Thesis of product cycle:Pattern of product changes w tym, goes through diff.

stages, first prod develop and

sell in home country(enjoy competitive advntge due to technology innovation) as prod matures, moves to
other countries, to exploit low-production cost.eventually the product maybe imported back in homecounrty
as foreignfirms gain expertise and startexportingit. Eg. The(PC) industry.The US dominated the early stages
of the PC industry, with companies like IBM and Apple leading the way. As the industry matured, production
shifted to countries with lower labor costs, such as China and Taiwan.Today, PC components are produced
globally, and the finished products are traded among various countries.
Technology Transfer:The Thesis of Technology Transfer emphasizes the role of technology diffusion across
borders and its impact on international trade. Trade flows influenced by transfer of technology&knowledge
from advanced countries. Eg. The automobile industry in South Korea. In the 1960s and 1970s, SK had
limited presence in the global automobile market. However, through technology transfer and collaboration
with foreign firms, Korean companies like Hyundai and Kia acquired advanced production techniques and
improved product quality.
Intra-industry trade:import&Export of similar products within the same industry. Country do this trade when
they have diffrenciate products or specialist in producing diff variety within the sameproduct. Eg.The
automotive industry b/wGermany and Japan.Germany is known for producing luxury cars, while Japan is
recognized for manufacturing reliable and affordable vehicles.Both countries engage in intra-industry trade
as they export their respective automobile models to each other's markets. This trade allows consumers in
each country to access a broader range of car choices and benefits both economies through specialization.
Economies of scale:refers to cost advntge that arise by incring rpoductionvolume. Produce large= decrase
avg cost= leads to grter effi and compete.Eg. Large electronics manufacturers, such as Samsung and LG,
benefit from economies of scale by producing and exporting large quantities of smartphones, televisions, and
other electronic devices. By operating at a larger scale, they can spread fixed costs over a greater output,
achieve cost savings through bulk purchasing, and invest in advanced production technologies.
Exchange Rate: An exchange rate is the rate at which one currency can be exchanged for another. Exchnge
rate regime= Flexible&fixed. Flexible asymmetric= rate fluctuate freely as per supply&demand. The US
andother major economies follow a flexible exchange rate regime. The value of the U.S. dollar against other
currencies, as the euro or the Japanese yen, is determined by market forces If there is increased demand for
U.S. goods and services, or if investors find the U.S. economy attractive, the value of the dollar may
appreciate. Conversely, if the U.S. economy weakens or faces negative sentiment, the dollar may depreciate..
Fixed= by central bank and monetary authority of country Eg. : Chinesecurrency yuan, has been pegged to
the U.S. dollar.ThePeopleBankofChin (PBOC) sets a daily reference rate for the RMB and intervenes in the
foreign exchange market to maintain the exchange rate within a narrow band. This fixed exchange rate
regime has been aimed at promoting stability in China's exports and attracting foreign investment.
Pegged-currency value fixed exchange rates can have implications for inflation.Eg.Consider a country with a
pegged exchange rate system where its currency is fixed to the U.S. dollar. If the country experiences high
inflation compared to the United States, its goods become relatively more expensive compared to imports
from the U.S. This can lead to inflationary pressures within the country. Conversely, if the country has lower
inflation than the U.S., its goods become cheaper, potentially leading to deflationary pressures. Bretton
wood: it had an asymmetric feature where the U.S. dollar was convertible to gold, but other currencies were
only convertible to the dollar. Eg.Under the Bretton Woods system, countries held reserves in the form of
U.S. dollars, which were considered as good as gold. U.S. committed to convert dollars into gold at a fixed
rate of $35 per ounce. Other countries' currencies had fixed exchange rates with the dollar, but their
convertibility to gold was limited. This system created imbalances and eventually collapsed, leading to the
adoption of more flexible exchange rate regimes. Real exchange Rate: the real exchange rate is a concept
that measures the relative purchasing power of two different currencies. It compares the prices of goods and
services between two countries
BOP:systematic record afalltransaction. Current a/c capital a/c financial a/c EG. Let's consider a hypothetical
country called "ABCland. The BoP of ABCland would include transactions such as exports and imports of
goods and services, income earned by residents from foreign investments, foreign aid received, foreign direct
investment, and changes in official reserves.Current account:flow of goods,service,income(dividend receive
),unilateral transfers.Capital account: records of financial assets and liabilities b/w countries: FDI, Portfolio
investment(purchases and sale of financial assets). Germany current a/c surplus: persistent and substantial
surplus in the current account of Germany's balance of payments. eg. In recent years, Germany has been
known for its significant current account surplus. This surplus is primarily driven by the country's strong
manufacturing sector, exporting high-quality automobiles, machinery, and chemical products worldwide. The
surplus indicates that Germany earns more from its exports than it spends on imports, contributing to its
overall positive balance of payments.
Current a/c imbalance: value of import/exports exceeds leads to deficit or surplus.
Arguments for protectism:trade barriers tarrifs, quotas,subsidies. Tarrifs for outdated industries:support and
time to declining sectors. Eg.garment declining due to cheaperimports. Govt. should impose tarrifs on import
of textile. Import generated employment: Infant industry argument: temporaray nurture and develop new
industries. Instrument: Quotas:limite the quantity for import&export. Voluntary exports restraint:exporing
country limits the exports. Eg: 1980 US negotiate a VER with Japan for automobile exports.
Dumping:country exports at lower prices as compare to domestic market. Non-tarrif related barrier:
licensing requirements, technical standards, sanitary and phytosanitary measures, and administrative
procedures.Eg: Country A requires all imported food products to undergo rigorous testing and meet specific
health and safety standards
Types of Integration-Free Trade Area: Elimination of tarrifs,countries agrees to reduce the barriers.Eg: The
North American Free Trade Agreement (NAFTA), which has now been replaced by the United States-
Mexico-Canada Agreement (USMCA), established a free trade area among the United States, Canada, and
Mexico. Under the agreement, tariffs on various goods were reduced or eliminated, promoting trade among
the member countries.Custom Union: Same as FTA along with adoption of common external tarrifs on
imports, Eg: The Southern Common Market (Mercosur) is a customs union formed by several South
American countries, including Brazil, Argentina, Uruguay, and Paraguay. Mercosur members have
eliminated tariffs and other trade barriers among themselves while applying a common external tariff to
imports from countries outside the union.
Levels of Integration: Preferential Trading Arrangements-free trade areas,removal of trade barriers
among member countries to facilitate trade(can make separate trade policies w non-members)Eg. The
Association of Southeast Asian Nations (ASEAN) has established a preferential trading arrangement among
its member countries. While they have reduced tariffs and trade barriers within ASEAN, they may maintain
different trade policies with non-ASEAN countries. Regional Integration: process of multiple countries
coming together to deepen economiccooepration.Eg.The Gulf Cooperation Council (GCC) is an example of
regional integration among several Arab countries in the Persian Gulf region. The GCC aims to foster
economic cooperation and integration through the elimination of trade barriers, joint infrastructure projects,
and coordination of economic policies.Global Integration:efforts to promote economic cooperation on
global scaleEg. The World Trade Organization (WTO) is an international organization that seeks to promote
global integration by facilitating negotiations, enforcing trade rules, and resolving disputes among member
countries. It aims to create a level playing field for international trade and reduce barriers to cross-border
commerce
Advantage&disadvof fixedexchangerate:Stability and Certainty:Reduced Exchange Rate Volatility:
Facilitates Price Comparisons-Limited Monetary Policy Flexibility:Susceptibility to External Shocks:
Speculative Attacks and Currency Crises:Loss of Monetary Independence.
Level for Europe; Common Market: Common Market: A common market encompasses the features of a
customs union but also includes the free movement of not only goods but also services, capital, and labor
among member countries. This level of integration requires harmonization of regulations and policies related
to factors of production, such as labor laws, financial regulations, and competition policies. The EU is an
example of a common market, as it allows for the free movement of goods, services, capital, and people
among its member states.The relevant level of integration for the EU is the common market. The EU has
progressed beyond being a mere customs union and has established a single market where goods, services,
capital, and people can move freely across member states. This high level of integration allows for deeper
economic and social integration among EU member countries.