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1、Economics2: The World EconomyF86E 35Candidate Name: REN LUGrade and Class: BA1Introduction21. Free trade32. Absolute advantages and comparative advantages33. The benefits of free trade44. The purpose of carrying out trade protectionism55One Mechanism of the World Trade Organization66. One measure of

2、 European Union promotes economic integration87. Balance of payments98. The general trends in UK trade over the last 30 year109. The balance of payments affected by exchange rates1210. Advantages and disadvantages of fixed rate and floating rate1311. Effects of fixed rate and floating rate on indivi

3、duals and company1512. The characteristics of the newly industrialized countries and the developing countries1613. The issues of the newly industrialized countries and the developing countries1714. The influences Multi-National Corporations bring to newly industrialized countries.18Conclusion19Refer

4、ence20IntroductionThis report has introduced the world economics simply. The content includes: International trade, free trade, Protectionism, the role of WTO and under-developed nation, UK absolute and comparative advantage, the protectionism and two recent examples about demonstrate arguments whic

5、h government may put forward for its use, two barriers of trade, a EU initiative about the role of the EU in promoting trade, the composition of the balance of payments, the general trends in UK trade over the last 30 years, the way which the balance of payments affected by exchange rates, an analys

6、is of two current issues that face LDCs, and the aid of recent examples about two impacts of multinationals on NICs and LDCs.I. Free trade(1). Free trade is a type of trade policy that allows traders to act and transact without interference from government. Thus, the policy permits trading partners

7、mutual gains from trade, with goods and services produced according to the theory of comparative advantage. China-ASEAN free trade area was formally established in January 1, , covering a population of . China-ASEAN free trade areas GDP amounted to $6 and trade amounted to $4.5. It is the largest fr

8、ee trade zone among developing countries.After the establishment of CAFTA, more than 90% products are carried out for zero tariffs on both sides. Average tariffs from Chinese to ASEAN decrease from 9.8% to 0.1%, Average tariffs from ASEANs six old members to Chinese decrease from 12.8% to 0.6%. Tari

9、ffs huge reduction promoted the rapid growth of bilateral trade.China and ASEAN countries trade investment grows, economic integration deepens, companies and people are widely benefit, realizing goals of mutual benefit and win-win cooperation and common development. China and ASEANs total quantity o

10、f bilateral trade grows rapidly. From January to October this year, the bilateral trade volume has reached to $, a year-on-year growth of 25.7%.(2). Absolute advantages and comparative advantagesAbsolute advantages is said to occur when one country can produce a good or service to pre-determined qua

11、lity with less resources or more cheaply than another country.Even when a country has an absolute advantage over another country in terms of commodities they wish to trade it will still be to their mutual advantage to trade providing each country has the comparative advantages. UK is a major importe

12、r of manufacturing goods such clothes, shoes, toys, electronic produces etc. as these labor oriented consumer goods will cost more in UK before 1980s. UK has the With the development of service, the advantage of trade is service trade. The goods that courtry import and export change over time as the

13、 goods in which they have a comparative advantage change over time. Before 1970s, manufacturing industry is its absolute advantage. After 1970s, service industry is more competitive for international trade such as computer software, business service and pharmaceuticals. These industry are seen to br

14、ing the possibility of long term growth, while the industries based on heavy capital investment or requiring relatively cheap labor will not be competitive with developing countries.2. The benefits of free trade(1). Goods and services produced at lower cost. Free trade can promote the cooperation of

15、 different countries in the world. It can decrease the cost of producing goods.(2). Greater range of commodities for consumers, more choice. Any countries cannot produce all products, they all have products which are unable to produce. Trade allow us to buy all of them. Greater range of commodities

16、provide customers with more choice.(3). Increased world-wide output. Each country producing according to their respective advantages has high efficiency. Under the same resources, it has high yield. Therefore, international trade increased world-wide output. 3. Barriers to International TradeTrade b

17、arriers are government-induced restrictions on international trade. The barriers can take many forms, including the following tariffs and non tariffs.Non Tarriff Barriers-exchange controlsIn a real world, there is and should be a certain degree of government intervention on foreign exchange. Imports

18、 need foreign currencies to buy gooods and services from abroad.Importers must apply to the cenytal bank for the currency they need to purchase goods in that country, The Central bank can erxert control over the variety and volume of both imports and exports by controlling the quantity of foreign cu

19、urency it will issue to exporters and importers.Non Tarriff Barriers-Import DepoitsGovernment requires importers to lodge a non-interest bearing deposit in advance with its Central Bank before they can buy goods and services from abroad. Besides, the deposit is usually in an amount equal to all or p

20、art of the cost of imported goods. This is time consuming and obviously expensive since it reduces the liquidity of the importing firms, which tend to hinder their importing activities. Before 1984, the Nigerian advanced import deposit ranged from 50% to 200% of the value of a list of import items.G

21、ive a example about tariffs, 35% tariffs on Chinese tyres imposed on the United States on 11th September in . It make Chinese tyres firms have to increase price if sales in America.For example, t non tariffs in Russia to Ukraine for embargoes which suspension of Ukraine imports of juice on 29th July

22、 in . It make Ukraines juice not allow sale in Russia.4. The purpose of raising barriers to International Trade(1) The purpose is to protect employment. Footwear manufactureers associations of Italy, Spain ad Portugal are reported to have field applications to the EU to curb footwear imports from Ch

23、ina. Local shoemarkers in Elche, the capital of Spains once flourishing footwear industry, argue that “made in China” is taking away their jobs by that Chinese shoes have been booming in Spain just because of good quality and reasonable prices.(2) The purpose is to anti-dumping. In July , SolarWorld

24、 AG, a German giant, led a consortium of around 25 EU solar panel producers to file a complaint to the EU Commission to investigate whether there has been distortion of competition by Chinese counterparts due to dumping. Soon Germany against China low price.5The Role of WTOTheWorld Trade Organizatio

25、n(WTO) is anorganizationthat intends to supervise andliberalize international trade. The organization officially commenced on 1 January 1995 under theMarrakech Agreement, signed by 123 nations on 15 April 1994, replacing theGeneral Agreement on Tariffs and Trade(GATT), which commenced in 1948.The or

26、ganization deals with regulation of trade between participating countries by providing a framework for negotiating and formalizing trade agreements and a dispute resolution process aimed at enforcing participants adherence to WTO agreements, which are signed by representatives of member governments

27、and ratified by their parliaments.The WTO dispute settlement mechanism is measures of dealing with trade disputes between members.It is the effective way for countries especially the developing countries to resolve the economic friction and safeguard their legitimate rights and interests.It is very

28、unfavorable for the developing countries to resolve trade disputes especially trade disputes with the developed countries through bilateral channels. The bilateral approach pursues strength doctrine. Involved in trade disputes among developing countries, the WTO dispute settlement mechanism ruling i

29、s comparatively fair and reasonable. As either the complainant or respondent, the legitimate interests of the developing countries have been effectively protected. It is because the WTO dispute adjudication has very strong fairness, developing countries generally have a high enthusiasm to use the WT

30、O dispute settlement mechanism. Some larger economic scale developing countries is more active in the use of WTO dispute settlement mechanism.It helps to reduce the economic friction between countries, and promote friendly relations among nations. TheUruguay Roundwas the 8th round ofmultilateral tra

31、de negotiations(MTN) conducted within the framework of theGeneral Agreement on Tariffs and Trade(GATT), spanning from 1986 to 1994 and embracing 123 countries as contracting parties. The Round led to the creation of theWorld Trade Organization, withGATTremaining as an integral part of the WTO agreem

32、ents. The broad mandate of the Round had been to extend GATT trade rules to areas previously exempted as too difficult to liberalize (agriculture,textiles) and increasingly important new areas previously not included (trade inservices,intellectual property,investment policytrade distortions)Here are

33、 some others areas the WTO has dealt with in attempts to establish itself as the policing body promoting free trade. The Banana Dispute. The WTO ruled that the European Union discriminated unfairly against the US with its banana import rules. The WTO allowed the US to slap a $191 million sanction on

34、 the EU. Was it paid? We do not know but probably not so.6. One measure of European Union promotes economic integrationTheEuropean Union(EU) is apolitico-economicunion of 28member statesthat are located primarily in Europe.The EU operates through a system of supranationalinstitutionsandintergovernme

35、ntalnegotiated decisions by the member states.The institutions are: theEuropean Commission, theCouncil of the European Union, theEuropean Council, theCourt of Justice of the European Union, theEuropean Central Bank, theCourt of Auditors, and theEuropean Parliament. The European Parliament is elected

36、 every five years byEU citizens(1) EU can eliminate customers duties and quotas on imports and exports of goods between member states and eliminate tariffs between EU members. Though the institutions, members can establish common policies for agriculture and transport for free trade. (2) It can acce

37、lerate the investment from a wide range of contries. With the rising status of the euro and development of European capital market, members cost of capital will decline, which is conducive to investment and economic growth. The European Central Bank (ECB) develop and implement a unified monetary pol

38、icy, each countrys interest rates, prices and investment returns will gradually narrow the differences or reach to unanimous, leading to an overall decline of price and the level of interest rates.7. Balance of payments ()Thebalance of payments(BOP) of a country is the record of all economic transac

39、tions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible trans

40、actions of a country during a given period, usually a year. It represents a summation of countrys current demand and supply of the claims on foreign currencies and of foreign claims on its currencyThis table illustrates current account, capital account and financial account in UK during the 20 years

41、 from 1980 to . In terms of current account, there just four years the figure is positive when between 1980 and 1983. And then the figure almost negative from 1984 to . And the figure achieves the lowest number about -55190 million in . This situation illustrate that the economy of UK develop not ve

42、ry well. As for capital account, the data shows that this account experience a fluctuate trend. First, the figure was -4 million in 1980 and then the figure decrease to -79 million in 1981. After that the figure was 6 million in 1982 increase to 159 million in 1987. What is funny thing is the figure

43、 fall again to -39 million in 1988. After that the figure experience a fluctuate and what is no table is the figure gain a lowest number -1527 million in . In terms of financial account, the figure see an positive trend from 2157 million in 1980 to 122 million in 1986. And then the figure experience

44、 a negative trend between -9690 million in 1987 and -23296 million in 1993. And from -20261 million in 1999 to -30276 million in this account experience negative trend again, and get the lowest number in because of the financial crisis the figure was -39301 million.8. The general trends in UK trade

45、over the last 30 yearOverall, the evolution of trade in goods show an upward trend. With the quick development , UK need to keep up with the times, the country must through trade in good to increase countrys income so with the passage of time, there are more and more trade in UK.The table shows the

46、evolution of trade in goods and services in UK between 1980 and . The trade in goods account stand 20 billion in 1980. The trade in goods account has remained in deficit. The deficit grew remarkable in the late 1980s to reach a peak of about 24 billion in 1989. And then decreased back to 20 billion

47、in early 1990s and keep a stable at 10 billion from 1991 to 1998. In 1998 the deficit jumped by over 9 billion, and it has continued to rise since, reaching a cash record of 92.9 billion in . The chart shows that the total goods exports are less than imports, which leads to deficit. However, the tot

48、al service exports are more than total service imports, which results in surplus.It shows United Kingdom is in a large fiscal deficit in the last 30 years. The highest surplus is in 1981, however the current balance deficit from 1984 to 1990. From 1984 to 1989, the current balance deficit and in 198

49、7, the deficit increase quickly. The current balance deficit fell sharply from 1990 to 1991. From 1992 to 1997, the current balance slightly fluctuates. Then from to , the deficit increased substantially, although from to , there is a slight decline. From to deficit has a steep decline. Main reason

50、may be in goods trade balance deficits, while the surplus on trade in services, especially in the last 30 years growth.In the past 30 years Britains merchandise trade decreased, because of the high cost of HR, the UK is few to doing the manufacture, most goods is depend on imported, no exported. But

51、 the financial services, renting and business, is totally increased, so in the past 30 years, the UK financial has been steadily increasing.9. The balance of payments affected by exchange rates(1) The effects of exchange rates for trade a. Imported goods will be dearer, therefore the Trade in Goods

52、is likely to move into deficit. Consumers may turn to consume more imported goods; Inflation may be lower because domestic firms may reduce prices. The price of imported raw materials may go down again affecting the Trade aspect. Consumers may find it easier to buy imported goods. b. Domestic goods

53、and services will be cheaper both in foreign and domestic markets. A country which has reduced the value of its currency would certainly be looking to sell more abroad. This should mean an improvement in Trade in Goods.Cheaper currency helps boost the exportSee an example: A UK firm manufactures har

54、d discs for a computer firm in the USA.Selling price: 100 pounds.Exchange rate: 1 pounds = $1.5Cost to the American: $150.Exchange rate: 1 pounds = $2Cost to the American: $200The American firm may consider this to be too expensive and look elsewhere for a cheaper alternative.If:Exchange rate: 1 pou

55、nds =$1Cost to the American: $100The American firm may consider this to be cheaper, and buy more.(2)The effects of exchange rates for capital accountsa. Manufacturing firms might for example build up stocks at te cheaper price and foreign investment may increase because profits sent back will be wor

56、th more in their domestic currency.b. It could encourage firms and individuals to invest abroad in that the forign currency earned will be worth more when sent back to the domestic market.10. Advantages and disadvantages of fixed rate and floating rateFloating exchange rateor fluctuating exchange ra

57、te is a type ofexchange-rate regimein which a currencys value is allowed to fluctuate in response to market mechanisms of theforeign-exchange market. A currency that uses a floating exchange rate is known as a floating currency. A floating currency is contrasted with afixed currency.Advantages. Larg

58、e reserves will not be necessary to protect the currency against changes or speculation. A country has no obligation to maintain exchange rate stability, and therefore it does not need foreign exchange reserve as much as in the fixed exchange rates, which can save foreign exchange funds.The exchange

59、 rate will not become a target because whichever way it moves, the mechanism should start to operate quickly to restore equilibrium. The imbalance of a countrys international balance of payments can be eliminated by free fluctuation of exchange rate.Governments do not have to introduce measures to k

60、eep the value at a fixed rate, which might be harmful to other sections of the economy. Because the balance of payments of each country can adjust by themselves, which ensures the stability of foreign exchange market in a certain extent.Disadvantages. The futures market is designed to prevent this.

61、By buying forward for commodities a price is agreed which does not change when the commodity is delivered. It causes all countries instability of ability of international settlement and commodity price .Demand may be unstable because external prices of domestic goods will be subject to change. Plann

62、ing production may be difficult. The instability of exchange rate increases the risk of international tradeIf there is inflation a floating exchange rate will not always deal with it effectively because the depreciation of the currency in the foreign exchange markets will make imports dearer and ass

63、ist possible cost push inflation. Fixed exchange rate, sometimes called apegged exchange rate, is a type ofexchange rate regimewhere acurrencys value is fixed against either the value of another single currency, to abasket of other currencies, or to another measure of valueAdvantages. They reduce un

64、certainty, this makes trade and investments between the two countries easier and more external and more predictable and is especially useful for small economies in which external trade forms a large part of their GDP. Long term granting of credits, long-term contracts and investment overseas are see

65、n to carry less risk. It makes the capacity of the international settlement and the price of import and export goods be stable. The fixed rate played a crucial role in achieving this growth in FDI. The stability of the exchange rate suppressed the speculation of foreign exchange market to a certain extent.Disadvantages. If deficits persist then reserves of for