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International economics: Lect 1 part 3 (Trade in intermediate goods…
International economics: Lect 1 part 3
Changing composition of trade
Today, most (about 53%) of the volume of trade is in manufactured products such as automobiles, computers, clothing and machinery
Mineral products
(ex., petroleum, coal, copper) also important at 19%
… and
agricultural products
are a relatively small part of trade (8%)
Services
such as shipping, insurance, legal fees, and spending by tourists account for about 20% of the volume of trade.
type of goods that are traded!
Composition of trade: recent developments
two recent developments
1.Trade in intermediate goods
(used for production not consumption)
more complex international supply chains
=> increases countries’ dependency
2. Trade in services
advances in modern communication technology allow more and more tasks to be “outsourced”, e.g. call centres, accounting, consulting, law services
Trade in intermediate goods
supply chains more complex and international
Increasing internationalization of production networks
Allows countries to specialize, makes production more efficient
But… also increases vulnerability of the production process
Today, >50% world exports involve intermediate goods
=> companies diversify their intermediate goods production to different countries
Trade in services
Service outsourcing can occur for services that can be performed and transmitted electronically
For example, a firm may move its customer service centers whose telephone calls can be transmitted electronically to a foreign location
Or, I can send (your) exams to India for grading…
Service outsourcing (or offshoring)
occurs when a firm providing services moves its operations to a foreign location
Trade in services cont.
A large part of services are still non-tradable
Most jobs are nontradable because they need to be done close to the customer (hair cuts, painting a house, dentist)
Some jobs are “tradable” and thus have the potential to be outsourced
But, it is very likely that more and more jobs will become “outsourceable” (e.g. radiologists, product designers, university lecturers)
rapid changes in communication technology
standardization of specific services (accounting)
increasing skill levels around the globe
Service outsourcing is currently not a significant part of trade (20%), but it is increasing