How is trade measured between nations

The International Trade and Capital Flows. Are trade surpluses always beneficial? Considering Colonial India. More than Meets the Eye in the Congo Now that you see the big picture, you undoubtedly realize that all of the economic choices you make, such as depositing savings or investing in an international mutual fund, do influence the flow of goods and services as well as the flows of money around the world.

Explain what that means. Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. Living in an especially large country Having a domestic investment rate much higher than the domestic savings rate Having many other large economies geographically nearby Having an especially large budget deficit Having countries with a tradition of strong protectionist legislation shutting out imports.

Review Questions What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP? What is the difference between trade deficits and balance of trade? Critical Thinking Questions Will nations that are more involved in foreign trade tend to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable? Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run.

Do you agree or not? Explain your answer. The United States has a large domestic economy so it has a large volume of internal trade. A large economy tends to have lower levels of international trade, because it can do more of its trade internally, but this has little impact on its trade imbalance.

An imbalance between domestic physical investment and domestic saving including government and private saving will always lead to a trade imbalance, but has little to do with the level of trade. Measuring Global Trade It was stated that the concept of comparative advantage in final goods, as developed by Ricardo, is no longer fully relevant to explain trade between countries.

Trade Satellite Account Perhaps it is time to extend to the rest of the export sectors this concept [of a Trade Satellite Account] and bring together all relevant information on trade-related activities, from trade flows in goods and services, foreign direct investment and financial settlements, to employment in its quantitative and qualitative dimensions.

Shift of paradigm to international perspective A shift in paradigm is needed not only to observe the economic activity from the perspective of the national territory, but also from an international perspective.

Need for national authorities to cooperate An integrated data warehouse linking trade with other economic statistics is the right way forward; sharing good practices in this regard is important. Global Value Chain Research The global value chain GVC framework was developed over the past decade by a diverse interdisciplinary and international group of researchers who tracked the global spread of industries and their implications for both corporations and countries.

Key research questions are: Can existing data on global trade be used to track the different types of GVC governance in a more detailed fashion over time? How can the GVC framework be applied to trade in services as well as goods? Where h ij is the share of commodity i in the total exports of country j and hi is the share of the commodity in world exports. The index has been normalized to account for the number of actual three-digit products that could be exported. Thus, the maximum value of the index is the number of individual three-digit products in SITC revision 2 , and its minimum theoretical value is zero, for a country with no exports.

The export specialization ES index is a slightly modified RCA index, in which the denominator is usually measured by specific markets or partners. Where x ij and X it are export values of country i in product j, respectively, and where m kj and M kt are the import values of product j in market k and total imports in market k. The ES is similar to the RCA in that the value of the index less than unity indicates a comparative disadvantage and a value above unity represents specialization in this market.

It is the share of the actual number of export relationships at the country product level forged by Country A in the maximum possible number of export relationships it can form given the number of its exports. The denominator is calculated by summing the number of countries that import each product that Country A exports. It is the share of Country A's exports in world export of only those goods that Country A exports. It is troubling to think that policymakers are reacting uncritically to TiVA estimates.

A number of concerns:. We know that foreign value added in products and services, both sold domestically and exported, is not proportional. It is not the same across all industries, or even across the same products in the same industry, and the variations matter. The producers of TiVA are well aware of these shortcomings and indeed have documented many of them. They are publishing new papers detailing the methodologies underlying TiVA, and engaging more deeply with statisticians from source countries.

However, there is an emerging vision that TiVA can shift from being a passive consumer of national statistics to a driver of improvements that will lead to better I-O tables and better quality and better-integrated domestic data.

All of this energy is creating new momentum to make extensions to I-O tables, particularly in regard to firm heterogeneity, including ownership foreign or domestic control , trading status importers, exporters, and two-way traders , firm size small, medium and large , and geography multinationals or domestic firms. While extending supply-use tables is a very big task for national statistical offices, policymakers want to know which kind of enterprises are driving trade, creating good paying jobs, occupying high value added niches in GVCs, and driving innovation.

At the moment, however, TiVA statistics should be treated with great caution. As Silvia Nenci points out, the high level of industry aggregation in TiVA limits its analytic usefulness and can lead to erroneous interpretations of not supplemented by additional research.

While our field research suggested that this figure is likely to be too low and indeed, TiVA documentation refers to a downward bias in its indicator of import content , the more significant drawback, from a policymaking standpoint, is the lack of product detail. Because demand is large and growing, a very high percentage are produced domestically in a handful of large assembly plants dominated by Honda and Yamaha and local parts content is also significant.

The passenger vehicle segment has the opposite characteristics. Demand is low, and though the market is protected enough to dampen imports of both new and used vehicles, final assembly is fragmented across a large number of mostly foreign-owned and joint venture plants, and with the exception of labour intensive wire harnesses and tires, domestic production of auto parts has failed to develop. None of this analysis was possible using present TiVA estimates. Through a combination of field research and analysis of detailed product information from UN Comtrade, our team was able to make very specific recommendations, including a rationalization of the passenger vehicle sector and a focus policies supporting continued growth in exports of motorcycles, key motorcycle parts, tires, and automotive wire harnesses.