ECONOMIC

ENVIORNMENT OF
INTERNATIONAL TRADE
COMPILED BY
VINITA MAKHIJA 55
RASHMI MAGHANI 58
PAYAL MALIK 56
AKHIL 59
RAVI NARANG 61
RAHUL PAHUWANI 65
SAKSHI PHULWANI 66

TABLE OF CONTENTS

Introduction
Macro Environment
Economic Systems
Countries classified by income
Infrastructure
Tariff and Non tariff barriers







ECONOMIC ENVIRONMENT

The economic environment consists of external factors in a business'
market and the broader economy that can influence a business.
You can divide the economic environment into :
1.Microeconomic environment: Which affects business decision-making
such as individual actions of firms and consumers.
2.Macroeconomic environment :Which affects an entire economy and all of
its participants.
MACRO FACTORS

Interest rates
Taxes
Inflation
Currency exchange rates
Consumer discretionary income
Savings rates
Consumer confidence levels
Unemployment rate
Recession
Depression

MICRO FACTORS

Market size
Demand
Supply
Competitors
Suppliers
Distribution chain - such as retailer stores


NEW REALITY

Capital movements have replaced trade as the driving force of
the world economy
establishment of production facility in various countries
The world economy, not individual countries, is the dominating
factor
75-year struggle between capitalism and socialism has almost
ended


MACRO ECONOMIC ENVIORNMENT
Social factors
Cultural factors
Technological factors
Economic Factors
Political Factors
Demographic Environment
Natural Factors






MACRO ECONOMIC ISSUES AFFECTING
BUSINESS DECISIONS
Economic Growth

Inflation

Balance of Payments

Economic Transition
ECONOMIC SYSTEMS
Economic system is an organization of institutions established
to satisfy human needs.

A mechanism that deals with the production, distribution and
consumption of goods and services.

Economic system are based on resource allocation in the
system.
TYPES OF ECONOMIC SYSTEMS
There are three types of economic systems:

1. CAPITALISM

2. COMMUNISM

3. MIXED


CAPITALISTIC ECONOMIC SYSTEM
A Capitalist economic system is one characterised by free markets and the
absence of government intervention in the economy.
Individuals and firms allocate resources
Production resources are privately owned
Governments role is to promote competition among firms and ensure
competition
eg. USA, Japan and UK are examples of capitalistic countries
SOCIALISTIC ECONOMIC SYSTEM



Socialism is an economic system in which the means of production are
socially owned and used to meet human needs, not to create profits.

The means of production refers to the tools, technology, buildings, and
other materials used to make the goods or services in an economy.

Equal distribution of income results in benefit for all.


COMMUNISTIC ECONOMIC SYSTEM
Communism, also known as a command system, is an economic system
where the government owns most of the factors of production and decides
the allocation of resources and what products and services will be provided.

Private property and private rights to income are abolished.

Workers were urged to work for the glory of the state.
COUNTRIES CLASSIFIED BY INCOME

World Bank categorizes countries on the basis per capita gross national income
(GNI)--
Low income: $1,035 or less
Lower middle income: $1,036 to $4,085
Upper middle income: $4,086 to $12,615
High income: $12,616 or more

Low-Income Countries
Characteristics
Limited industrialization
High percentage of population into agriculture
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability and unrest
Excessive unemployment
Technological backwardness
Examples-Ethiopia, Bangladesh, Cambodia, Congo etc

Lower-Middle Income Countries
Characteristics
Early stages of industrialization
Availability of cheap and motivated labor
Rapidly expanding consumer market
Mature, standardized, labor-intensive industries like textiles, clothing, batteries etc.
Examples- China, Fiji, Indonesia
Upper-Middle Income Countries
Characteristics:
Less dependence on agriculture
Increasing urbanization
Increase in literacy, formal education and increased wage rates
High exports and rapid economic development.
Also called newly industrializing economies (NIEs)
Examples: Brazil, Russia, Malaysia, Mexico, Hungary

High-Income Countries
Characteristics
Sustained economic growth through disciplined innovation
Service sector is more than 50% of GNI
Development of information sector
Domination of scientists and professionals
Emphasis on the future plan
These countries face problems like pollution, excessive urbanization etc.
Examples: USA, UK, Japan, Australia
INFRATRUCTURE
Infrastructure is a very important element in
considering whether to market in a country or not.

Transportation, is vital.
for example, Zimbabwe vs Tanzania.

Energy consumption shows the overall
industrialization of a society.


Communications are essential.
India has only 10 million telephones to a population of 1
billion people.

Media availability is important.
Zambia has 680 radios per 1000 population, France
2,059 per 1000.
Malawi has no domestic television service but access to
satellite television.

MOBILITY
It is the most fundamental and important characteristics of economic activity
as it satisfies the basic need of going from one location to the other.

Seaports.
Rivers and canals
Railways.
Roads.
Airways and information technologies

Transportation as an Economic Factor
Commodity market.
Labor market.
ELEMENTS OF ECONOMIC
ENVIRONMENT
GDP: Total value of all final goods and services produced in a country in a given
year equal to total consumer, investment and government spending, plus the
value of exports minus the value of imports
GNI: The income generated both by total domestic production as well as
international production activities of national companies
GNP: The value of all final goods and services produced within a nation in a given
year, plus the income earned by its citizen abroad, minus the income earned by
foreigners from domestic production
BARRIERS TO
INTERNATIONAL TRADE
NON-
TARIFF
BARRIERS
TARRIF
BARRIERS
TARIFF BARRIERS

What are tariff barriers?
Refers to the tax imposed on the goods when they enter or leave the national frontier
or boundary.

What is the purpose of tariffs?
To protect the domestic industry by increasing the cost of imported goods.
Example: GoI imposed tariffs to protect domestic automobile industry, sugar industry,
cement industry and steel industry.
TYPES OF TARIFF BARRIERS
On the basis of Purpose:
Revenue Tariff:
To provide state with the revenue.
Levied on luxury goods.
Protective Tariff:
To maintain and encourage those branches of home industry protected by the
duties.



On the Basis of Origin and Destination:
Ad Valorem Duty:
Levied as the percentage of the total value of the imported common duty.
Specific Duty:
Levied per physical unit of the imported commodity.
Compound Duty:
Levied a percentage ad valorem duty plus a specific duty on each unit of the
commodity. Eg. 1 lac + 10% of the price.




On the Basis of Country-wise Discrimination:
Single Column Tariff:
A uniform rate of duty is imposed on all similar commodities irrespective of the
country from which they are imported.
Double Column Tariff:
Two different rates of duty have been imposed.
Triple Column Tariff:
Two or more tariff rates are levied on each category of commodity.
NON-TARIFF BARRIERS

Non-Tariff measures include all measures, other than tariffs, the
effect of which is to restrict imports, or to significantly distort
trade.



(1) Specific Limitations on Trade:
1. Quotas
2. Import Licensing requirements
3. Proportion restrictions of foreign to domestic goods (local
content requirements)
TYPES OF NON TARIFF BARRIERS
(3) Government Participation in Trade:
1. Government procurement policies
2. Export subsidies
3. Countervailing duties
4. Domestic assistance programs
(2) Customs and Administrative Entry Procedures:
1. Valuation systems
2. Antidumping practices
3. Documentation requirements
4. Fees
(5) Others:
1. Voluntary export restraints
2. Monetary Barriers
(4) Charges on imports:
1. Prior import deposit subsidies
2. Administrative fees
3. Special supplementary duties
4. Import credit discriminations
5. Border taxes