppliers lose

======>>> WORLD GAINS

Prices

-determined by the

productivity of labor, Price of labor (w=wage, Exchange rate

-since w and W are larger commons to all sectors

--> main determinant of how individual sectors trade is productivity

 

Adjustment mechanism

-if all of a country's prices too high for export

--> exchange rate will fall or wages will fall 

Gains of trade never equal--> Theory that even though one of the participants is  a loser, in absolute they all gain as a result of wider possibilities (modern economics theory)

Ricadrion model

One factor of production model: Labor

-Absolute advantage vs comparative advantage, lawyer & secretary example

-comparing at what you do best instead at comparing with everything you do (microeconomic theory)