Non-stateEducational Institution
ChelyabinskInstitute of Economics and Law
afterM.V. Ladoshin
Facultyof Management, Finance and Law
THETHEORETICAL BASIS FOR THE INTERNATIONAL TRADE. THE MODERN TRENDS OF THEINTERNATIONAL TRADE DEVELOPMENT
TERMPAPER
Performedby: Kichutkina N. N.
МЭ-305
Checkedby: Salyakhova G. Kh.
Chelyabinsk
2007
Introduction
The traditional and most advancedform of the international economic relations is the foreign trade. On a shareof trade it is necessary about 80 % of all volume of the international economicrelations.
Theories of the international tradebeginning from the English classical political economy, have passed a number ofstages together with the development of the world economic science.
The chosen theme is actual astheories of the international trade benefit since they help to explain whatcompetitive production it is possible to make in a particular country orregion, where the company can organize effective manufacture of given productsand whether the state will interfere with barter between the countries.
The basicpurpose of this termpaper is studying both theories revealing the principles of optimumparticipation of national economies in the international barter, and objectivelaws of development of the world trade, including Russia’s foreign trade.
The primary goals of this term paperare:
1. To consider what internationalspecialization is the most effective and beneficial for the separate countriesand regions.
2. To define the basic directions ofcommodity streams between the countries and factors of competitiveness of separatecountries in the world market;
3. To analyse the role of Russia inthe world trade.
Area of research of the internationaleconomic relations is theoretical problems of organizing foreing trade inRussia and abroad.Object of research isthe external world.
The theoretical and methodologicalbasis of the term paper are the of founders of the economic science, moderndomestic and foreign scientists. However this theme is widely discussed in theperiodic economic editions, such as « the Russian External Economic Bulletin »,«Expert».
The practical importance of the termpaper is s that its results can be used in the educational process while studyingeconomic disciplines.
The term paper consists of theintroduction, three chapters, the conclusion and the list of the literature. Intheintroduction the urgency of the chosen theme is proved, the purpose,problems, area and object of the research is defined, scientific novelty,theoretical and practical values of work are considered.
InchapterI « Theories of theinternational trade » classical and modern theories of the world trade areconsidered; inchapter II the concept of the world trade, and also thelaw of development of the international trade and the basic directions of theforeign trade streams between the countries; inchapter III the role ofRussia in the international trade has been analysed.In the conclusion ofthe term paper the basic results of the carried out researches are stated,conclusions and practical recommendations are made.
Active participation of the countriesin the foreign trade allows them to use resources available in the country moreeffectively, to join the world achievements of science and technology.
ChapterI. Theories of the international trade
1.1Classical theories of the internationaltrade
A.Smith’sPrinciple of absolute advantage
The policy of free-trade has been developed by English economist A.Smith.He has createdthe new theory of the world trade. Не considered, that it is necessary to import the goods from thecountry where costs absolutely it is less, and to export that goods, whichcosts below exporters.
A.Smith's approach has received the name « the Principle of absoluteadvantage ».
Each country should specialize on manufacture of the goodswhich average costs it is less, than average costs in other countries.
Smith has proved, that free trade will be favourable to its allparticipants.
If a country makes some goods more on a unit of cost than its competitorsdo, it has the absolute advantage in manufacturing these goods. It isfavourable for the country– manufacturer to export these goods, and it isfavourable for other countries to buy them since it would be more expensive toproduce them.
D.Rikardo’s Principle of comparative advantage
D.Rikardo has formulated the theory of comparative costs.
He has defined a price zone inside of which the exchange will befavourable to everyone. D.Rikardo has shown, that the international exchange ispossible and desirable in interests of all countries.
An economic theory which claims that all countries will be better off ifeach of them concentrates on doing the things it does best.
So, mostcountries have one thing they do better than anyone else. By concentrating onone activity they can import the things they produce less well.
Foreign trade should be free.
Theory of Hecksher — Olin
The new model has been created by the Swedish economists Ales Hecksherand Bertel Olin.
Theory has received the nameof the theory of proportional factors.
The countries aspire to export that goods in which productionthey have superfluous factors of manufacture. And to import the goods in whichscarce factors for the country are used.
Theyconsidered, that it is possible to induce the countries to development ofmanufacture and export of that production where superfluous and cheap factorsof manufacture are used.
Leontiev’sParadox
VasilyLeontiev an American economist. He investigated structure of export and importof the USA.
He has found out, that in export трудовое потребление goods prevailed, and in import prevailed capital-intensive.The theory has received the name «Leontiev’s paradox ».
V. Leontiev has assumed, that greater productivity of the American workis connected with higher qualification of the American workers.
So, V. Leontiev has found out, that the branches being successfulexporters, possess higher labour input. And other branches colliding with acompetition of the import goods, not so are successful.
1.2 Modern theories of the international trade
The theory of the technological break
The theory of the technological breakis the modern theory of the world trade. The theory was developed by theAmerican economists G.Hafbauer, R.Vernon.
If in branch technological innovations are applied, country will receivecomparative advantages. If the country makes the goods with smaller costs, itwill receive additional profit in the world market. Therefore exporters areinterested in increase in manufacture of the given goods and its realization inthe world market. While break exists, it renders positive influence on exportof goods in which manufacture new technologies are used.
The theory of the product life cycle
R.Vernon, C.Kindelberger, L.Uels have developed the theory of the productlife cycle. This theory explains development of the world trade by finishedgoods on the basis of stages of its life in the market.
Development of the world trade by finished articles depends on stages ofa life.
The product life cycle is a familiar one in marketing. A product islaunched, developed, goes through a period of growth, enters maturity,declines, and eventually dies.
At the firststage there is a development of new production. Manufacture of a new producthas small-scale character, demands high qualification of workers andconcentrates in the country of an innovation.
At the secondstageof growth demand for a product grows also its manufacture extends.The product becomes more standardized, the competition between manufacturersincreases and export extends.
The large-lotproduction is typical ofa maturity. The product life cycle passes in astageof decline, demand is reduced.
The theory of the product life cycle is realistic enough reflectsevolution of many branches. However is not a universal explanation oftendencies of development of the international trade .
Michael Porter’s the theory of competitive advantage
In 2-nd half XX centuries in the world trade have occured changes. Incommodity structure of the world trade, sale of finished goods began toprevail. In 1990 the American economist M.Porter has published research «Competitive advantages of the countries ».
M.Porter hascreated the original theory of competitive advantage of the country. Thecentral place in his concept is occupied with idea of a national rhombus.
Determinantsof competitive advantage is characteristics of the most significant sources ofcompetitive advantage of the companies of processing industries.
1. The Factor of a condition
2. Conditions of the internal demand, causing a scale effect
3. Presence of adjacent and supporting branches
Thus, the theory of a competition connects inclusion of the country andseparate firm in the world trade with conditions of a competition.
The Theory of a scale effect
P.Krjugman,R.Drize, G.Hafbauer have developed the theory of a scale effect.
At the certain technology and the organization of manufacturelong-term average costs are reduced in process of increase in output, i.e.there is an economy caused by mass production.
The effect ofmass production was realized, necessary capacious enough market. Internationaltrade allows to expand commodity markets. It is offered to consumers to moreproduction and lower prices.
The theory ofa scale effect is not universal.
So, nowadays the advantages in the competition are determined neither bythe size of the country, nor by rich natural resources or by the power of thefinancial capital. The determinatives are the educational level and volume ofthe knowledge accumulated by a society.
ChapterII. The international trade at the present stage of development
2.1 Concept and laws of development of theinternational trade
Basis of economic relations in the world economy is international trade.
International trade is sphere of the internationalcommodity and monetary relations on an exchange of products of work (the goodsand services) between sellers and buyers of the different countries».
International trade includes exportand import of the goods. Trading balance is parity between export andimport
The structural shifts occuring in economy of the countries underinfluence of a scientific and technological revolution, specialization andcooperation of industrial production, strengthen interaction of national economy.
It promotes activization of the international trade. International tradegrows faster production. Foreign trade became the powerful factor of economicgrowth.
International trade influenceseconomy of each country.
International trade is mutually advantageous, as conducts tospecialization and an exchange. Benefit is taken from a difference in costs inthe different countries. It allows to receive economy from scale.
International trade is characterized by three basicparameters are:commodity circulation, commodity structure and geographical structure.
The term«foreign trade» is understood as trade betweenthe countries, consisting of export and import of the goods and services.
Kinds of the foreign trade are:
1. saleof finished goods;
2. saleof machines and the equipment;
3. saleof raw material;
4. saleof services.
The parameters reflecting participation of the country in theinternational trade, are quota of export and of import.
Participation of the country in the international trade is caused bya level of its economic development, the sizes of territory, a population,problems and the purposes of economic policy.
Law of the world trade development
World trade grows very quickly.Export shares of the countries increase. Densities of ready industrial, hightechnology production grows. The export prices of machines and the equipmentquickly grow.
For an estimation of advantage of theinternational trade for the country, economists usean index of conditionsof trade.
The important tendency in theinternational exchange is the increase in the world market of services,especially tourist, transport, financial. Leaders of this market are theadvanced countries.
2.2 Structure and the basic commodity streams of the internationaltrade at the present stage of development
Considering structure of the worldtrade in the beginning of XXI century, it is possible to see essential changes.The share of the trade of a manufacturing industry has increased with 1/3 up to3/4, on the foodstuffs and raw material it is necessary about 1/5 commoditycirculations. More than 40 % of all modern world export are machines and theequipment.
The commodity structure of the world trade changes under influence of ascientific and technological revolution, a deepening of the internationaldivision of labour. Now the share of such kinds of production, as production ofa manufacturing industry, machines, the equipment, chemical production, thehigh technology goods especially quickly grows.
One of quickly developing spheres ofthe international trade is trade in chemical production.
Consumption of raw material and powerresources has increased. However rates of growth of trade in raw materialnoticeably lag behind the general rates of growth of the world trade.
Active trade in machines and theequipment has generated a number of new services, such as engineering, leasing,consulting, information services.
Export of the electrotechnical and electronicequipment quickly grows. On its share it is necessary more than 25 % of allexport of machine-technical production.
The commoditystructure of the international trade testifies to a level of economicdevelopment of the state.
In 2005,according to WTO, there was a growth of the international commodity circulationmore than on 13 % at cost up to a level of 10,4 bln. dollars.
The important role in commoditystructure of the world trade is played oil and other fuel goods. The share offuel raw material has increased up to 16 %. Forexample, Norway is the third in the world the exporter of oil and gas.The Incorporated Arab Emirates the fourth in the world exporters of oil andgas.
The basic share in the internationaltrade in the goods is occupied with the advanced countries with market economy.The leader of the world trade by the goods are the USA, on 2-nd place theGermany, on 3-rd place the Japan.
The leading countries – exporters ofthe world are: 1 place — Germany (10 % of the world export); 2 place — USA (9,7 %) andfurther places are distributed as follows: Japan (6,3 %); China (5,9 %);France, the Great Britain (4,1 %); Netherlands (3,9 %); on 11-th place HongKong, and Russia on 17-th place (1,8 %).
The leading countries – importers are: the USA — 16,8 % (1place); Germany – 7,7 % (2); the Great Britain – 5,3 % (3); Japan – 4,9 % (7);and Russia in the given list occupies 23 place – 1 %.
According toWTO, the largest manufacturer, the exporter and the importer of an industrialoutput remains the USA. On their share 14 % of the world export and 19 % ofimport are necessary. The USA is the world's largest pure importer ofproduction of mechanical engineering.
The tendency of the internationaltrade is the increase in volumes of trade between less developed countries.
The share of the countries of theWestern Europe in the world export made 32 %. On EU 85 % of export and 77 % ofimport of the industrial goods are necessary.
The beginning of XXI century was characterized by significant shifts inthe external economic sphere of Spain. In 2004 on its share was necessary 4,1 %of the world trade, including 1,9 % on export and 2,2 % on import.
The commodity structure of theRussian export to last years keeps the raw orientation. Dominating positionsoccupy the fuel and energy goods, black and nonferrous metals and chemicalfertilizers.
It isnecessary to note, that on structure of the international trade the greatestinfluence render a scientific and technological revolution, a deepening of theinternational division of labour. In the world trade growth of chemicalproduction, a manufacturing industry, a machine engineering industry, powerresources is observed, that is the precondition for development of newservices.
ChapterIII. Foreign trade of the Russian Federation
3.1 Features of Russia’s trade at the present stage
The Russianeconomy has crossed a threshold of a new millenium in a stage of steadyeconomic rise.
According tocustoms statistics, the foreign trade turnover of Russia in January — June,2006 has made 199,7 billion dollars. It has increased for 31,8 %, including thecountries CIS – 28,7 billion dollars.
The volume ofthe world trade has increased in January – June, 2006. It is connected togrowth of export deliveries of energy carriers and with growth of importincrease of internal demand.
It isnecessary to note, that, despite of fluctuations of volumes of import andexport, invariable positive remains to balance of the international trade.
The activebalance of trading balance of Russia has made 86,3 billion dollars and hasincreased for 19,9 billion dollars. The factor of a covering of import byexport has made 252 %. Thus the balance has essentially exceeded import (in 1,5times).
The high levelof balance has provided updating currency reserves of the country. According toBank of Russia, the international reserve actives of the country for June, 1,2006 have made 250,6 billion dollars and have increased in comparison with 2005in 1,7 times.
In the foreigntrade of Russia a special place as the largest economic partner occupies theEuropean Union. On its share in January — June, 2006 it was necessary 52,1 % ofthe Russian commodity circulation.
The basictrading partners in a circulation of Russia were Germany – 10 %, Netherlands –8,9 %, Italy — 7,5 %, Ukraine – 5,4 %, China – 5,9 %, Turkey – 3,8 %, the USA — 3,4 %, France -3 %, Japan -2,6 %.
The foreigntrade turnover of Russia in I half-year 2006 has made 213,5 billion dollars,including export – 144,1 and import – 69,5 billion dollars.
Development of export
The Russianexport in January – June, 2006 against January – June, 2005 has increased for31,3 %. Thus total export has made 143 billion dollars. 84,1 % of a gain ofexport is received due to growth of contract prices.
Physicalvolumes of export have increased by 5,0 %. The average export prices haveincreased for 25,1 %.
The relationof commodity export to gross national product of Russia under the mid-annualexchange rate of the Central Bank of the Russian Federation has made 41,5 %.
The exportquota (a share of export in manufacture) has increased on oil, mineral oil,coal and has decreased on natural gas, a paper newspaper, automobile and tolorries.
The basictrading partners of Russia in export were Netherlands – 11,6 % (in 2005 -10,4%), Germany – 8,6 (8,8), Italy – 8,8 (8), China – 5,1 (5,3), Turkey – 4,6(4,4), Poland-3,5 (3,4), the USA – 2,9 % (2,8 %).
The structureof the basic export positions in comparison with the last year practically hasnot changed and includes the major energy carriers (oil, gas, mineral oil),base metals, jewels, a round wood.
Ina fueland energy complex cost the volume of export of fuel and energy resourceshas increased for 44,1 %.
The worldprices for oil URALS in June, 2006 have made 469,3 dollars for one ton.
Inametallurgical complex cost the volume of export of production in theaccounting period has increased for 3,3 %.
Ina woodand pulp-and-paper complex in January — June, 2006 the standard item ofwood and pulp-and-paper production has increased for 11,8 %.
Inachemical and petrochemical complex cost the volume of export of the basicgoods in 2006 has increased for 15,4 %.
Inamachine-building complex it has been put on a foreign market of machines,the equipment on 6889,2 million dollars.
Development of import
The Russianimport January — June, 2006 has made 56,7 billion dollars and has increased for33,2 % .The basic trading partners of Russia in import were Germany – 13,4 %(2005 – 13,4 %), Ukraine – 6,6 % (8,3), China – 7,9 % (6,2), Japan – 5,7 %(5,5), the USA – 4,6 (4,9), Italy – 4,1 % (4,3), South Korea – 5,7 % (3,2),France – 3,9 % (3,7), the Great Britain -2,7 % (2,9 %).
Growth ofimport was provided due to increase in physical volumes of import. In theaccounting period the physical volume of import has grown on 28,3 %. Theincrease in import volumes promoted expansion of internal demand.
The increase in import volumes promoted expansion of internal demand. Thereal salary of one worker in June, 2006 has raised on 15,2 %, and a turn ofretail trade on 13,7 %. In 2006 monetary incomes of the population have made1417,8 billion roubles.
Real effectivestrengthening of rouble to foreign currencies in 2006 on 8,4 % promoted import.In the accounting period import of machines, the equipment and vehicles hasincreased for 48,6 % and has made 26196,4 million dollars.
So, theanalysis of growth of the world trade of Russia has shown, that inexportactivity the volume of export has increased due to contract prices.
Inimportactivity, on the contrary, in the accounting period of 85,1 % — due tophysical volumes, and 14,9 % — due to a rise in prices. Really the economy ofRussia has shown good rates of economic growth.
3.2 Russia’s role in the international trade
Russia is one of the largest countries in the world. It possesses uniquenatural resources, large industrial, scientific and personnel potential.
Russia playsthe important role in a mineral and raw complex of the world. From depths of Russia 10 % of oil, 30 % — gas, 10 % — coal, 14 % — commodity iron ore, 15 % – color and rare metals from all volumeof minerals extracted are taken by the world community.
On a share ofRussia 85 % of oil, 84 % – a gas condensate and gas, 70 % – coal, 66 % – ironore, 53 % – are necessary approximately to copper, 95 % – nickel, 70 % –bauxites from stocks of the CIS.
Russiais one of the world's largest owners of power resources. According to theinternational economic organizations, Russia also has strong competitivepositions in export black and nonferrous metallurgy, the wood and defensiveindustry, the machine industry, the chemical industry.
Positions ofRussia in the international trade have a little improved.
Now the shareof Russia in world export of goods makes 1,8 % (17 place among the leadingcountries – exporters of the world. In world import of the goods the share ofRussia made 0,9 % (23 place).
Underthe foreign trade turnover Russia occupies 20 place in the world. The share of grossnational product of Russia in the world economy in 10 times is less, than theUSA, and in 5 times there is less than China. On total amount of gross nationalproduct Russia occupies 15 place in the world. On stocks of the nuclear weaponRussia occupies 1 place in the world (55 %).
Foreign traderemains the important source of receipt of the investment goods.
So, the sphereof the foreign trade gives huge opportunities for becoming and developments ofeconomy, formation of the budget of the country, maintenance of well-being ofpeople.
Conclusion
Development and complication of theinternational trade has found reflection in evolution of the theoriesexplaining driving forces of this process. Traditional foreign trade theoriesare insufficient for an explanation of a modern international exchange of thegoods, but they are base in theoretical researches of the western scientistsand explain occurrence and an orientation of the world trade by the goods.
In modern conditions it is possibleto analyse distinctions in the international specialization only on the basisof set of all key models of the international division of labour.
International trade influenceseconomy of each country. All that is made in the country goes on export, and involume of consumption the increasing role is played with import.
Theories revealing principles ofoptimum participation of national economies in the international barter and lawof the world trade development, including the world trade of Russia areinvestigated.
The term paper can be used ineducational process at studying economic disciplines.
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