Foreign economic theory
The outer economic theory (or outer economics ) is a branch of economics . It deals with all issues related to the cross-border movement of goods , people, services and capital . There she applies the statements and theories of macroeconomics and microeconomics .
Today, foreign trade theory is divided into three strands: the real (goods economy) theory, the monetary theory and the theory of economic integration. Real foreign trade is the traditional core of foreign trade (which is why it is also referred to as "pure foreign trade" in older textbooks). It deals with the foreign trade market and the relevant quantities of exports and imports .
However, due to the collapse of the Bretton Woods system in particular, monetary aspects have gained much greater importance in recent decades. The monetary foreign trade theory has therefore emerged as the second important pillar of foreign trade theory since the 1960s. She studies the foreign exchange market (and in particular the exchange rate ). For a long time, both approaches were largely unrelated.
As the latest strand of foreign trade theory, theories on questions of economic integration have emerged in the last few decades, but especially in the 1990s . They link real and monetary foreign trade and represent the most widely publicized strand of foreign trade today.
A separate area of knowledge are business management aspects of foreign trade, e.g. B. the initiation and processing of export transactions, the protection against exchange rate, economic and political risks.
Goods economy (real) foreign trade theory
Foreign trade theories
In this context one speaks of the real foreign trade theory . The goods economy theory deals with the causes of foreign trade. This comes about when
- Goods are not available in a country (e.g. Germany imports bananas)
- Countries have different cost advantages .
- Although the domestic market can produce at lower costs, it has comparative cost disadvantages (principle of the comparative cost advantage ). Example: One country can produce fabric much cheaper and wine a little cheaper than another country. Due to the comparative cost advantage, it will concentrate on producing fabric and e.g. Partly to be exchanged for foreign wine, since with limited production capacities it makes sense to concentrate on what can be produced much cheaper.
The quintessence of foreign trade theory is that specialization and foreign trade increase the welfare of all countries. This is true at least when a terms of trade exchange relationship develops on the world markets in which both sides benefit.
Comparative cost advantage according to Ricardo
The English economist David Ricardo showed that even a country that has absolute cost advantages for all goods can still benefit from foreign trade if it uses its comparative cost advantages based on differences in technology . Ricardo's assumptions are based on a market with only one production factor and two goods, which can be manufactured in two different production methods in two different countries with more or less effort. This can be justified by the existence of technology differences. Furthermore, he assumes constant economies of scale and thus fundamentally excludes the occurrence of economies of scale . In the economies he modeled, full employment of the factors of production is assumed.
The quintessence of his considerations is that specialization and foreign trade increase the welfare of all countries. This is true at least when a terms of trade exchange relationship develops on the world markets in which both sides benefit.
- However, the advantages from foreign trade are linked to assumptions that are not readily fulfilled in practice. The existence of transport costs and a proportion of non-tradable goods is ignored. It is also assumed that production factors can be used flexibly in the participating countries, so that a country that z. B. loses its advantages in the field of agriculture, the workers employed there can easily use in industries that have advantages in foreign trade.
- Specialization can also lead to monocultures, as a result of which countries become dependent on a product and terms of trade can develop that are no longer advantageous for the country; Many developing countries suffer from this problem .
Comparative cost advantage according to the Heckscher-Ohlin theorem
In contrast to the Ricardian model, the Heckscher-Ohlin theorem is based on two production factors, namely capital and labor. A Cobb-Douglas production function with positive but decreasing marginal productivity of the two production factors is assumed. Furthermore, it assumes consistent international preferences . According to the Heckscher-Ohlin theorem, two economies with different production technologies (capital and labor-intensive production) do not lead to complete specialization as in the Ricardian model. Within the domestic sectors, the factors of production migrate depending on the terms of trade between the labor and capital intensive economic sectors. These migration movements within the national economies create the surplus necessary for export .
Accordingly, every country will make more intensive use of the factor with which it is equipped in abundance in comparison to other countries, since it has a cost advantage in such production structures. That factor therefore wins in real terms compared to the self-sufficiency situation without trade, with which the country is amply endowed.
- According to the Stolper-Samuelson theorem, tariffs restrict trade; the previously imported goods are produced again by the company itself. This leads to a decrease in the use of the relatively abundant factor and to increased pressure on the use of the previously particularly scarce factor. The overall less efficient allocation of the two production factors leads to a loss of welfare compared to the free trade situation.
- The Leontief Paradox was documented in the 1950s. Foreign trade at that time often did not agree with the flows of goods calculated on the basis of the Heckscher Ohlin model. Apparently, the differences in equipment with production factors between countries are not the only basis for international trade .
The Heckscher Ohlin model explains north-south trade better than north-north trade between industrialized countries with a similar production structure.
Trade policy and protectionism
Although free world trade, according to the theory of comparative costs, favors the prosperity of all economies, countries have taken protectionist measures to restrict trade. Various model approaches also show that for large countries whose trade policy can influence the world market and the terms of trade , there is certainly an optimal tariff through which they can maximize national welfare at the expense of the rest of the world. However, this beggar-thy-neighbor policy only works in the short term, as the countries affected by the tariffs react in the long term and themselves set up trade barriers themselves. The advantages of free trade for the individual are often not consciously perceived by them, while the disadvantages often hit small groups (in Germany e.g. miners) very hard, who articulate their interests accordingly.
Traditional instruments of a strategic trade policy are tariffs , quotas and export subsidies . These are also known as tariff barriers to trade . However, non-tariff measures such as B. Self-restraint agreements, regulations and norms that discriminate against foreigners or bureaucratic regulations. (Border surcharges, consular fees, port fees, health and safety regulations, subsidies and other state aid, laws that discourage imports ...)
Monetary foreign trade theory
While goods economy theory deals with the international exchange of goods and services, monetary foreign trade theory looks at money flows. These result partly from the payment processing of the flow of goods and services, but to a much larger extent from international capital transactions, i.e. the purchase and sale of foreign stocks, government bonds, foreign exchange, etc.
The monetary foreign trade theory examines:
- the transmission mechanisms through which monetary effects have real consequences, e.g. B. for competitiveness, trade surplus or trade deficit and economic growth unfold
- Analyzes international capital movements (see also capital account )
- Definition of the external balance , including the international movement of capital
- Analysis of the effectiveness of the stability policy in economies that interact with the international goods and capital markets, taking into account different exchange rate systems
- The exchange rate theory examines the exchange rate behavior of flexible exchange rate regimes
- The study of the advantages and disadvantages of different exchange rate systems
- Analysis of currency crises
Statistical recording of international money flows
The definitional framework for mapping cross-border money and capital flows is the balance of payments. Overall, this is always balanced, since all imbalances are ultimately balanced out by the central bank , whose foreign exchange reserves change accordingly. One speaks of a balanced balance of payments if the foreign exchange reserves do not change, i.e. if the foreign exchange balance is balanced. The exchange rate and interest rate are instruments for balancing payments .
Exchange rate and foreign trade
The price of a currency (= exchange rate) is determined by supply and demand. The foreign exchange offer arises from all transactions that trigger a credit posting in the balance of payments (e.g. goods exports, capital imports). The foreign exchange demand arises from all transactions that trigger a debit entry in the balance of payments (e.g. goods imports, capital exports). If the demand for a currency is greater than the supply, the exchange rate rises (revaluation). Changes in exchange rates have a direct impact on trading. Example: a car worth $ 20,000 costs € 16,000 at an exchange rate of € 0.80 / $, and € 18,000 at an exchange rate of € 0.90 / $.
The classic assumption of monetary foreign trade is that the supply and demand on the foreign exchange markets result solely from foreign trade: Exporters redeem foreign exchange and offer it, importers need foreign exchange to pay their bills and ask for it.
- If the exchange rate is based on supply and demand, then imbalances in the balance of payments influence the exchange rate, which can lead to an equalization of the imbalances via the exchange rate mechanism . If a country has a surplus in the balance of payments, supply on the foreign exchange market exceeds demand, the rate of the foreign currency depreciates (relative price level decrease) or the domestic currency appreciates (relative price level increase). However, an appreciation of the domestic currency makes exports more expensive, so that, assuming normal price elasticity of demand, there is less demand for export goods abroad, i.e. exports decrease. At the same time, imported goods are becoming cheaper, so imports are increasing. This reduces the surplus in the balance of payments. It was this line of argument, reproduced here only in simplified form, that led to the demand for flexible exchange rates at the end of the 1960s, when the Bretton Woods system of fixed exchange rates collapsed. However, the balance of payments is influenced to a large extent by capital flows, which also react to exchange rates, but are also influenced by interest rate differentials, growth expectations, etc.
- In the case of fixed exchange rates, the adjustment is made via the inflation rates.
Exchange rate systems
During the Second World War, at a conference in Bretton Woods, the reorganization of the international currency order was initiated with the establishment of the International Monetary Fund (IMF) and its sister organizations World Bank and International Bank for Reconstruction and Development (IBRD). The exchange rate relations between the IMF members were regulated by the Bretton Woods system , a system of fixed exchange rates in which exchange rates were allowed to deviate within a range of 1% from parity with the US dollar as the anchor currency . The dollar was partially backed with gold. When the system collapsed in the early 1970s, the European monetary system emerged in Europe , in which the closely interlinked countries of the European Union agreed fixed exchange rates among themselves.
The main task of the IMF today is to monitor the stability of the currencies of its members (surveillance) and to grant bridging loans in order to avoid currency crises. However, at times the IMF members pursued informal exchange rate targets, e.g. B. 1985 when, in concerted action, they halted an extraordinarily strong appreciation of the dollar and 1987 when they ended the fall of the dollar.
International economic integration
Real and monetary foreign trade studies are brought together via the so-called integration theory . It is the result of the increasing economic integration that is currently being observed, which in turn is the direct result of increased economic and monetary interaction between states.
The phenomenon of economic integration has developed into a third pillar of foreign trade studies in recent years, as it receives particularly high public attention. Processes currently considered in this context are globalization and globalization criticism .
A distinction must be made between the de facto economic integration through market and competition, the institutionalized economic integration operated by states through international law treaties through the establishment of various international organizations such as free trade zones , so that one has to speak of both parallel integration and institutionalization processes.
Examples of such forms of integration are the European Union , the German Customs and Trade Association (1834–1871), the North American Free Trade Agreement (NAFTA) or the Association of Southeast Asian Nations (ASEAN). Regional integration is accompanied and promoted on a global level by the World Trade Organization (WTO) with its main pillars GATT and GATS .
For the investigation of these relationships, however, foreign trade studies have so far had a comparatively small theoretical spectrum. In the last few decades only a few theories of integration have emerged, but there is a whole series of scientific papers, especially in the area of currency integration, which are summarized under the heading theory of optimal currency areas.
In the case of institutionalized economic integrations in particular, the traditional foreign trade doctrines and integration theories have the theoretical and practical problem of not having any criteria as to when foreign trade - international integrations will initially reach such a degree of compression (convergence, networking, concentration, synergy) that they to turn into a single economy (domestic economy, national economy). In particular, legal standardization (abolition of internal borders, creation of an internal market, legal security, etc.) can only be mastered with difficulty by one-sided economic integration teachings.
In the context of the globalization debate, v. a. In the 1990s, a sometimes sharp dispute between proponents and opponents developed. The theoretical tools for this are still formed today by v. a. the well-known foreign trade theories , which critics of globalization, however, deny the overarching significance.
Order of world trade
After the Second World War, the reorganization of world trade began in 1947 with the establishment of the General Agreement on Tariffs and Trade ( GATT ). Eight rounds of negotiations took place in its framework, in which tariffs were lowered worldwide. The eighth round (the so-called Uruguay Round ) ended in 1995 with the establishment of the World Trade Organization ( WTO) . As a result, the Doha Round was initiated in 2001 .
The European Union (since 1957) has proven to be the most successful integration project in the world to this day, as it abolished the formerly legally independent external economies of the EU states through unified supranational EU law and became the only domestic economy in terms of constitutional and foreign trade law, but still a federal internal economy without internal borders in terms of economic policy has merged. It is the only one of the many integrations that has begun in the world to have successfully climbed and achieved successively several, increasingly complex stages of integration, expanding and deepening it qualitatively and quantitatively from the initial customs union via the common market to the completed internal market with internal trade (1992) is. Today it is a mature economic and monetary union (EMU) with in-depth legal unity both internally and externally, which with further pillars of integration is sometimes even a political union with a constitution that is increasingly equal to the national.
The majority of foreign trade studies attribute strong positive benefits to European integration. EU member states such as Ireland , Spain , Portugal or the CEEC have a considerable economic as an EU country, not least due to the productive, uniform institutional framework of the border-free EU internal economy with convergence and networking, structural changes and division of labor in production as well as synergy effects in trade Achieved growth.
Other integration spaces
In Europe, the EFTA (European Free Trade Association) was founded parallel to the EU , but most of its members gradually joined the EU. In Eastern Europe, the Council for Mutual Economic Aid (Comecon, Comecon) was set up as a counterpoint to Marshall Plan aid, which dissolved in 1991 with the end of the planned economy system.
In North America, the US-Canadian Free Trade Area was formed in 1994 when Mexico joined the NAFTA (North American Free Trade Area). In South America, founded Argentina , Uruguay , Brazil and Paraguay the Mercosur . A Pan-American free trade area FTAA is being planned .
In Asia, regional economic integration is still in its infancy. ASEAN has existed in Southeast Asia since 1967 , but its members are only now taking the first steps towards a free trade area.
Business aspects of foreign trade studies
From an operational point of view, cross-border transactions are associated with special risks: Since transactions are always subject to foreign trade or foreign trade law and are often invoiced in foreign currencies, there is a need to hedge against exchange rate risks (e.g. through hedging ). Because the transport routes are longer, there are also greater transport risks than in domestic trade. Therefore, clear agreements must be made as to where risks are transferred from the sender to the recipient and who has to bear which costs. In order to create clear rules here, internationally clearly defined trade clauses are used in contracts .
Foreign trade is also subject to special country and political risks. In Germany, the Hermes guarantees provide state-guaranteed protection against such risks . A hedge in foreign trade is z. B. also possible by means of a documentary credit.
In addition, it can be difficult to enforce claims against contractual partners whose registered office is abroad and to whom domestic law is therefore not applicable.
World Trade Policy
In addition to economic interests, political motives of a state also contribute to the orientation of the national trade policy: Typical of this are mutual trade benefits or free trade agreements , which are offered to a state as a reward for its allegiance, and the establishment of trade barriers or embargoes through which a nation is put under pressure without the need to use military force. In addition, the foreign trade policy of a state can be influenced from within by lobbies if, for example, they are threatened with an economic disadvantage due to planned market openings.
However, so that state trade policies do not serve a unilateral striving for power, the WTO tries to create the greatest possible degree of justice between its members through internationally binding rules .
- Eckart Koch: International economic relations. 3. Edition. Vahlen, Munich 2006
- Paul Krugman , Maurice Obstfeld : International Economy. Theory and Politics of Foreign Trade. 7th edition. Pearson Studium, Munich 2006. (Standard textbook on foreign trade)
- Franz Peter Lang : Foreign Trade Alphabet , Frankfurt am Main: Dt. Bank, 1998
- Klaus Rose and Karlhans Sauernheimer: Theory of Foreign Trade. 14., revised. Edition. Vahlen, Munich 2006
- Wolfgang Weiß , Christoph Hermann : World trade law. Munich 2003.
- Ernest Gnan, Ralf Kronberger (eds.): Focus on foreign trade 2011/2012 (PDF) , facultas WUV, Vienna 2012, ISBN 978-3-7089-0915-8
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- Springer Gabler Verlag, Gabler Wirtschaftslexikon, Springer Gabler Verlag (editor), Gabler Wirtschaftslexikon, keyword: monetary foreign trade theory .