Global economy and world economic relations

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Global economy and world economic relations

1: GLOBAL ECONOMY (ECONOMICS)(GE) and World Economic Relations (WER)

2: CONTENT: 1. General definitions and terms of GE. 2. Theories of the world trade (WT). 3. WT regulation. Free trading and protectionism. INCOTERMS 2010. 4. Economic integration. 5. Currency. International monetary system. 6. Transnational companies. 7. Balance of payments. 8. Offshores. 9. Intellectual property (IP) and investment.

3: Part 1. General definitions and terms of GE.

4: The difference between similar terms: economic/economical Economic pertains to the economy. Economical means not wasteful. economy/economics The economy is the relationship between production, trade and the supply of money in a particular country or region (The economy is in recession). Economics is a science that studies economies and develops possible models for their functioning (He studied economics at the LSE (London School of Economics).

5: The world economy or global economy is the economy of the world, considered as the international exchange of goods and services that is expressed in monetary units of account (money).  

6: A subject matter of GE is WER. A subject matter of GE is WER. WER: trade of goods and services; capital flow; labour migration; intellectual property trade; currency relations; credit relations (World Bank, International Monetary Fund ); co-operation of production (multinational companies/transnational corporations).


8: IDL - the allocation of various parts of the production process IDL - the allocation of various parts of the production process to different places in the world. 2 main processes of IDL: specialization co-operation

9: GENERAL MEANING OF THE TERM «GE»: a system of world economic relations, national economies cooperation; a combination of different economic sectors and branches of national economies; national economies unity and world economic relations that help to make a complete and stable system.

10: Stages of GEs formation: Stages of GEs formation: Age of Discovery Before the 1st World War Between 2 World Wars From the 2nd World War to the 80th Nowadays


12: GE – a system of Goods, Services and Capital exchange between Buyers (Customers) and Sellers. Attributes/ peculiarities/ characteristics of GE: Entirety/ unity Hierarchy ˈhʌɪərɑːki Self-adjustment/ self-regulation Adaptation

13: Part 2. Theories of WT.



16: Basics of Heckscher Ohlin theory: 2 countries 2 items of goods – cloth and food 2 resources – Labour and Land (to produce the items) (you can also take Capital instead, but you should change an item of goods – cars for example) 2 production possibility curves (combination of 2 goods max production with full usage of production factors in a country) 2 indifference curves (geometrical combination of 2 goods with equal utility) There are also some assumptions

17: The H-O theory says that countries will export products that use their abundant (and cheap) factor and import products that use countries scarce (and expensive) factor. The H-O theory says that countries will export products that use their abundant (and cheap) factor and import products that use countries scarce (and expensive) factor.


19: Product Life-Cycle Model by Vernon

20: Part 3. WT regulation. Free trading and protectionism. INCOTERMS 2010.

21: 2 ways to control world trade by a state : free-trade & protectionist practices. World trade (for tradable goods): is it worth trading? PROS


23: Whats the difference between tradable (TG) and non-tradable goods (NTG): A price for TG is defined by a ratio between demand & supply (D&S)); A balance of D&S for NTG is more important for theres no opportunity to substitute them with foreign goods; Local (domestic) prices for TG and their change (rise & fall) usually depends on foreign one.

24: To trade or not to trade?

25: WTO… Whats wrong with it? an intergovernmental organization that regulates international trade deals with regulation of trade in goods, services and intellectual property a framework for negotiating trade agreements trade should flow as smoothly, predictably and freely as possible free trade on industrial goods and services retention (stoppage) of protectionism on farm subsidies to domestic agricultural sector

26: 2012…. How long and difficult was it… 2012…. How long and difficult was it… Is it worth doing that?

27: 5 principles of WTO: Non-discrimination (MFN) Reciprocity (mutual agreement or win-win) Binding and enforceable commitments (legitimate obligations) Transparency (clarity) Safety values (trade restrictions)

28: Lets have a small talk about world trade regulation… Should it be regulated at all? No doubt, it should. So… world trade is a little bit limited but not ultimately restrained)

29: Eurasian Economic Union is an economic union of states located primarily in northern Eurasia. The Treaty aiming for the establishment of the EAEU was signed on 29 May 2014 by the leaders of Belarus, Kazakhstan and Russia, and came into force on 1 January 2015.   Treaties aiming for Armenias and Kyrgyzstans accession to the Eurasian Economic Union were signed on 9 October and 23 December 2014, respectively.

30: 4 degrees of freedom given by EAEU: Goods Services Capital Labour

31: Tariff and Non-tariff Regulations (the Customs Code of the Eurasian Economic Union) Customs Commodity Code (FEACN - Foreign Economic Activity Commodity Nomenclature) Duty rate (customs tariff) Customs duties A standard act which regulates goods transfer through customs border of a country (customs union, economic union and etc. )

32: Duty VS Fee (Charge) Import VS Export ad valorem duties fixed (specific) duties combined (mixed) duties

33: How does Russia trade with other countries? General rate of duties Most favoured nation treatment Preferential duties

34: Lets count all our customs payments: Customs value (cost) Customs duty Excise tax VAT Customs fee (charge)

35: How much is the fish? No, Spanish fizzy (sparkling) wine

36: How сan customs value be estimated (calculated, defined, assessed)? The methods of customs valuation, in descending order of precedence, are: Transaction Value (TV) of Imported Merchandise Transaction Value of Identical Merchandise (goods, commodities) – 90 days Transaction Value of Similar Merchandise – 90 days Deductive Value Computed Value Derivative Method TV is the price actually paid or payable for the goods when sold for export to the country of importation

37: Deductive Value: Domestic price (Customs Union) – Agent commission (brokers fee, profit ) Transporting (transfer, move, haul, shipping) costs cargo-handling costs insurance costs Customs payments (duties, taxes, fees)

38: Computed Value: Computed Value: Goods estimated (calculated) value Operating (production) cost (expenditure) – all we need to produce smth – materials, energy, labour, depreciation etc. 2. Move & insurance costs 3. Packaging costs 3. Selling and administration costs 4. Agent commission

39: Defined terms in Incoterms:  (International Commercial Terms) - define obligations, costs, and risks involved in the delivery of goods from the seller to the buyer  - dont define price payable, currency or credit items Delivery: The point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer Arrival: The point named in the Incoterm to which carriage has been paid Carrier: Any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes Freight fowarder: A firm that makes or assists in the making of shipping arrangements; Terminal: Any place, whether covered or not, such as a dock, warehouse, container yard or road, rail or air cargo terminal To clear for export: To file Shippers Export Declaration and get export permit

40: FROM «E» TO «D»: EXW – Ex Works (named place of delivery) maximum obligation on the buyer and minimum obligations on the seller DDP – Delivered Duty Paid (named place of destination) maximum obligations on the seller and minimum obligations on the buyer

41: Part 4. Economic integration.

42: The Economic Integration between two countries is a measure of how much two or more countries work together, or give preference to each other.   The Economic Integration between two countries is a measure of how much two or more countries work together, or give preference to each other.   Micro-aproach: MNC (TNC) Macro-aproach: interstate organizations and integration associations

43: Economic integration: is the unification of economic policies between different states; the partial or full abolition of tariff and non-tariff restrictions;  lower prices for distributors and consumers with the goal of increasing the level of welfare Economic integration is an economic arrangement between different regions, marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, and to increase trade between the countries taking part in the agreement. The more integrated the economies become, the fewer trade barriers exist, and the more economic and political coordination there is between the member countries.

44: What is the basis of economic integration? Comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity (alternative) cost over another.   Economies of scale refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase

45: Degrees of economic integration: Preferential trading area Free trade area (North American Free Trade Agreement (NAFTA)- before, now - USMCA) Customs union Common market can be united into one degree Economic union Economic and monetary union Complete economic integration These differ in the degree of unification of economic policies, with the highest one being the completed economic integration of the states, which would most likely involve political integration as well.

46: Additional info about degrees: A "free trade area" (FTA) is formed when at least two states partially or fully abolish custom tariffs on their inner border. To exclude regional exploitation of zero tariffs within the FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA. A "customs union" introduces unified tariffs on the exterior borders of the union (common external tariffs). A "monetary union" introduces a shared currency. A "common market" add to a FTA the free movement of services, capital and labor. An "economic union" combines customs union with a common market. A "fiscal union" introduces a shared fiscal and budgetary policy. In order to be successful the more advanced integration steps are typically accompanied by unification of economic policies (tax, social welfare benefits, etc. ), reductions in the rest of the trade barriers, introduction of supranational bodies, and gradual moves towards the final stage, a "political union".

47: Pros and Cons of Economic Integration: Trade benefits: a reduction in the trade cost; an improved availability and wider selection of goods and services; a greater purchasing power Employment, technology and capital: a market expansion; sharing of technology; cross-border flows of investment Political cooperation: stronger economic ties; a peaceful conflicts resolve.

48: Measuring Economic Integration The methodology for measuring economic integration typically involves the combination of multiple economic indicators, including: 1. trade in goods and services, 2. cross-border capital flows, 3. labor migration and others. It also includes measures of institutional conformity, such as membership in trade unions and the strength of institutions that protect consumer and investor rights. A standardized ranking of European Union countries shows that Finland, Austria, Spain and France are the most integrated into the EU.

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