International Trade

• International Trade


  The exchange of goods and services across international boundaries with payments made in the currency of the seller
• Exports by the domestic and foreign country as monetary injections have the potential to generate growth in both economies
• When an economy sells goods and services to the foreign economy

  It generates both employment and income for factors of production in the home economy. Also, export revenue inflows provide the domestic country with sufficient import revenue to purchase goods and services not produced domestically
• Imports by the domestic economy

  Provide employment and income for the factors of production from the foreign economy. Similarly, export revenue inflows provide the foreign country with sufficient import revenue to purchase goods and services not produced by the foreign economy
• Factors that Determine Exports and Imports

  • International Prices
  • Domestic Production
  • Domestic Prices and Exchange Rates
  • International Economic Activity as it Affects the Tourism Market in the Caribbean
  • Shifts in International Demand and the Emergence of Substitutes
  • Changes in International Income
• International Prices


  The goods and services exported and imported by an economy depend on its relative international price. These prices in the international market is determined by demand and supply factors. The demand for factors of production is derived from the demand for commodities. The derived demand for factors and the supply of factors together determine factor prices. Commodity prices are influenced by both the state of technology and the prices of factors of production. The economy with the cheaper good will sell that good to other economies and, in turn, import the goods produced cheaply by these other economies
• Domestic Production


  The goods and services that an economy produces in abundance are linked to its abundant factors of production. Countries which have more land than labour and capital tend to focus on agriculture and livestock, while those with more capital and labour concentrate on manufactured goods
• Domestic Prices and Exchange Rates

  Domestic prices are determined by cost factors, such as, specialisation, economies of scale, productivity levels, inflation and cost of the factors of production. An overvalued exchange rate makes it easier for domestic consumers to buy goods and services produced in the foreign economy but more difficult for the domestic economy to export
• International Economic Activity as it Affects the Tourism Market in the Caribbean


  Tourism is the economic mainstay of all Caribbean islands, since it is a direct way to earn foreign exchange. A wide range of international activity related to sports, cultural and business and eco-tourism activity are determining factors for Caribbean tourism. Tourism can create niche opportunities for employment in craft industries and for workers in the construction, utilities, restaurants and hotel and guesthouses subsectors of the economy. However, the economic potential of such sectors is matched by its vulnerability to international shocks
• Shifts in International Demand and the Emergence of Substitutes


  When an economy is heavily dependent on exports of a particular commodity, the production of which is made redundant by the emergence of a substitute commodity, then that economy can experience significant adverse changes in its export revenue earnings. Changes in preferences and tastes also cause demand patterns to change
• Changes in International Income

  Some commodities have low income elasticity of demand. This means that when there is an increase in international incomes the export revenues of economies exporting low income elasticity commodities would realize a relative decline in export revenues. Positive economic growth and rising income levels of trading partners provide a stimulus for export demand. While negative economic growth has the opposite effect
• Effects of Foreign Exchange Earnings from Exports on a Small Open Economy

  • Access to Capital Goods
  • The Export Multiplier
  • Access to Consumer Goods
  • Increased Domestic Production
• Access to Capital Goods

  When a country exports its goods and services to the international community it earns valuable foreign exchange, which it can use to purchase capital goods produced in foreign economies. Capital goods imports are critical to developing economies as they help to produce all types of goods including goods for aiding development
• The Export Multiplier


  The export multiplier provides an indication of the expansion in overall economic activity occasioned by an increase in exports. Exports have the potential to increase national income, growth and employment through the multiplier effect
• Access to Consumer Goods

  An increase in export revenue earnings also allows domestic consumers to purchase foreign consumer goods and so improve their consumption welfare
• Increased Domestic Production


  When constraints on the imports of capital goods are eased, as occurs when an economy has an adequate flow of export revenues, this facilitates an increase in the production of goods and services in the domestic economy
• The World Bank is an international organization that provides financial assistance to developing countries.
• The IMF (International Monetary Fund) was established in 1945 as part of the Bretton Woods Agreement, which aimed to promote economic stability and cooperation among nations.
• The main function of the IMF is to provide short-term loans to member countries experiencing balance of payments problems or other economic difficulties.
• The IMF works closely with other international organizations such as the World Bank and regional development banks to coordinate policies and address global challenges.
• Protectionism involves imposing restrictions on imported products to protect local industries from competition.
• The IMF's lending programs aim to restore macroeconomic stability, reduce poverty, and support structural reforms.
• The IMF promotes monetary cooperation, exchange rate stability, and sustainable economic growth among its members.
• Trade liberalization refers to the reduction or elimination of barriers to international trade, such as tariffs and quotas.
• The IMF's lending programs typically come with conditions attached, known as "conditionality," designed to ensure that borrowing countries implement sound economic policies and structural reforms.
• Tariffs are taxes imposed on imported goods, while quotas limit the quantity of certain products that can be imported into a country.
• The IMF promotes international trade and investment through its work on exchange rate policy, debt management, and macroeconomic surveillance.
• Non-tariff barriers include import licenses, technical standards, and sanitary measures.
• Examples of protectionist measures include tariffs, quotas, subsidies, and non-tariff barriers.
• Trade agreements aim to reduce trade barriers between participating countries and promote free trade.
• IMF's main functions include providing loans to member countries experiencing balance-of-payments difficulties, promoting international monetary cooperation, and monitoring global economic developments.
• Tariffs are taxes imposed on imports, while quotas limit the quantity of goods that can be imported into a country.
• Subsidies involve providing financial assistance to domestic producers to make their products more competitive against foreign competitors.
• Tariff protection involves setting high import duties on foreign goods to make them less attractive compared to domestic products.