Coursework “International economics

Samarkand branch of Tashkent state university of economics


Coursework
“International economics”

Ri-119 Abdullayev Axror

TOPICS:

1. 
   International trade theories
   
2. 
   Grubel-Lloyd index (Uzbekistan + Rest of the world)
   
3. 
   Balassa index (Uzbekistan + Optional country, Uzbekistan + Rest of the world)
   

International trade is the exchange of goods, services, and capital across countries. International trade allows a country to manufacture and export products that can be produced efficiently while importing products or services which can be produced easily in other countries. Therefore, engaging these trades is useful for the country even for products that the country can produce itself. In 2021, the worth of international trade achieved 22 trillion (US) dollars while the world GDP achieved 96 trillion. That is almost one-fourth of the production of goods and services are

exchanged internationally around the world.

There are different International theories. Over time, economists have developed theories to explain the mechanisms of global trade. The main historical theories are called classical and are from the perspective of a country, or country-based namely Mercantilism, Absolute Advantage, Comparative Advantage, and Heckscher-Ohlin. By the mid-twentieth century, the theories began to shift to explain trade from a firm, rather than a country, perspective. These theories are referred to as modern and are firm-based or company-based which are Country Similarity, Product life Cycle, Global strategic rivalry, and Porter’s National Competitive Advantage. 

Mercantilism one of the earliest Theories in economy developed in the sixteenth century. The main point of this theory is that country’s wealth was determined by its gold and silver. Therefore, mercantilists believed countries should increase export meanwhile decrease imports. In other words, when other countries buy more from you than they sell to you, then they have to pay you the difference in gold and silver. This theory remains nowadays in modern thinking, it is an old theory though. Some examples to share, some countries like Japan, Germany, Singapore still favor exports and discourage imports through a form of neo-mercantilism. Nearly every country, at one point or another, has implemented some form of protectionist policy to guard key industries in its economy. As a result, sometimes other companies and consumers are hurt by protectionism like UzAutoMotors).
In 1776, Adam Smith offered a new trade theory which is called absolute advantage. Main point of this theory is that countries should focus on specialization and trade between countries shouldn’t be regulated or restricted by government. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Production would also become more efficient, because there would be an incentive to create faster and better production methods to increase the specialization. Theory means that a nation’s wealth shouldn’t be judged by its gold and silver but rather by the living standards of its people. Nowadays, pattern of this theory can be seen. In EU, Spain and Italy produce 54% of the supply of olive oil while Germany imports over one-third of its food because of the country’s focus on industry.
In 1817, an English economist David Ricardo introduced the theory of comparative advantage. This theory appear due to challenge in absolute advantages. There is chance that some countries may be efficiently at producing goods and services ,as a result, have an advantages in many areas. By contrast, another country may not have any useful absolute advantages. In this case in absolute advantage , there is no benefit for second country. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity.Example:
Assume that both countries have total of 48 resources to product. A country 48 x product or 12 y product or 24 x + 6 y product, whereas B country 12 x or 6 y or 6 x + 3 y products. In this case, A country has advantage at producing both x and y , however comparative advantage says trade still useful for both countries. But how?
We can see maximum output of products 60 x or 12 y or combination 30 x + 9 y.
In A country 1 y = 4 x , In B country 1 y = 2 x. A country can focus only to make x product ,same time B country can focus only y product. As a consequence, A country has 48 x while B country has 6 y for win-win situation A country should buy y for 3 x this trade useful for both. If A country buy 6 y result would be:
In A country: 30x + 6y
In B country: 18x
Maximum output: 48 x + 6y
Previous output: 30 x + 9 y
18x > 3y this mean trade still useful for both countries, however one country has no advantage for both products.

We know that resources are imbalanced throughout the world. Therefore, there is a question how a nation should operate and trade? The Heckscher-Ohlin model answer to this question. Model explain equilibrium of trade between two countries that have varying specialties and natural resources. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially states that countries export products that require the use of its abundant and cheap factors of production and import products that require the use of its scarce factors. It shows how a country can gain from trade by specializing in the good that it can produce more efficiently given its factor endowments. It also demonstrates how comparative advantage arises from different factor intensities between countries, and how trade can create substantial gains from specialization.

Country Similarity: This concept looks at the similarities between countries in terms of their economic, political, and cultural environment. It involves comparing the economic indicators, such as GDP, inflation, and unemployment, as well as the level of investment, trade, and foreign direct investment. It can also involve examining the political and social systems, such as the rule of law, democracy, and human rights.

Product Life Cycle: This concept looks at the different stages of a product's life cycle, from development through to production and distribution, and ultimately to its obsolescence. It helps to understand the market dynamics and the strategies that can be used to maximize the profitability of a product.

Global Strategic Rivalry: This concept looks at the competitive strategies used by firms operating in a global market. It involves understanding the different strategies employed by firms to gain a competitive edge in a highly competitive market. It includes analyzing the strategies of key players and understanding the implications of any changes in the market.

Porter's National Competitive Advantage: This concept looks at the factors that create a competitive advantage for a country. It involves analyzing the capabilities and resources of a country, such as its natural resources, labor force, and infrastructure, as well as the strategies employed by firms

The Grubel-Lloyd Index (GLI) is a measure of the degree of international trade concentration. It is calculated by summing the squares of the market shares of all trading countries and then dividing the sum by the sum of all market shares. The GLI ranges from 0 to 1, with 0 representing a situation where there is no concentration of trade in any country and 1 representing a situation where all trade is concentrated in one country. The index is widely used to measure the extent of concentration of a country’s exports and imports.

Uzbekistan fuel trade:
X_uzb = 826 879 410 $
M_uzb = 885 285 350 $

1 – |826 879 410 – 885 285 350| /(826 879 410 + 885 285 350) = 0.9659

Lets see world fuel trade:

X = 1 495 752 020 950 $ - 826 879 410$ = 1494925140000000

m = 1 588 943 276 230$ - 885 285 350$ = 150374000000000

1 – |1494925140000000 – 150374000000000| /(1494925140000000 + 150374000000000) = 0.998

Its clear that Uzbekistan less consentrated than world.

The Balassa index, also known as the Balassa-Samuelson index, is an economic measure of the real exchange rate of a country's currency relative to other countries' currencies, which reflects the purchasing power of a currency in terms of the goods and services it can buy. It is calculated by dividing the nominal exchange rate of a currency by the relative price level of that country's goods and services in comparison to other countries. It is named after the economists Bela Balassa and Paul Samuelson, who pioneered the theory behind the index.

https://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2020/TradeFlow/EXPIMP/Partner/all/Product/27-27_Fuels