global interdependence

• OPEC countries export oil
• Resource Endowment


  A country is rich in some form of resource
• The OPEC countries are rich in oil
• OPEC


  • An intergovernmental organization comprising of 12 oil producing nations, founded in 1960 after a US Law imposed quotas on Persian Gulf oil in favor of Canadian and Mexican oil industries
  • To co-ordinate and unify petroleum policies with member countries and stabilize the oil markets in order to ensure economic and regular supply of petroleum to consumers on a fair return on their investment
  • In 2007 had 78% of the world crude oil reserves
• OPEC countries are critised for their policies
• Countries endowed with other raw materials such as food products, timber and minerals and fish also figure prominently in the world trade stats
• MEDC's like Canada and Australia export raw materials in demand on the world market
• Comparative advantage


  • The different countries will specialize in producing those goods and services for which each is best endowed
  • Each country will trade a proportion of their goods to other nations to obtain goods and services that it needs but for which it is not favorably endowed
  • Applies to raw materials as well as manufactured goods and services
  • Countries tend to concentrate on the goods and services they are best at producing, resulting in specialization in production and employment
• Examples of comparative advantage

  • Germany for cars
  • Japan for high end products
  • Belgium for chocolate
  • Swiss for watch
• Locational advantage


  • The location of the market demand influence on trade patterns
  • Advantage if the country of export is close to the market that needs the good or service as this reduces transportation costs and gains benefit of spatial proximity
• Examples of locational advantage

  • Tourist industry in France benefits from the large population of neighboring countries
  • Manufacturing industry in Canada benefit from being close to USA (as it is a huge market)
• Some countries and cities are strategically located along trade routes, e.g. Singapore is situated at a strategic located along the main trade routes between Indian and Pacific ocean
• Investment


  • Key to increasing trade
  • Some LEDC's have increased their trade substantially by attracting bulk of foreign investment
• Examples of low income globalizers

  • China
  • Brazil
  • India
  • Mexico
• Other countries have been losing money as their trade has fallen compared to nations income
• Historical Factors


  • Historical relationship, often based on colonial tie, remain an important factor in global trade patterns
  • Colonial expansion heralded a trading relationship dictated by the European countries mainly for their own benefit
  • The historic legacy of trade dependency has led to poorer tropical countries having a limited share of world trade
• Comparative advantage: different countries specialize in producing different goods and services at a lower cost than others. So countries will trade these with other nations to get what they need.
• China's investment in Africa (Case Study)

  • Business service
  • Wholesale and retail
  • Import and export
  • Construction, transportation, storage and postal services
  • Mineral products
  • Base metals and articles of base metal
• Germany has one of the greatest exports in the European Union with 650 Euro (1000 million)
• Main exports from Germany to the EU include transport and machinery as well as planes and helicopters which make up 11% of the exports
• Free Trade Agreements


  • Opening new markets for goods and services
  • Increasing investment opportunities
  • Making trade cheaper - by eliminating substantially all customs duties
  • Making trade faster - by facilitating goods' transit through customs and setting common rules on technical and sanitary standards
  • Making the policy environment more predictable - by taking joint commitments on areas that affect trade such as intellectual property rights, competition rules and the framework for public purchasing decisions
• Exports of goods and services also made up about 52 percent of Germany's GDP
• EU integration has greatly intensified intra-European trade, with about 69 percent of German exports shipped to European countries and 58.2 percent delivered to member states of the EU
• Germany's most important trading partner continues to be France (9.5 percent of total exports)
• 7.9 percent of German exports went to the US in 2012 and 6.6 percent to the UK
• Most of the goods imported to Germany originated from the Netherlands. Germany imported goods worth 86.6 billion euro from the Netherlands (9.5 percent of total German imports), with China and France accounting for the next highest imports
• Germany's Import and Export Indicators and Statistics at a Glance (2012)

  • Total value of exports: $1.492 trillion
  • Primary exports – commodities: motor vehicles, machinery, chemicals, computer and electronic products, electrical equipment, pharmaceuticals, metals, transport equipment, foodstuffs, textiles, rubber and plastic products
  • Primary exports partners: European Union (58.2 percent of total exports), US (7.0 percent), China (6.1 percent), Switzerland (4.5 percent), Russia (3.3 percent)
  • Total value of imports: $1.276 trillion
  • Primary imports - commodities: machinery, data processing equipment, vehicles, chemicals, oil and gas, metals, electric equipment, pharmaceuticals, foodstuffs, agricultural products
  • Primary imports partners: European Union (54.8 percent), China (8.9 percent), US (5.5 percent), Switzerland (4.2 percent), Russia (3.3 percent)
• Fairtrade


  • Ensures fair prices for the primary goods sold by the farmers
  • Farmers who sell their cocoa through fairtrade receive $1600/tonne, which is a much fairer price compared to $1400/tonne received by farmers in Ivory Coast
  • Allows farmers to have a higher standard of living as they now earn more and can afford healthcare and education for their children
• Social benefits of Fairtrade in Ivory Coast

  • New wells with motors have been constructed to ensure clean water accessibility
  • Invested in construction of its own health center with a doctor, midwife, and two nurses
  • More than 40 lives being saved in the Ivory coast alone
  • Life-expectency has increased from 49 to 50.5 years
  • Distributes large amounts of scholarships to members' children so they need to pay less fees towards school
  • Literacy rate in Ivory coast has increased from 30% in 2000 to 48.7% in 2014
• Debt Service Ratio


  • Ratio of debt service payments (principal + interest) of a country to that country's export earnings
  • A country's international finances are healthier when this ratio is low
• Unpayable debt


  External debt when the interest on the debt is beyond the means of a country, thus preventing the debt to be repaid
• Debt relief


  Partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals
• Trade


  The exchange of goods and services
• Imports


  Good and services being purchased from overseas and brought into a country
• Exports


  Goods and services leaving a country to be sold overseas
• Balance of Trade


  The difference in the monetary value of exports and imports over a specified period (normally a year or a quarter)
• Balance of Payments


  Accounts for the balance of all monetary transactions between countries, including goods, services and transfers of financial capital
• Trade deficit (in the red)


  When the value of your imports is greater than the value of your exports
• Trade Surplus (in the black)


  When the value of your exports is greater than the value of your imports
• Protectionism


  Methods used to protect domestic industries from foreign competition, such as tariffs, quotas or subsidies