International Trade and Economic Analysis: A Comprehensive Report

This report delves into the intricacies of international trade, commencing with an introduction to the subject matter, and subsequently analyzing key concepts such as economies of scale, both internal and external, and their impact on production costs. The report then examines intra-industry trade, specifically focusing on the relationship between the UK and China, exploring its extent in recent years and potential avenues for expansion. Furthermore, the role of innovation and research and development expenditures in driving export growth within Newly Industrialized Countries (NICs) is critically evaluated. Finally, the report assesses whether the Eurozone functions as an optimum currency area, providing supporting theoretical data and concluding with a comprehensive overview of the discussed topics.

INTERNATIONAL
TRADE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Distinguish between external and internal economies of scale and use these concepts to
explain the phenomenon of intra- industry trade........................................................................1
Examining the extent of intra- industry trade between the UK and China in recent years.........2
How can this type of trade between the UK and China be expanded in practice?......................3
QUESTION 2...................................................................................................................................4
Critically evaluate the role of innovation and research and development expenditures in
explaining the growth of exports in NIC country over recent years...........................................4
QUESTION 3...................................................................................................................................6
Is the Eurozone an optimum currency area?...............................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
This current assignment would be based on international trade which is exchange of
goods and service over time period between two or more countries of world that is based on
exports and imports of goods and commodities. This is an important point in today's cultural of
trading which is giving access of companies so that they could gain higher amount of profits in
market. In would be included parts like that of economies of scale and its both internal or
external factors with distinguishing between both of them. This would also be analysing intra-
industry traded among two major economies of world which are UK and China that too into
recent coming years. Then after this it would be including Eurozone to discuss upon whether it is
an optimum currency area (OCA) or not supporting it with more basic theoretical data.
QUESTION 1
Distinguish between external and internal economies of scale and use these concepts to explain
the phenomenon of intra- industry trade.
There is an inverse relationship between cost and production of goods and commodities
as if one increases the other one would be decreasing and vice versa. This shows that if total
number of output is been increased this would be causing a decreased into the cost per unit and
this phenomenon would be called to as Economies of Scale (Buckley and Casson, 2015). This is
majorly seen into larger industries and larger business that are doing their production on larger
scale so thus resulting into lower down their per unit cost of production. This total output could
only be increased after company is specialising into technology or better use of their labour so
that their performance could be improved. Rather than this is also increased due to huge and
larger amount of investment in form of capital or other ways so the total product would thus be
increased and causing decreased in per unit cost of that product.
There are two types of economies of scale which are external and internals and both of
them would be having their different form of impact on the production or cost of the company.
Internal factor could be defined to as that one which are specified to certain firm only like that
could be the inner elements which are causing increase or decrease in production and cost per
unit. In this manner only one company from that industry would be getting affected by their own
internal factors like if there is increase in labour or capital into that firm then this would be
affecting their own production and lowering down their cost per unit.
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While on other hand external economies of scale would be occurring due to more greater
and larger changes into industries or markets like they are factors which are outside the firm. In
both cases which is internal and external due to lower down in cost per unit the marginal cost of
production (MC) would also be declining (Malmberg and Maskell, 2012). As internal one is
effecting only that particular firm while external one is impacting production of whole industry.
It was seen that internal economies of scale is helping company more than that of external one as
they are giving them competitive advantages and other one is not. One single firm in industry
would not be able to stop other firm in same sector to indulge into profits due to external
economies of scale and this being the biggest difference between them both.
Industries and companies within a country would be gaining lot due to economies of
scale as they are importing and exporting goods and service around the world and obtaining
profits as well. Both these factors of international trade which are import and export are been
determined due to economies of scale only. As if the companies are exporting their finished
goods then it is important and necessary that they are producing their goods in cost effective
manner so for this they need to either improve their technology or employ more labours. But if
the whole industry need to do this then they would be doing it with help of some third party like
with interference of government or introduction of training and development into industry.
As intra-industry trade would be meaning exchange of goods and service within same
industries but that too on international level (Phelps and Ozawa, 2013). Like in India the cost of
per labour is very low as compared other countries so if automobile industry is importing goods
made at lower cost from India then they would be into profits. Thus, economies of scale would
be impacting and beneficial for all firms especially if they are smaller in their production as they
are having very little difference in their resources and technology so they are forming their part
into intra-industry trade. So if the country on whole is analysing increase into their production
this would be causing a decrease in their cost per unit which is causing higher amount left for
other things to be done. This would also be improving quality of production within country and
thus leading to increased in export and import of commodities which is called to as intra-industry
trade.
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Examining the extent of intra- industry trade between the UK and China in recent years.
Intra-industry trade would be identified as to that trading between same industry that is
producing similar products and services that is mainly on international level. Products and
services that are been traded on global bases could be both imported and exported so that both
countries are getting equal advantages from that (Dhingra and et.al., 2018). UK and China are
two most developed nations of world that are included into highest grossing countries and both
of them are having trading amongst themselves as well. This trading is not new as they are been
trading with each other for longer duration of time and earning higher profits by exports and
imports of different and similar products as well.
Like if we take the example of Wine which is one of the oldest commodities of world
which is been traded between two or more countries for longer duration of time. This product for
more than a decade was considered to as monopolistic and having single firm that was
manufacturing and producing of wine. During the time period of 2006-2012 the total imports of
wine into China grew tremendously for about 50% or more which is highest in recent years and
this export was majorly from UK only. As Chinese middle household which is increasing at
around 10 million people per year they are accounted to as largest consumer of red wine.
On the other hand the production of agricultural products increased within the People's
Republic of China during the time of 2008-2015 and they also engaged into trading of goods and
service which was mainly of agricultural products. It was noted that both UK and China in this
year 2018 ended up with leading to the largest trade delegation which is more than that of 200
years as well (Karlsson, Cornett and Wallin, 2018). China currently is the 2nd largest economy in
world but then also its trading with Britain is relatively little smaller that accounts to £7.7 billion
in year 2009 only. As China is having very good relationship with whole of EU then also they
both are enduring and enhancing their trading relation among UK and China after Britain left
EU.
Within the year 2016 the trading between China and Britain leads to about $74.34 billion
which was recorded by China-British Business Council (CBBC). As per the same report China is
the 7th largest trading partner of UK with about 3.6% of exports and 7% of imports of UK. Intra
trade between both these nations are also increased during recent year with the change and
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improved with the use of efficient technology and labour in the production of goods and that of
services.
How can this type of trade between the UK and China be expanded in practice?
As in the above part it was analysed that economies of scale would be improving
production for goods and services in countries over time period and then this is leading to higher
trade between nations of world. This trading of commodities is then beneficial for countries that
are included within this international trading (Dhingra and et.al., 2018). Both China and UK are
one of the oldest trading partners of world which is leading to profits and higher selling of
products and services. They would be beneficial for countries gaining from economies of scale
as well. There are many theories which are related to international trade Ohlin-Heckscher theory
which tells that trading between any two countries mainly is due to lack of any form of resources
within them like that of labour, land or technology. Thus, any country would be trading or
coming into agreement with other to satisfy the need and demand within their market which they
themselves are not been able to fulfil.
If any country especially like that of UK and China needs to fulfil demand of their market
with better products they need top focus on mainly three factors which are competitive structure,
technology and scale of production (Karlsson, Cornett and Wallin, 2018). Under this theory
efficient into cost and techniques of company and that of whole industry would be leading to
advantages over their competitors in same market and increasing their sales. Thus, if China and
UK would be wanting to increase and improve their trading or intra-industry trade they must b
focusing on use of technology which is one of the most important factor into this trading. This is
leading them to better and easy access to resources and increased in standard of living with the
lowering rate of products. In current scenario it was noticed that if any country is having focus
on their resources which is in abundant and trying to get the edge over competition into market.
China and UK could also indulge in various forms of trade agreements which is helping both
countries in finding out their optimum level. All these types of agreements or any form of
custom unions is meant to have their focus on balancing trading between two nations and also
leading to decreased national and political boundaries (Claver and Knight, 2018).
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QUESTION 2
Critically evaluate the role of innovation and research and development expenditures in
explaining the growth of exports in NIC country over recent years.
Newly Industrialized Countries (NIC)
Political scientist and Economist and various Lall, (2012) used the term Newly
Industrialized policy (NIC) to describe countries whole level of economic development ranks.
Countries move away from an agricultural based economy to fully industrialized economy is
known as Newly Industrialized countries or Advance developing countries. There are many
countries which falls in the category of NIC, China, specially HONG KONG.
A primary indication of HONG KONG transmission to NIC is constantly increase in the
growth of domestic product of country. On the other hand, Freeman, (2015) included that rise in
the average income of country and maintaining the standard of living of the country. In the area
of advanced industrialization the socio economic class of Hong Kong is a part of Newly
Advanced technology.
The Economical and Trade Information on Hong Kong-
 The economic position of Hong Kong is increased by 3.8% in 2017 after the up-gradation
of 2.1% in 2016.
 The government of Hong Kong forecast, their will be 3-4% rise in the economy in 2018.
 The merchandise export of Hong Kong is increased by 9.7% year on year in
2018(January-March) after a growth of 8% in 2017.
 In simple terms, the value of retail is rises by 15.7% in 2018(January-March) after the
increase of 2.2% in 2017.
 The employment rate was 2.9% in 2018(January-March) compared with 3.1% in 2017.
 Consumer price grew 2.4% in 2018(January-March) after rising by 1.5% in 2017.
Population, Gross domestic rates and unemployment rate is the major economic indicator of the
economy of Hong Kong.
Population- in 2016 there is 7.34 million of population in Hong Kong which it increased by .5%
i.e. 7.39 million.
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Gross Domestic Product- In year 2016 there is 319.3 US a billion dollars which is increased to
341.4 US a billion dollars.
Unemployment rate- In year 2016 the growth rate was 3.4% which is controlled in 2017 by .3%
i.e. 3.1%.
Merchandise trade performance include trade performance, exports, re exports, imports and total
trade. Hong Kong is growing in trade performance incredibly.
Exports- In year 2016 there is decrease in the growth of exports i.e. -0.5% but with the efforts
made by the country in export in increased by +8% in 2017.
Domestic Exports- In year 2016 the data recorded of growth in domestic export is -8.5% which
is not quite good but with the efforts made it has increase up to +1.4%.
Re-imports- In year 2016 the result recorded is -0.4% which is improved in 2017 i.e. +8.1%
Imports- In year 2016 the percentage of growth in imports is -0.9% which is upgraded in 2017
+8.7% of growth.
Total Trade- The growth of total trade is -0.7% which is increased in 2017 by +8.4%
In investment point of view Hong Kong is the attractive country for Foreign Direct
Investment. According to World Investment report in 2017- the inflows of global FDI is US$108
billion and has forth ranked globally. And in terms of outflows of FDI Hong Kong ranked third
position with amount US$62 billion.
As per the Lundvall, (2010) it was said that if country or its government is putting their
more expenditures on innovation, research and development then this would be helping to grow
their exports and then leading to profits for the country. Hong Kong which is regarded to as
biggest NIC country is growing into international market just because of efforts which its
government and other public commissions are doing.
QUESTION 3
Is the Eurozone an optimum currency area?
Optimum currency area (OCA) or Optimum currency region (OCR) would be defined to
as that region in economics term one whole area is sharing the same set of currency. Whether
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there are number of economies or countries into that region all of them are meant to have same
currency (Aizenman, 2018). This includes that all economies of that same region is bound to
have created new currency and then following that particular only. If there is an OCA then that
would be specifically larger than that of any single country like in case of European Union which
is currently the largest OCA from all economies of world. All the countries composing within
EU are included to have into Eurozone having Euro as their common currency.
There are various nations which are included within the area of Europe and all of them
are having their own language, culture and customs to follow with but still they are having one
single currency that is Euro. So this theory of OCA is always associated with Euro and EU only
as this is the largest form of OCA (Bleaney and Yin, 2018). This states that if any country of EU
was to trade with other country of EU then they should be trading in form of Euro only no other
currency would be allowed to trade with. This also seen that competition among all players of
EU would be very much tough as they are not only competing with each other but also with
others in international markets. So it was concluded that Eurozone is not only an OCA but it is
also the largest OCA in world which is operating on Euro as common and single currency. USA
been another OCR in world is also having same currency under which they all are operating
among each other but the Eurozone is comparatively higher GDP than that of USA. Whereas in
terms of labour mobility rate EU is having lower than that of USA in the current time almost 17
EU nations are having same currency which is that of Euro from 2017 and they all are included
within same Eurozone.
Still, it was analysed that several EU nations like that of Spain, Ireland and Greece are
having their own economic problems which is making the concept of Eurozone into these
countries difficult to some level. There are also seen that there are lack of fiscal and monetary
policies within some countries which is leading to higher amount of debt among them. It was
also included that due to this they would not be able to make their payments on bases of their
higher amount of debt and leading to their indebtedness or defaulting in paying (Masciandaro
and Romelli, 2017). They also expected that trading between them would be increased as due to
lower transaction cost and then enjoying the price conversion rate as well.
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CONCLUSION
At the end it was concluded that there are still debate on the topic that is Eurozone perfect
example of Optimum Currency Area (OCA) or not as there are many theories in favour while
some against them. It was seen that Eurozone being OCA is always lacking the mobility of
labour within them all so due to this factor only it is argued that Eurozone is not a form of OCA.
Countries like that of China and Britain if they are indulging into some kind of trade agreements
then their relationship would have been improving and if they are including technology as their
main source then this would also improving their intra-industry trade and international trade as
well.
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REFERENCES
Books and Journals:
Aizenman, J., 2018. Optimal Currency Area: A twentieth Century Idea for the twenty-first
Century?. Open Economies Review. 29(2). pp.373-382.
Bleaney, M. and Yin, L., 2018. Price adjustment in currency unions: another dimension to the
endogeneity of the optimum currency area criteria?. Oxford Bulletin of Economics and
Statistics.
Buckley, P.J. and Casson, M., 2015. The economic theory of the multinational enterprise.
Springer.
Claver, A. and Knight, G.R., 2018. A European role in intra-Asian commercial development: The
Maclaine Watson network and the Java sugar trade c. 1840–1942. Business History. 60(2).
pp.202-230.
Dhingra, S., and et.al., 2018. UK trade and FDI: A post‐Brexit perspective. Papers in Regional
Science. 97(1). pp.9-24.
Freeman, C., 2015. The ‘National System of Innovation’in historical perspective. Cambridge
Journal of economics. 19(1). pp.5-24.
Karlsson, C., Cornett, A.P. and Wallin, T., 2018. 1. Globalization, international spillovers and
sectoral changes: an introduction. Globalization, International Spillovers and Sectoral
Changes, p.1.
Lall, S., 2012. Technological capabilities and industrialization. World development. 20(2).
pp.165-186.
Lundvall, B.Å. ed., 2010. National systems of innovation: Toward a theory of innovation and
interactive learning (Vol. 2). Anthem Press.
Malmberg, A. and Maskell, P., 2012. The elusive concept of localization economies: towards a
knowledge-based theory of spatial clustering. Environment and Planning A: Economy and
Space. 34(3). pp.429-449.
Masciandaro, D. and Romelli, D., 2017. Optimal Currency Area and European Monetary
Membership: Economics and Political Economy.
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Phelps, N.A. and Ozawa, T., 2013. Contrasts in agglomeration: proto-industrial, industrial and
post-industrial forms compared. Progress in human geography. 27(5). pp.583-604.
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