Question

please answer questions.

1. What role do transportation costs play as a trade barrier?

2. What actions can a central bank take to influence the foreign exchange value of its currency?

3. What are the patterns in FDI flows between and among developed and developing countries over the last 40 years?

4.What are the main elements of Dunning’s eclectic paradigm?

5.Understand the example shown in class on comparative advantage.

Answer 1

1- Role of transportation cost as a trade barrier:-

Trade is the function of Income,policy,culture combination and transport.

Trade= F(Income+Policy+culture+Transport)

Transport costs also influence modal choice, the commodity composition of trade and the organisation of production, particularly as ‘just-in-time’ methods get extended to the global level. There is enormous cross-country variation in transport costs and in trade costs.

There are several reasons that effect the trade in negative way-

a- Distance and location

b- Infrastructure and trade facility

c- Market power

d- Time

e- Transport quality

All the above components impact the trade in negative way, but if the things got turn into positive that will facilitate trade in to positive direction.

2- Influencing on the foreign exchange value of an country by its central bank is done through the Monetary policy. Their Aim is to regularize the exchange rate or bring it to desirable rate.

There are several ways to effect the foreign exchange value by central bank of a country-

a- Reducing current account deficit

b- Less Public debt

c- Improving terms of trade

d- Bring political and Economical stability

e - Reducing Inflation

f- Differential Interest rate.

3- Foreign Direct Investment (FDI) has registered a tremendous growth for the last four decades. With the gradual change in the motives for FDI as well as the shift of some location specific advantages from developed to developing countries, the patterns and trends of FDI has been experiencing a significant change in recent past.

FDI Flow has decreased in developed nation compared to developing countries.

Flows to developed economies dropped by more than one-third, to $712 billion.The fall can be explained in large part by a decline from high inflows in the preceding year caused by cross-border M&As and corporate re configurations.

FDI inflows to developing economies remained stabled or increased by margin at $671 billion. FDI flows to Africa continued to slide, flows to developing Asia remained stable, and flows to Latin America and the Caribbean increased moderately.

4-An eclectic paradigm, also known as the ownership, location, internationalization model or framework, is a three-tiered evaluation framework that companies can follow when attempting to determine if it is beneficial to pursue foreign direct investment (FDI).

Main elements are as follows:-

a- Ownership benefits:- It includes all the information about Branding, copyright,patent right and trade mark.

b- Location Advantage:- This considerations apply to the availability and costs of resources, when functioning in one location compared to another. This gives the comparative advantage to the product and resources.

c-Internationalization:- It may be more cost-effective for an organization to operate from a different market location while they keep doing the work in-house, taking an outsourcing route only makes financial sense if the contracting company can meet the organization’s needs and quality standards at a lower cost.

5- Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. a country may not be good in producing one product to another. so they produce what where opportunity cost is lower than the other countries.

for example;- Oil-producing nations have a comparative advantage in chemicals. Their locally-produced oil provides a cheap source of material for the chemicals when compared to countries. Saudi Arabia, Kuwait, and Mexico are competitive with U.S. chemical production firms. Their chemicals are inexpensive, making their opportunity cost low.