What does global trade mean in geography
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Global Trade Patterns and Relationships
In this entry we analyze available data and research on international trade patterns, including the determinants and consequences of globalization over the last couple of decades. Here is an overview of the main points we cover below. The integration of national economies into a global economic system has been one of the most important developments of the last century.
This process of integration, often called Globalization, has materialized in a remarkable growth in trade between countries. The chart here shows the value of world exports over the period These estimates are in constant prices i. This chart shows an extraordinary growth in international trade over the last couple of centuries: Exports today are more than 40 times larger than in This will help you see that, over the long run, growth has roughly followed an exponential path.
The chart above shows how much more trade we have today relative to a century ago. But what about trade relative to total economic output? Over the last couple of centuries the world economy has experienced sustained positive economic growth , so looking at changes in trade relative to GDP offers another interesting perspective. The next chart plots the value of trade in goods relative to GDP i.
This shows that over the last hundred years of economic growth, there has been more than proportional growth in global trade. This creates an intricate network of economic interactions that cover the whole world.
The interactive data visualization, created by the London-based data visualisation studio Kiln and the UCL Energy Institute , gives us an insight into the complex nature of trade. It plots the position of cargo ships across the oceans. Over the last couple of centuries the world economy has experienced sustained positive economic growth , and over the same period, this process of economic growth has been accompanied by even faster growth in global trade.
In a similar way, if we look at country-level data from the last half century we find that there is also a correlation between economic growth and trade: countries with higher rates of GDP growth also tend to have higher rates of growth in trade as a share of output.
This basic correlation is shown in the chart here, where we plot average annual change in real GDP per capita, against growth in trade average annual change in value of exports as a share of GDP. Among the potential growth-enhancing factors that may come from greater global economic integration are: Competition firms that fail to adopt new technologies and cut costs are more likely to fail and to be replaced by more dynamic firms ; Economies of scale firms that can export to the world face larger demand, and under the right conditions, they can operate at larger scales where the price per unit of product is lower ; Learning and innovation firms that trade gain more experience and exposure to develop and adopt technologies and industry standards from foreign competitors.
Are these mechanisms supported by the data? When it comes to academic studies estimating the impact of trade on GDP growth, the most cited paper is Frankel and Romer In this study, Frankel and Romer used geography as a proxy for trade, in order to estimate the impact of trade on growth. This is a classic example of the so-called instrumental variable approach.
Following this logic, Frankel and Romer find evidence of a strong impact of trade on economic growth. Other papers have applied the same approach to richer cross-country data, and they have found similar results. This body of evidence suggests trade is indeed one of the factors driving national average incomes GDP per capita and macroeconomic productivity GDP per worker over the long run.
If trade is causally linked to economic growth, we would expect that trade liberalization episodes also lead to firms becoming more productive in the medium, and even short run. There is evidence suggesting this is often the case. Pavcnik examined the effects of liberalized trade on plant productivity in the case of Chile, during the late s and early s. She found a positive impact on firm productivity in the import-competing sector. And she also found evidence of aggregate productivity improvements from the reshuffling of resources and output from less to more efficient producers.
Bloom, Draca and Van Reenen examined the impact of rising Chinese import competition on European firms over the period , and obtained similar results. They found that innovation increased more in those firms most affected by Chinese imports. And they found evidence of efficiency gains through two related channels: innovation increased and new existing technologies were adopted within firms; and aggregate productivity also increased because employment was reallocated towards more technologically advanced firms.
On the whole, the available evidence suggests trade liberalization does improve economic efficiency. This evidence comes from different political and economic contexts, and includes both micro and macro measures of efficiency.
This result is important, because it shows that there are gains from trade. But of course efficiency is not the only relevant consideration here.
As we discuss in a companion blog post , the efficiency gains from trade are not generally equally shared by everyone. Because distributional concerns are real it is important to promote public policies — such as unemployment benefits and other safety-net programs — that help redistribute the gains from trade.
When a country opens up to trade, the demand and supply of goods and services in the economy shift. As a consequence, local markets respond, and prices change. This has an impact on households, both as consumers and as wage earners.
The implication is that trade has an impact on everyone. The effect of trade extends to everyone because markets are interlinked, so imports and exports have knock-on effects on all prices in the economy, including those in non-traded sectors.
The distribution of the gains from trade depends on what different groups of people consume, and which types of jobs they have, or could have.
You can read more about these economic concepts, and the related predictions from economic theory, in Chapter 18 of the textbook The Economy: Economics for a Changing World. In this paper, Autor and coauthors looked at how local labor markets changed in the parts of the country most exposed to Chinese competition, and they found that rising exposure increased unemployment, lowered labor force participation, and reduced wages.
Additionally, they found that claims for unemployment and healthcare benefits also increased in more trade-exposed labor markets. The visualization here is one of the key charts from their paper. The vertical position of the dots represents the percent change in manufacturing employment for working age population; and the horizontal position represents the predicted exposure to rising imports exposure varies across regions depending on the local weight of different industries.
The trend line in this chart shows a negative relationship: more exposure goes together with less employment. There are large deviations from the trend there are some low-exposure regions with big negative changes in employment ; but the paper provides more sophisticated regressions and robustness checks, and finds that this relationship is statistically significant. This result is important because it shows that the labor market adjustments were large.
Many workers and communities were affected over a long period of time. In particular, comparing changes in employment at the regional level misses the fact that firms operate in multiple regions and industries at the same time. So companies that outsourced jobs to China often ended up closing some lines of business, but at the same time expanded other lines elsewhere in the US.
This means that job losses in some regions subsidized new jobs in other parts of the country. On the whole, Magyari finds that although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms in other places.
This is no consolation to people who lost their job. She finds that rural regions that were more exposed to liberalization, experienced a slower decline in poverty, and had lower consumption growth. In the analysis of the mechanisms underlying this effect, Topalova finds that liberalization had a stronger negative impact among the least geographically mobile at the bottom of the income distribution, and in places where labor laws deterred workers from reallocating across sectors.
The fact that trade negatively affects labor market opportunities for specific groups of people does not necessarily imply that trade has a negative aggregate effect on household welfare. This is because, while trade affects wages and employment, it also affects the prices of consumption goods. So households are affected both as consumers and as wage earners. Most studies focus on the earnings channel, and try to approximate the impact of trade on welfare by looking at how much wages can buy, using as reference the changing prices of a fixed basket of goods.
This approach is problematic because it fails to consider welfare gains from increased product variety , and obscures complicated distributional issues such as the fact that poor and rich individuals consume different baskets so they benefit differently from changes in relative prices. Ideally, studies looking at the impact of trade on household welfare should rely on fine-grained data on prices, consumption and earnings.
Atkin and coauthors use a uniquely rich dataset from Mexico, and find that the arrival of global retail chains led to reductions in the incomes of traditional retail sector workers, but had little impact on average municipality-level incomes or employment; and led to lower costs of living for both rich and poor households. The chart here shows the estimated distribution of total welfare gains across the household income distribution the light-gray lines correspond to confidence intervals.
These are proportional gains, and are expressed as percent of initial household income. As we can see, there is a net positive welfare effect across all income groups; but these improvements in welfare are regressive, in the sense that richer households gain proportionally more about 7.
Evidence from other countries confirms this is not an isolated case — the expenditure channel really seems to be an important and understudied source of household welfare.
The available evidence shows that, for some groups of people, trade has a negative effect on wages and employment opportunities; and at the same time it has a large positive effect via lower consumer prices and increased availability of products.
For some households, the net effect is positive. In particular, workers who lose their job can be affected for extended periods of time, so the positive effect via lower prices is not enough to compensate them for the reduction in earnings. On the whole, if we aggregate changes in welfare across households, the net effect is usually positive.
But this is hardly a consolation for those who are worse off. This highlights a complex reality: There are aggregate gains from trade , but there are also real distributional concerns. The following visualization presents a compilation of available trade estimates, showing the evolution of world exports and imports as a share of global economic output. The higher the index, the higher the influence of trade transactions on global economic activity. The first wave of globalization came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a slump in international trade.
In the chart we see a large drop in the interwar period. After the Second World War trade started growing again. This new — and ongoing — wave of globalization has seen international trade grow faster than ever before. Klasing and Milionis , which is one of the sources in the chart, published an additional set of estimates under an alternative specification.
You find all these alternative overlapping sources in this comparison chart. Over the early modern period, transoceanic flows of goods between empires and colonies accounted for an important part of international trade. The following visualizations provides a comparison of intercontinental trade, in per capita terms, for different countries.
As we can see, intercontinental trade was very dynamic, with volumes varying considerably across time and from empire to empire. Leonor Freire Costa, Nuno Palma, and Jaime Reis, who compiled and published the original data shown here, argue that trade, also in this period, had a substantial positive impact on the economy.
The following visualization shows a detailed overview of Western European exports by destination. Figures correspond to export-to-GDP ratios i. But this process of European integration then collapsed sharply in the interwar period. After the Second World War trade within Europe rebounded, and from the s onwards exceeded the highest levels of the first wave of globalization.
In addition Western Europe then started to increasingly trade with Asia, the Americas, and to a smaller extent Africa and Oceania. The indicators in this chart are indexed, so they show changes relative to the levels of integration observed in This gives us another viewpoint to understand how quickly global integration collapsed with the two World Wars.
New trade theory · Economic geography · Intra-industry trade · Gravity model of trade · Ricardian trade theories · Balassa–Samuelson effect · Linder hypothesis · Leontief paradox · Lerner symmetry theorem · Terms of trade · v · t · e. International trade is the exchange of capital, goods, and services across international borders collections on international trade often. Not only is labour cheaper, but the NAFTA agreement means there are no import taxes to pay when the guitars are brought back to the USA. Trends in mergers.
The geographic diversification of international trade and investment has become a public policy goal of many countries, including Canada. Trade in services, however, may offer better opportunities for trade diversification. But facilitating trade in services requires supportive regulation and strong global cities like Toronto and London to serve as hubs. Reflecting that priority, Canada now has a minister of international trade diversification , Jim Carr.
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Trade simply means the voluntary exchange of goods and services, where two or more parties are involved. International trade is the exchange of goods and services among countries across national borders.
What is Global Trade? - Definition, Advantages & Barriers
In this entry we analyze available data and research on international trade patterns, including the determinants and consequences of globalization over the last couple of decades. Here is an overview of the main points we cover below. The integration of national economies into a global economic system has been one of the most important developments of the last century. This process of integration, often called Globalization, has materialized in a remarkable growth in trade between countries. The chart here shows the value of world exports over the period
International trade
Previous courses have questioned us on what explains the expansion of circuits, which explains that flows begin to cross borders, which explains what goods, tangible and intangible goods cross greater distances, why we have not remained to micro-local circuits as analyzed by Sahlins and Chaunu. There is a mystery in the phenomenon of expanding economic circuits. There are different economic circuits, each with its own regulation system corresponding to different space systems, and there is a history of their expansion. The history of economic enlargement, the colonisation of the free trade triangle and a very Eurocentric history. There remains a pending question which is how to explain the expansion of the circuits? What and the factor and engine that pushed these economies to expand. The question is why open the circuits, why look for economic partners who are more and more distant? The question of distance arises with the idea that distance is both material and symbolic and that both distances are costly to travel.
International trade , economic transactions that are made between countries. Among the items commonly traded are consumer goods, such as television sets and clothing; capital goods, such as machinery; and raw materials and food.
In addition to patterns of trade, other important global economic relationships can be mapped by geographers and these include:. Overall, world trade is dominated by developed countries and several large emerging economies EEs. Two important groups of EEs to be aware of are:.
Geography World - International Trade
Follow us on Twitter. Become a Fan on Facebook. Explain the components of the international trading environment. How could geography create international business opportunities? How might religious beliefs and culture affect international business? What are the implications of political unrest on international business? How can the economic conditions of a country affect business decisions? What are some current international ethical and legal issues in the news? What do intellectual property protections include? Why should multinational companies follow foreign licensing requirements? What are some accepted practices of conducting business in other countries that would be illegal in the United States?
The Trading Game
International trade is the exchange of capital , goods , and services across international borders or territories [1] because there is a need or want of goods or services. In most countries, such trade represents a significant share of gross domestic product GDP. While international trade has existed throughout history for example Uttarapatha , Silk Road , Amber Road , scramble for Africa , Atlantic slave trade , salt roads , its economic, social, and political importance has been on the rise in recent centuries. Carrying out trade at an international level is a complex process when compared to domestic trade. When trade takes place between two or more nations factors like currency, government policies, economy, judicial system, laws, and markets influence trade.
