Horizontal foreign direct investment ppt

International Trade Economics

Trade in the Global Economy
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International Trade

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Migration and Foreign Direct

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Conclusion

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Outline

Globalization
Trade: Flow of goods and services across borders
What do countries trade?
Who trade with whom?
How does trade compare with GDP?
What are the key events in world trade in the past 150 years?
Migration: Movement of people
Foreign Direct Investment (FDI): Flow of capital between countries
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Snap shot. Source: U.S. Bureau of Census website.

First, total amounts of trade, 2002.

Goods: tangible, touch. Goods move. Examples: stuffed animals, Barbie dolls, P. U. T-shirts. Amount of goods trade. Share.

Services. Not tangible, touch. Consumers move. Examples: board airplanes. Skiing Trip. French students come to Purdue. Nobody moves. Example: open a McDonald in Cambodia. Amount. Share

Goods: majority. Also true of other countries, in the past as well.

Goods: mfg, agriculture, and mining. What are each. Amounts. Shares. Majority is mfg. Oil imports small compared with mfg.

True for other industrial countries.

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Map of World Trade. Fig. 1-2

Figure 1.2
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Breakdown of World Trade

Table 1.1
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Trade Compared to GDP. Table 1.2

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Questions we ask and answer

Why do countries trade with each other?
South Africa has diamonds and we don’t
Why does U.S. import cars from Germany?
Germany is better in making cars than we do
Why does U.S. import textile from China?
Comparative advantage
How does trade affect the U.S.?
Specific factors model (short-run perspective)
Heckscher-Ohlin model (long-run perspective)
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What types of mfg. goods are traded?

Figure 1-1
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What types of mfg. goods are traded?

Figure 1-1
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Trade in Intermediate Goods

the iPhone
Bilateral Trade

Surplus or deficit

Is a slippery concept!

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offshoring

Wipro remotely accesses Microsoft computers for regular maintenance.

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offshoring

What’s next? Whose jobs go overseas? Lou Dobbs

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Questions we ask and answer

What kinds of jobs get outsourced/offshored?
Blue collar or white collar?
College degree or non-college degree?
What kinds of college degree?
How does offshoring affect wage and transition?
Heckscher-Ohlin model (resourced-based trade)
Specific topic for offshoring
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History of World Trade

Figure 1.3
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Questions we ask and answer

Why do policy makers put trade barriers in use?
Import tariffs
Export subsidies
Free trade agreements
Are they “good” or “bad”? i.e. how do they affect consumers and producers?
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Summary: Movement of Goods and Services

Most trade is for goods, especially mfg. goods, and highly processed capital and consumer goods
Most trade takes place between developed (industrialized) countries
Trade/GDP can exceed 1. This ratio is low for the countries with large GDP.
There is a lot of trade in intermediate goods (parts and components). Bilateral trade deficit/surplus is a slippery concept!
Trade was as prominent in early 20th century as it is today.
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Map of Migration. Figure 1-6

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Migration

Unlike trade, there are much more significant regulations on migration
Flow of people between countries is much less free than the flow of goods.
Wealthier countries typically have greater immigration restrictions
In 2005 it was estimated that 12 million Mexicans were living in the US
This is more than 10 percent of Mexico’s population
Policy makers fear that immigrants from low-wage countries will drive down wages
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Foreign Direct Investment Fig. 1-7

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Horizontal and Vertical FDI

Horizontal FDI occurs when a firm from one country owns a company in another industrial country
Purchase of Rockefeller Center in New York by Japanese investor
Vertical FDI occurs when a firm from an industrial country owns a plant in a developing country

When Intel opens a chips factory in Ireland

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Questions we ask and answer

Why do immigration and FDI take place? Why do so many immigrate to the U.S.?
Does the U.S. benefit from immigration?
Who in the U.S. benefit the most from immigration?
How about FDI?
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Summary: Migration and FDI

Most of migration happens among developing countries
There is horizontal FDI (between developed countries) and vertical FDI (from developed to developing countries).
Most of FDI is horizontal; i.e. between developed countries (industrialized) countries.
© 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor

© 2007 Worth Publishers ▪ International Economics ▪ Feenstra/Taylor

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Snap shot. Source: U.S. Bureau of Census website.

First, total amounts of trade, 2002.

Goods: tangible, touch. Goods move. Examples: stuffed animals, Barbie dolls, P. U. T-shirts. Amount of goods trade. Share.

Services. Not tangible, touch. Consumers move. Examples: board airplanes. Skiing Trip. French students come to Purdue. Nobody moves. Example: open a McDonald in Cambodia. Amount. Share

Goods: majority. Also true of other countries, in the past as well.

Goods: mfg, agriculture, and mining. What are each. Amounts. Shares. Majority is mfg. Oil imports small compared with mfg.

True for other industrial countries.

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U.S. International Trade 2010

Millions of Dollars

ExportsImports

Total1,827,1412,316,208

Goods1,278,2631,913,160

Manufactured Goods1,183,1911,584,580

Agricultural Commodities68,33342,674

Mineral Fuels26,739285,906

Services548,878403,048

Travel103,50575,507

Passenger Fares30,93127,279

Other Transportation39,93651,202

Royalties and License Fees105,58333,450

Other Private Services250,320180,598