Also, adding to the complexity, countries often rely on measurement protocols that are developed alongside these approaches and concepts that are not perfectly compatible to begin with. Even when two sources rely on the same broad accounting approach, discrepancies arise because countries fail to adhere perfectly to the protocols. In theory, for example, the exports of country A to country B should mirror the imports of country B from country A.
But in practice this is rarely the case because of differences in valuation. The chart here gives you an idea of how large import-export asymmetries are. Shown are the differences between the value of goods that each country reports exporting to the US, and the value of goods that the US reports importing from the same countries.
The differences in the chart here, which are both positive and negative, suggest that there is more going on than differences in FOB vs CIF values. Another common source of measurement error relates to the inconsistent attribution of trade partners.
An example is failure to follow the guidelines on how to treat goods passing through intermediary countries for processing or merchanting purposes. As global production chains become more complex, countries find it increasingly difficult to unambiguously establish the origin and final destination of merchandise, even when rules are established in the manuals. And there are still more potential sources of discrepancies.
Even when two sources have identical trade estimates, inconsistencies in published data can arise from differences in exchange rates. If a dataset reports cross-country trade data in US dollars, estimates will vary depending on the exchange rates used.
Different exchange rates will lead to conflicting estimates, even if figures in local currency units are consistent. Asymmetries in international trade statistics are large and they arise for a variety of reasons.
These include conceptual inconsistencies across measurement standards, as well as inconsistencies in the way countries apply agreed protocols.
These factors have long been recognized by many organizations producing trade data. Indeed, international organizations often incorporate corrections, in an attempt to improve data quality along these lines.
However, this dataset has low coverage across countries, and it only goes back to There are two key lessons from all of this. The first lesson is that, for most users of trade data out there, there is no obvious way of choosing between sources. And the second lesson is that, because of statistical glitches, researchers and policymakers should always take analysis of trade data with a pinch of salt.
For example, in a recent high-profile report , researchers attributed mismatches in bilateral trade data to illicit financial flows through trade misinvoicing or trade-based money laundering. As we show here, this interpretation of the data is not appropriate, since mismatches in the data can, and often do arise from measurement inconsistencies rather than malfeasance. Hopefully the discussion and checklist above can help researchers better interpret and choose between conflicting data sources.
At some universities you can access the online version of the books where data tables can be downloaded as ePDFs and Excel files. The online access is here. Summary In this entry we analyze available data and research on international trade patterns, including the determinants and consequences of globalization over the last couple of decades.
Over the last two centuries trade has grown remarkably, completely transforming the global economy. Today about one fourth of total global production is exported.
Understanding this transformative process is important because trade has generated gains, but it has also had important distributional consequences. From a historical perspective, there have been two waves of globalization. The first wave started in the 19th century, and came to an end with the beginning of the First World War. The second wave started after the Second World War, and is still continuing. Trade transactions include both goods tangible products that are physically shipped and services intangible commodities, such as tourism and financial services.
The production chains for these goods and services are becoming increasingly complex and global. Most trade theories in the economics literature focus on sources of comparative advantage. These theories postulate that all nations can gain from trade if each specializes in producing what they are relatively more efficient at producing, based on their strengths.
The empirical evidence shows that comparative advantage is indeed relevant; but it is not the only force driving incentives to specialization and trade. All our charts on Trade and Globalization Air transport, freight ton-km Difference in the value of goods exported to and imported by the US Difference in the value of goods exported to and imported by the US vs.
Related research entries in Our World in Data: Is trade a major driver of income inequality? Is globalization an engine of economic development? Trade has changed the world economy. Trade has grown remarkably over the last century.
Click to open interactive version. Trade has grown more than proportionately with GDP. Today trade is a fundamental part of economic activity everywhere. Trade generates efficiency gains. The raw correlation between trade and growth.
Causality: Evidence from cross-country differences in trade, growth and productivity. Causality: Evidence from changes in labor productivity at the firm level. Wrapping up: Trade does generate efficiency gains. Trade has distributional consequences. Evidence from Chinese imports and their impact on factory workers in the US.
Exposure to rising Chinese imports and changes in employment across local labor markets in the US — Autor, Dorn and Hanson Evidence from the expansion of trade in India and the impact on poverty reductions. Evidence from other studies. He finds railroads increased trade, and in doing so they increased real incomes and reduced income volatility.
He finds the effect was progressive: poor households gained more than middle-income households, because prior to the reform, trade protection benefitted the rich disproportionately. Distribution of total household welfare gains from the arrival of foreign retail chains in Mexico — Atkin, Faber, and Gonzalez-Navarro Two points are worth emphasising. Trade from a historical perspective.
Before the first wave of globalization, trade was driven mostly by colonialism. The first wave of globalization was marked by the rise and collapse of intra-European trade. The second wave of globalization was enabled by technology. Changing trade partners.
Trade around the world today. Trade openness around the world. Exports and imports in real dollars. Trade in goods vs Trade in services. Domestic vs Foreign value added in exports. Merchandise and service trade by product category. Bilateral trade is becoming increasingly common. South-South trade is becoming increasingly important.
The majority of preferential trade agreements are between emerging economies. Trading patterns have been changing quickly in middle income countries.
Explaining trade patterns: Theory and Evidence. Evidence: Is there empirical support for comparative-advantage theories of trade? Net exports and price changes for , Japan — Figure 4 in Bernhofen and Brown Cross-country correlation between private credit and exports — Figure 2 in Manova Measurement and data quality.
Stat In addition to these sources, there are also many other academic projects that publish data on international trade. Three important sources are: The Correlates of War Project. Differences in guidelines used by countries to record and report trade data. Broadly speaking, there are two main approaches used to estimate international merchandise trade: The first approach relies on estimating trade from customs records , often complementing or correcting figures with data from enterprise surveys and administrative records associated with taxation.
The second approach relies on estimating trade from macroeconomic data , typically National Accounts. The idea behind this approach is recording changes in economic ownership. Measurement error and other inconsistencies. What else is going on here? Differences in underlying records: is trade measured from National Accounts data rather than directly from custom or tax records?
Inconsistent attribution of trade partners: how is the origin and final destination of merchandise established? Other issues: Time of recording, confidentiality policies, product classification, deliberate misinvoicing for illicit purposes. Data Sources. International Historical Statistics by Brian Mitchell. Data: Aggregate trade current value , bilateral trade with main trading partners current value , and major commodity exports by main exporting countries.
No data on trade as share of GDP is readily available. Geographical coverage: Countries around the world Time span: Long time series with annual observations — from 19th century up to today Available at: The books are published in three volumes covering more than pages.
Data from the 19th century onwards for countries around the world is available in the International Historical Statistics IHS. These statistics — originally published under the editorial leadership of Brian Mitchell since — are a collection of data sets taken from many primary sources, including both official national and international abstracts. This is quite an extensive dataset going back as far as , however, currencies include kronen, schillings etc.
Penn World Tables. Data: Real and PPP-adjusted GDP in US millions of dollars, national accounts household consumption, investment, government consumption, exports and imports , exchange rates and population figures.
Geographical coverage: Countries around the world Time span: from version 9. Correlates of War Bilateral Trade. Data: Total national trade and bilateral trade flows between states. Total imports and exports of each country in current US millions of dollars and bilateral flows in current US millions of dollars Geographical coverage: Single countries around the world Time span: from Available at: Online at www.
World Bank — World Development Indicators. Also export and import value index and volume index. UN Comtrade. Data is likely to be very time consuming to collate as there is no bulk data download unless a user has a premium site license.
Data: Many different measures, including trade by volumes and value Geographical coverage: Countries around the world Time span: For some series, data is available since — mostly annual, sometimes quarterly. Data: Many series on tariffs and trade flows Geographical coverage: Countries around the world Time span: Since for some series Available at: Online here The WTO offers a bulk download of trade datasets which can be found here.
The former is available from — , workable, with very little additional formatting needed. Again, trading partners are primarily restricted to country groupings rather than individual nations. Data: Export and import values and volumes by commodity Geographical coverage: Single countries Time span: Available at: Online here This data is also available from the Center for International Data.
Data: This website contains annual series of trade by polity from to which sum as series for continent and world. World trade, a new data-set. Given this choice, which leaves out the prospect of a constructive U. But while it may be hopeless for these companies to try to compete from their U. In fact, the American exodus to foreign production bases may bring about the very circumstances that will undermine that move.
When that happens, companies that have moved abroad will find themselves on the wrong side of the fence. As a more reasonable U. Moreover, in a world in which nations generally will be hard-pressed to meet domestic demands, the operations of American companies in other countries are unlikely to receive favorable treatment or political support.
American companies will be the natural target of frustration and disappointment. The prospect of operating in such an environment—with but limited access to a rehabilitated U. Under U. The solution, of course, is for American business leaders to support a change in trade policy now, before it is too late. A realistic trade policy would end the general underselling of American production by foreign production.
It would set limits on the proportions of U. The new policy would put U. American business must play the decisive leadership role. A number of principles should guide this effort at understanding and shaping a new and pragmatic U. In a world of diverse nations, free trade works perversely, causing destructive competition among nations, including wage competition that tends to reduce all nations to a lowest-common-denominator standard of living.
Making trade among diverse nations constructive means balancing it and preventing destructive shifts of industries between nations. Just as they need a fiscal budget to keep expenditures in line with incomes, nations need a trade budget to keep imports in line with exports.
To Balance its trade and continue its economic growth, a nation with a high standard of living and an attractive market will find permanent limitations on imports necessary, just as limitations on immigration are.
In balancing its trade, the high-income, high-cost nation will tie its exports to its imports through trade packages or through exports subsidized from the proceeds of import licenses. These arrangements could bring about balanced international trade that would correspond to comparative advantage. Import limitations supposed to be nondiscriminatory—such as tariffs—are actually very discriminatory. For example, uniform U. Countries must manage their trade in ways that meet their particular needs and capabilities.
National differences in circumstances, ideologies, administrative capabilities, and other factors are too important to permit any uniform and general system for arranging international trade. National governments have a legitimate and necessary role in arranging constructive international trade.
The interest of the nation in balanced trade is in concert with the interest of American business in guaranteed access to the American market. Month by month, American companies are sinking, failing, or giving up on U. The once mighty U. The longer we allow this process to go on unchallenged, the dimmer our economic future will be. Two kinds of trade policies, therefore, need to be put into place: some first steps to hold the line, halt the erosion of the American economy, and begin to move in the direction of balanced trade and some permanent measures that will ensure balanced and mutually advantageous trade among nations.
To hold the line, we should immediately impose quotas on certain goods, at least halting their increase in market share and, in some cases, reversing recent rapid growth. The inadequate quotas on autos, steel, textiles, apparel, footwear, and machinery can serve as a point of departure.
The goal is a comprehensive trade policy that protects and defends the interests and future of the United States—that protects the nation rather than any special interest. The imposition of quotas would be a step in the direction of import limitations to balance our trade; quotas would begin the process of designing a system of mutually beneficial trade between us and our trading partners. The United States should quickly establish provisional targets for the maximum share of its market available to various foreign-made products.
Over time these targets would be tied to a balanced pattern of trade. In establishing the targets, we would send foreign producers a clear signal of what to expect in the way of access to our market. Even more important, the targets would tell American producers how much of the domestic market would be reserved for them so that they could begin gearing up for U.
Some quotas should be based on existing legislation and on the findings of the U. International Trade Organization regarding the economic injury that foreign competition has inflicted on such U. But we should reject the notion—on which ITO is based—that quotas are only a temporary remedy designed to give domestic industries time to shrink or become competitive. Our new trade policy should make it clear that we want permanent limitations on imports to the American market.
The basis of a realistic U. A trade policy that tries to force free trade on the world is doomed to failure—and would ruin us if adopted. A permanent system limiting imports to the U. Such a system must serve a number of goals. It must:. In either case, simple slogans that promise easy success are unrealistic. A successful trade policy requires foresight, realism, judgment, honesty, knowledge, administrative effectiveness, and toughness in enforcing rules and regulations, just as the operations of large companies do.
At both organizational levels, that of the company and that of the nation, adapting successfully to a complex, uncertain, and changing economic environment is a hard-won achievement.
The hope of the United States lies in recognizing and tackling this difficult task rather than in waiting for Providence or free trade to bring us success on a platter. The permanent system of balanced trade should be based on the inherent value of the U. Its size and wealth give it great value to foreign producers and other nations.
We should capture this value for the benefit of all Americans through two mechanisms: quid pro quo trade packages arranged with other nations and the sale at market price of a limited number of import licenses. We should use part or all of the revenue generated by these sales to support particular U.
The United States should enforce these import-limiting arrangements rigorously and promptly—not in the way that the government now handles these matters. We should strive to detect trade violations quickly and take immediate action. Moreover, punishment must provide real remedies rather than the long-delayed hand slaps delivered now.
We must treat the import limitation program as a set of serious business contracts between nations—not as a theater for acts of political symbolism. In touting free trade to other nations, the United States has not only invited its own economic destruction but also misled other countries in their expectations from international trade. It is time for America to reject this false god and accept the blame for preaching an unrealistic doctrine.
We must repudiate the notion that the rest of the world can achieve economic growth by unbalanced sales to the U. Mutually beneficial and balanced international trade is the only trade policy that makes sense. By moving to such a policy we would be helping low-income nations develop sustainable economic programs and safeguarding the living standards of high-income nations. We owe it to all countries of the world to put to an end the unrealistic idea that more countries can emulate Japan and achieve economic advance through a parasitic relationship with the American market.
The delusion that free trade is the road to worldwide affluence has influenced many countries; the delusion will hurt many of them. We need to escape from this belief and build a new system of international trade—one that rests on realism and mutual benefit for all nations. You have 1 free article s left this month. You are reading your last free article for this month.
Subscribe for unlimited access. Chinese workers produce simple consumer goods at a much lower opportunity cost. The comparative advantage for the U. American workers produce sophisticated goods or investment opportunities at lower opportunity costs.
Specializing and trading along these lines benefit each country. The theory of comparative advantage helps to explain why protectionism has been traditionally unsuccessful. If a country removes itself from an international trade agreement, or if a government imposes tariffs, it may produce an immediate local benefit in the form of new jobs.
However, this is rarely a long-term solution to a trade problem. Eventually, that country will grow to be at a disadvantage relative to its neighbors: countries that were already better able to produce these items at a lower opportunity cost. Why doesn't the world have open trading between countries? When there is free trade, why do some countries remain poor at the expense of others? There are many reasons, but the most influential is something that economists call rent seeking.
Rent seeking occurs when one group organizes and lobbies the government to protect its interests. Say, for example, the producers of American shoes understand and agree with the free-trade argument but also know that cheaper foreign shoes would negatively impact their narrow interests.
Even if laborers would be most productive by switching from making shoes to making computers, nobody in the shoe industry wants to lose their job or see profits decrease in the short run. This desire could lead the shoemakers to lobby for special tax breaks for their products or extra duties or even outright bans on foreign footwear. Appeals to save American jobs and preserve a time-honored American craft abound—even though, in the long run, American laborers would be relatively less productive and American consumers relatively poorer as a result of such protectionist tactics.
International trade not only results in increased efficiency, but it also allows countries to participate in a global economy, encouraging the opportunity for foreign direct investment FDI. In theory, economies can thus grow more efficiently and become competitive economic participants more easily.
For the receiving government, FDI is a means by which foreign currency and expertise can enter the country. It raises employment levels and, theoretically, leads to a growth in the gross domestic product GDP. For the investor, FDI offers company expansion and growth, which means higher revenues. As with all theories, there are opposing views. International trade has two contrasting views regarding the level of control placed on trade between countries.
Free trade is the simpler of the two theories. This approach is also sometimes referred to as laissez-faire economics. With a laissez-faire approach, there are no restrictions on trade. The main idea is that supply and demand factors, operating on a global scale, will ensure that production happens efficiently.
Therefore, nothing must be done to protect or promote trade and growth because market forces will do this automatically. Protectionism holds that regulation of international trade is important to ensure that markets function properly.
Advocates of this theory believe that market inefficiencies may hamper the benefits of international trade, and they aim to guide the market accordingly. Protectionism exists in many different forms, but the most common are tariffs , subsidies , and quotas.
These strategies attempt to correct any inefficiency in the international market. As international trade opens up the opportunity for specialization, and thus more efficient use of resources, it has the potential to maximize a country's capacity to produce and acquire goods.
Opponents of global free trade have argued, however, that international trade still allows for inefficiencies that leave developing nations compromised. What is certain is that the global economy is in a state of continual change. Thus, as it develops, so too must its participants. Federal Reserve Bank of Dallas. Accessed August 5, The Library of Economics and Liberty. Liberty Fund. Bryn Mawr College. Business Essentials. Your Privacy Rights.
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