International Trade Assignment

International Trade Assignment

1. Steps how to get the world export data

Step 1: Log in to the WITS

https://wits.worldbank.org/WITS/WITS/Restricted/Login.aspx?AspxAutoDetectCookieSupport=1 

Step 2: Click on ‘Advanced Query’ and choose ‘Trade Data (UN Comtrade)’

Then, fill in ‘Query Name’ and ‘Query Description’

In the field Data Source, click on and choose ‘COMTRADE’

And then click ‘Proceed’

Step 3: After done at the second step, it will appears these sub-step.

• Reporters:
• ‘Select’
• ‘Predefined country group’ and choose ‘All countries’, after that click on a single arrow ‘>’, then ‘Proceed’
• Products:
• ‘Select’
• ‘Nomenclature’ and choose ‘SITC Revision 1’
• ‘Clusters’ and choose ‘ALL3 – Group (3-digit)’, then click on a single arrow ‘>’, and ‘Proceed’
• Partners:
• ‘Select’
• Click ‘World WLD’, then click ‘>’, and ‘Proceed’
• Years:
• ‘Select’
• ‘1964’ (choosing a year depends on which year you want to get data), then ‘>’, and ‘Proceed’
• Trade flows:
• ‘Select’
• Choosing ‘Export’, then ‘>’, and ‘Proceed’

After done all of those sub-step, click ‘Submit’   

Step 4: click on ‘Download’,

then in the field ‘File format’, choose ‘Excel 97 – 2003’

Next, click ‘download’, ‘Save’ and just open.

2. Calculate Revealed Comparative Advantage (RCA) for the manufacturing sector calculation

Excel file

3. Identify the top 10 products/sectors of comparative advantage of the high-income country in the past and today and of the low-income country today.

4. Write a paragraph of no more than 500 words to describe the identified comparative

advantage of the high-income country in the past and today, and of the low-income country today. Specifically, discuss any contrasts and/or similarities in your findings.

In Vietnam, footwear and leather has grown strongly in the past few years. These are ‘the most important export sectors’ of Vietnam and it accounted for ‘the largest share in production’. Furthermore, the country is also on the way of renovation all commodities in those sectors in order to meet a higher foreign demand as well as improving in price. Besides, textile and wood/furniture industries also have its own strengths, such as low-priced labour, low capital investment requirement, Government policies and attracting foreign investment, so that producing its commodities gains more advantages as compare to others (Vietnam Trade Promotion Agency (VietTrade) 2012). About wood industry, Vietnam furniture export has increased significantly over the last 5 years (2007-2012) and it has contributed average of 16% each year during the period according to VietTrade (2013).

On the other hand, Japan has comparative advantage in producing heavy industrial products which require high technological supporting and skilled labour as well as a large amount of capital investment. As the list provided, Japan’s top ten export sectors would be more about more exporting final and complete products rather than manufacture some components of different products. Additionally, as Japanese’s technology economy has changed over the time, it is one of the important factors which contributed to the differences between what Japan exported in the past and what they are currently exporting today. Through the top identification, Japan’s export trending is more and more enhanced in order to meet standards of the country technology development and the world’s demand in those sectors.

Generally, it is clear that there is a huge difference in the nature of exported products between the two developed and developing countries - Japan and Vietnam respectively. In term of exporting, Japan strengths in heavy industrial products, while Vietnam mainly focus on less skills required and technology using in order to manufacture their goods. There are several factors which can fully explain why both countries are different from each other.

Firstly, Japan has a high proportion of skilled-labour, whereas a majority of Vietnam’s workforce is low-skill labour. Although Vietnam has ‘a vast pool of labour’, the low and non-skill worker occupies around 84.5% of total employment (General Statistics Office (GSO) 2012). It simply means that, no matter how cheap Vietnam’s labour is, it is very difficult for the country to participate in heavy or high-skill required sector. Therefore, this is one of the most disadvantaged of the country as compare to Japan. 

Secondly, Japan is a master in advanced technology in the world according to CIA (2014). Japan has developed its technology since the past until now. It notices that technology development plays an important role in Japan’s manufacturing sector. As question listed above, top ten export product/sector of Japan requires a lot of advanced technology support and their professional, potential human resource. Basically, if the country cannot run its technology system well and lack of skilled-labour engagement, they properly cannot produce all of top ten products.

Finally, the nature resources and endowment factors of both country are not the same. Thus, depending on what they already have advantages, each country has to specialize in specific products or sectors. For example, Vietnam’ strengths in textile and wood, so that they can produce efficiently these sectors as compared to Japan does not have.

5. Explain the basis for and the gain from trade

People assume that there are two countries trade together and both produce two goods X and Y only. Due to an unequal in resources, when a country wants to produce one more unit of one good they have to scarify more than one unit of another and it is called an increasing in opportunity cost which reflects a nation’s comparative advantage. Then, both countries will specialize in producing a good which they have comparative advantage in and then trade. It means that a country which produces good X as a lower opportunity cost will export some amount of X and import Y from another and they are both gain from trade.

To illustrate, at Autarky, point A and A’, equilibrium before trade, the price ratio of Australia and Vietnam will be  and  respectively. Through this, it is clear that the slope of Production Possibility Curve (PPC) in Australia is flatter than Vietnam because of smaller price ratio, then Australia has comparative advantage in Wh, and as presenting another way, Vietnam has comparative advantage in Cl. Thus, Australia should specialize in producing Wh and Vietnam will produce Cl. Meaning that Australian can only consume 60 Cl and 50 Wh (at point A), when Vietnamese can consume 30 Cl and 90 Wh. When the world price ratio is 1Wh = 1/Cl which is , it is between  and 4, it will benefit both and Australia produces more Wh and Vietnam produces more Cl.  Then A will moves to B (A’ to B’). However, when moving, the cost of producing Wh in Australia and Cl in Vietnam increases, both will stop specializing at point B which indicates the efficient production point. At B, consumers are not maximising their utility because indifference curves (IC) of both countries are lower. Consumer can consume at any point along the world price ratio line, so they can maximise utility at C where IC tangents to world price ratio line. At C, Australian can consume more of 60 Cl by exporting 60Wh to Vietnam, Vietnam is the same when exporting 60 Cl and importing 60 Wh. Consumption is now more than before trade, so both countries can enjoy their benefits.

References

General Statistics Office (GSO) 2012, Report On the Vietnam 2011 Labour Force Survey, GSO, viewed 1 November 2014, <https://www.google.com.vn/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0CCwQFjAC&url=http%3A%2F%2Fwww.gso.gov.vn%2FModules%2FDoc_Download.aspx%3FDocID%3D15318&ei=JxBZVJffG4vq8gXE3oCwAw&usg=AFQjCNGa2FtcJwLwjfIxTeJknkHiBcP2Lg&bvm=bv.78677474,d.dGc>.

Vietnam Trade Promotion Agency (VietTrade) 2012, Strengths of the Vietnam textile and garment industry, VietTrade, viewed 30 October 2014, <.

Vietnam Trade Promotion Agency (VietTrade) 2013, Strengths of Vietnam’s timber and furniture industry, VietTrade, viewed 29 October 2014, http://www.vietrade.gov.vn/en/index.php?option=com_content&view=article&id=1950:strengths-of-vietnams-timber-and-furniture-industry&catid=270:vietnam-industry-news&Itemid=363>.

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