世界经济学Ⅱ

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1、The World EconomyTutor: Qiang LuoStudent: Sibei Lu1 Introduction. 32 Gains from international trade.33 The free trade/.34 Absolute and comparative advantage.35 Reason of trade barriers46 Trade barriers.47 Uses of The World Trade Organisation (WTO).58 The role of European Union in promoting trade.59

2、Composition of the balance of payments510 General trends in UK trade611 The balance of payments affected by exchange rates712 Advantages and disadvantages of the single currency of the UK.713 Two effects on individuals and businesses of single currency.714 Characteristics of Less Developed Countries

3、 (LDCs).815 The two current issues that face LDCs.8 16 Impacts of multinationals on Newly Industrialized Countries and LDCs.917 Conclusion.918 Reference.9IntroductionIn this report, I will introduce free trade relevant organizations with example, such as what is free trade, what are its benefits and

4、 so on. The resources of this report will be based on knowledge got in the lessons and the information on different website. Gains from international tradeNow, many countries strive to develop international trades, which because it bring many benefits to people. Firstly, the resources around the wor

5、ld are used efficiently because of international trades, and to support more chances of development to many countries, for example, the cost of rice is lower in China than other developed countries, and China can export rice to change some products that produce in China with high cost. Secondly, int

6、ernational trade can make enhance the competition, creativity and spirit of innovation of enterprises and countries, for example, China took part in WOT, automobile industry got strong impact of imported car with low taxation, but then there appear some Chinese automobile business such as BYD and GE

7、ELY. Thirdly, some developing countries can raise capital by international trade to reduce the gap between developed countries. For example, in the last 30 years, exporting is the main method to push economic growth in China, and it had obvious effect.The free tradeFree trade is a system of trade po

8、licy that allows traders to trade across national boundaries without interference from the respective governments. Under a free trade policy, prices are reflection of true supply and demand, and are the sole determinant of resource allocation. For example, many fruits that are produced in Taiwan are

9、 treated by zero tariff, and from 12th September , there are another five kinds of fruit got this treatment, this is a kind of free trade.Absolute and comparative advantageAbsolute advantage is said to occur when one county can produce a good or service to a pre-determined quality more cheaply than

10、another country. Comparative advantage is the original basis for International Trade, although there are now some qualifications the original concept. For example:TableT-shirtCountry A2402160Country B601800We will clearly see that Country A has an absolute advantage over Country B in both commoditie

11、s. But the advantage it has is much greater for Table. For Country A the cost of 1 Table is 9 bales of T-shirt, which is 2160/240For Country B it is 30, which is 1800/60But if we look at the case of T-shirt then we will find that here for Country A the cost of a bale of T-shirt is 1/9 of a tractor,

12、and Country B it is 1/30. In terms of the output of table foregone, T-shirt is cheaper in Country B than in Country A, so Country B has a comparative advantage in T-shirt.Reason of trade barriersFirstly, trade barrier is a measure to protect some industries that are infant or sunrise and without com

13、petition that are compared with foreign business. For example, Barack Obama, the American president, decide to impose punitive tax of tire that is imported by China for 3 years, and the firs is 35% of tax. Secondly, as the improvement of peoples living standards, people increasingly care about the i

14、mpacts of products on health and safety, thus there are many trade barriers about health, safety and hygiene, for example, the Europe has high health, safety and hygiene standards of Chinese exporting foods, there many Chinese business can not meet the standards and then give up to export foods to E

15、urope. Trade barriersTrade barriers are government-induced restrictions on international trade. Such as embargoes that are an extreme form of barrier and usually relate with politic. A resolution was passed by the United Nations, which is implementing oil and weapon embargoes. It is well known, oil

16、industry is the mainstay industry of Libya. It will bring strong impact to Libya. Subsidies are payment by government to producers, very often agricultural to reduce the costs of supplying products. For example, European government offers subsidies to farmers to protect agriculture. Uses of The Worl

17、d Trade Organisation (WTO)The World Trade Organisation (WTO) is an organisation that intends to supervise and liberalize international trade. The nature of WTO is through negotiations of multi-lateral to phase down trade barriers and then achieve international trade of liberalization, and resolve co

18、nflicts of trading between countries. For example, America litigated Chinese enterprises dumping of goods (Warmwater Shrimp and diamond saw blade), and take the measure that zeroing, the Chinese side thinks it is unfair and break the rule of WTO and applying for WTO to set expert group. This example

19、 show clear that WTO is very important platform to resolve trade disputes.The role of European Union in promoting tradeThe European Union (EU) is an economic and political union of 27 independent member states which are located primarily in Europe. The free movement of goods, people, services and ca

20、pital is the fundamental principle of the EU. The EU is organizer, plotter and manager in promoting trade. EU has once currency, which resolves many trade problems that about exchange rate, it has positive impact on promoting trade. Beside, EU promote free trade between member countries, but set tra

21、de barrier to other non-member countries to protect businesses that in member countries, such as flat tax. Composition of the balance of paymentsBalance payment is the record of all financial transactions between a country (in this case the UK) and the International economy. It is split into two are

22、as. Firstly the Current Account measuring Trade in Goods and Services and the Capital Account which tracks Capital flows into and out of the UK.The main compositions of the balance payment are:l The Current Account this section concerns income and expenditure and is divided into four categories. The

23、se are Trade in Goods, Trade in Services, Income and Current Transfers.l The Capital Account this is the account which was first established in 1998, it has two categories that is Capital Transfers and Acquisition/Disposal of non produced/non financial Assets, purchase or sales of e.g. land by forei

24、gn embassy or patents, copyrights, trademarks, franchises and leases. l The financial Account this has the same four categories as the income account that are Direct Investment, Portfolio Investment, Oil Investment and Reserve Assets.l The International Investment Position the stock of External Fina

25、ncial Assets and Liabilities.General trends in UK tradeIn the last 30 years, the UK has traditionally had a fairly large deficit in the trade of goods balance, particularly in 1989, the deficit in trade of goods reached the higher point. Except for early 1980s, the main reason is export of North Sea

26、 Oil. On the contrary, the trade in services that has surplus, from 1995, there it rose dramatically. But no enough to counter the very large deficit of trade in goods, therefore the Current Account Balance has also usually been in deficit. The balance of payments affected by exchange ratesAs we kno

27、w, balance of payments and exchange rates both are related to export and import, so balance of payment is affected by exchange rates, which can be proved by a simple example:A UK firm manufactures software that named A for a USA company, the UK firm sale A as 50, the exchange rate between dollar and

28、 sterling is $1.5 = 1, which means the USA company has to spend $75 to buy A. If the exchange rate changes to $2 = 1, which means the USA company has to spend $200 to buy the a same product. As the increasing of cost, the USA company might change the supplier who provides a cheaper price. For the sa

29、me reason, the strength of the UK pound could affect many UK businesses particularly in manufacturing sector, because their products are more difficult to sale to oversea with the original price. The export decreases for effect of exchange rate, therefore, the balance of payment will be affected as

30、well.Advantages and disadvantages of the single currency of the UKDisadvantages:l Firstly, the government of the UK will lose power to control the currency, which means the UK will not have the independent monetary policy for example, the UK government can decide how many currency to supply in the y

31、ear, and the government can according to the own economic circumstance of the UK to decide the interest rate.l Secondly, misalignment of Exchange rates an exchange and interest rate which benefits most members may not benefit all.Advantages:l Firstly, the oversea investment will be increased, becaus

32、e the single currency avoids the risk of exchange rate fluctuation.l Secondly, the single currency eliminates the price discriminations and will help create pressure to keep prices low.Two effects on individuals and businesses of single currency Effects on individuals:l Firstly, the single currency

33、will eliminate the price discrimination, which can benefit individual consumers.l Secondly, the single currency will save the cost of exchanging, for example, if English travel to other Europe country, and people do not need pay money to bank for exchanging currency.Effects on businesses:l Firstly,

34、businesses do not need to consider the risk of exchange rate of fluctuation.l Secondly, businesses can save the cost of exchanging currency, for example, a European business want to invest in the UK, this business do not need to exchange euro to sterling, which means it do not need pay to the banks.

35、Characteristics of Less Developed Countries (LDCs)Less developed countries are nations with a low level of material well-being. The major characteristics of less developed countries are subsistence agriculture, little capital equipment employed and low productivity. The birth rate and infant mortali

36、ty is high, people with low life expectancy. For example, The Federal Democratic Republic of Ethiopia is a typical less developed country, the average GDP is 121 dollars. Agriculture is the majority of economic system (coffee beans, flowers, Catha edulis Forssk), lack of foundation of industries. Th

37、e weak defense force is the feature of less developed country as well. As of , the enrollment of university in Ethiopia is 2.5%, which reflect the feature of less developed country.The two current issues that face LDCs LDC s have to face the issue that how to achieve sustainable development. In LDCs

38、, people have less money and material to meet their needs, thus they do something for short-term interests, for example, in Ethiopia, there are many farmers grow Catha edulis rather than crops, because the price of Catha edulis is very high, but crops can not have harvest if the field was grew Catha

39、 edulis, which means if farmers grow Catha edulis, they have to always grow it. Secondly, many children can not accept formal education, because these LDCs have not enough resources and facilities, on the other side, the parents dont have the sense of importance of education, which causes the younge

40、r generation is same with the last generation, and then the development of the country would be stopped. The suggested solution could be looking for help from international aid agencies, such a World Bank, to get money to develop industries and education.Impacts of multinationals on Newly Industrial

41、ized Countries and LDCsMultinationals could increase income, bring more jobs, and economic growth and so on. For example, Inter invests 0.375 billion dollar to build a factory in Chengdu of China, which can offer around 3000 jobs. Inter can attract relevant enterprises come to Chengdu to develop the

42、 IT industry of Chengdu. Besides, Inter Company operate internationally with large volume of importing and exporting, which can promote the development of delivery industry. The World Bank set up a project with 5 billion dollars to invest the local currency denominated bounds of less developed count

43、ries, which can help less developed country to develop industries, education and health care industry and son. Besides, the money to feed and save more people, which can help the society is stable, ConclusionFree trade and sustainable development are vital elements of world economy, international tr

44、ade could promote the development of economy, but for the large range, more issues have to be considered, such as exchange rate, political risk and barriers and so on. However, the international trade brings more benefits to us than drawbacks, which meets the needs of us better and save the nature resources. Reference Economics 2: The World Economy