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International Trade Theories: Comparing Germany and Mexico

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Students First Name: Junghwa

Students Family Name: LIM

International trade theories (Germany, Mexico and Maize/Corn)

1. Introduction

Why country trade

Why countries trade that reason are next four.

First, different natural environment between countries

Some countries have rich seafood because the countries have sea, but some other countries have not, some countries are hot weather, so rich farm produces and so on. All countries are different natural environment, therefore, they make different producers. Accordingly, each country is trade that they give rich produces and they take produces that they cannot take their place.

Second, different resources between countries

Saudi Arabia has rich oil resources, so the country makes money to trade with other countries for oil producers and then the country take other products for trade from other countries.

Third, different skill between countries (Technical difference)

We want good and service and we are looking for, which country made before we buy, that means we want producers of higher quality. Nowadays, many countries make same producers, but it is differentiated technical. So people can take producers of higher quality of trade.

Fourth, more make money

A country market is small, means that if a country is not trade to another country, the country have limited to make money, but the country makes more money from trade for other countries because other countries trade market is bigger than the country market.

We can take easily producers of made in China because many companies are moving to China that it is in China cheaper labor costs. So that is also treading on one that tread in china cheaper labor cost and high technical skill of other countries, they make good and service to customers.

(Economies Online, n.d.)

Chain can make profit for labors and other countries can make profit for tread on the other hand, having a high technical skill country makes more profit than having cheaper labor.

For example, iPhone Company has high technical skill, but products are in china because in china cheaper labor costs than in America, if the products are made in America the company cannot make high profit because labor is expensive in America.

One iPhone: $1,000.00

Labor costs

Profit

China

$ 100.00

$ 900.00

America

$ 400.00

$ 600.00

Objective of your study

I search two countries which are Germany and Mexico, also search a Maize/corn. How the countries are traded in the world, how the product is traded in the world.

Structure of your study

Basic understanding Germany and Mexico

Current Status of the both countries

Both countries what kinds of products make

Export and import about both countries

Production of Maize/corn (which countries buy and sell)

2. Trade structure of your chosen countries

Analysis of Germany trade

Germany is second of world trade the main export are cars, machinery, chemicals and so on, the main import are crude, chemicals, electric appliances and so on.

Germany economic is highly export than import, so the country have advanced industrial-type trade structure.

The country's trade surplus will continue to be from in 1990. The country has goof profit that export is 1029500 million, import 818500 million in 2005. Export countries of best are France (10.2%), America (8.8%), England (7.9%) and Italia (6.9%), import countries of best are France (8.7%), Netherlands (8.5%), America (6.6%) and so on.

Notable with respect to trade issues in Germany can be various fairs. The country introduces new products and new skill from the fairs to in the world. Many fairs are opening in the country.

(Ew world economy team, 2013, June 09)

(Naver copyright-1, n.d.)

Analysis of Mexico trade

Mexico trade decrease from in 2009 that oil (-40.8%), mineral (-25.0%), manufacturing (-17.9%) and so on. Many products exported to America in 2009. Export products of the best are electric appliances, parts of the car, machinery, mineral and so on.

(Economy watch content, 2010, March 24)

(Naver copyright-2, n.d.)

Date table

Table 1: Basic economic indicators and trade structure of Germany and Mexico

Germany

Mexico

Land area (sq. km)

357,022

Land area (sq. km)

1,964.357

GDP (current USD, millions)

3,428,131

GDP (current USD, millions)

1,178,126

GNI per capita (current USD)

1,670,647

GNI per capita (current USD)

386,789

Total Trade (X+M) (current USD, millions)

278

Total Trade (X+M) (current USD, millions)

270

Total Exports (current USD, millions)

140

Total Exports (current USD, millions)

132

Total Imports (current USD, millions)

138

Total Imports (current USD, millions)

138

Trade to GDP ratio (%)

94.7

Trade to GDP ratio (%)

64.0

Share of exports (%)

Agricultural products

6.5

Agricultural products

6.2

Fuels and mining products

6.1

Fuels and mining products

17.8

Manufactures

85.1

Manufactures

72.7

Share of imports (%)

Agricultural products

9.5

Agricultural products

7.3

Fuels and mining products

19.7

Fuels and mining products

11.6

Manufactures

68.8

Manufactures

78.2

       

Source: WTO 2014. Retrieved from: http://stat.wto.org/Home/WSDBHome.aspx?Language=E. (13 May, 2014).

World Development Indicator 2014. World Bank. Retrieved from:

http://stat.wto.org/Home/WSDBHome.aspx?Language=E. (13 May, 2014).

3. Absolute advantage and comparative advantage

(a) Absolute advantage

Analysis absolute advantage of Germany and Mexico

What is Absolute advantage: Absolute advantage refers to a country’s ability to produce a certain good more efficiently than another country.

(Shmoop, n.d.)

Absolute advantage of Germany is sugar beet and Mexico is sugar cane. Both countries have similar product to absolute advantage. So I think both countries should trade other products not product (sugar beet and sugar cane) of absolute advantage.

Table 2: Production: five selected agricultural products in Germany and Mexico in 2012

Germany

Mexico

Product

Total Production (tone)

Land-output ratio (%)

Product

Total Production (tone)

Land-output ratio (%)

Sugar beet

27,891,000.00

36.51

Sugar beet (Sugar cane)

50,946,483.00

64.39

Wheat

22,432,000.00

29.36

Wheat

3,274,337.00

4.14

Potatoes

10,665,600.00

13.96

Potatoes

1,801,618.00

2.28

Barley

10,422,000.00

13.64

Barley

1,031,533.00

1.30

Maize

4,991,000.00

6.53

Maize

22,069,254.00

27.89

Source: FAOSTAT 2013. Retrieved from: http://faostat3.fao.org/faostat-gateway/go/to/download/Q/QC/E. (13 May, 2014).

(b) Comparative advantage

Analysis comparative advantage of Germany and Mexico

Comparative advantage is the ability of one entity to produce goods or services with similar quality

(Wisegeek, 2003-2014)

The comparative advantage of Germany is sugar beet and Mexico is sugar cane, but both countries are similar product therefore comparative advantage of both countries is that Germany makes Oats is better them sugar beet because Mexico made a similar product (sugar beet/sugar cane) cheaper than Germany made.

It finds looking for table 3.

Table 3: Producer price: five selected products of Germany and Mexico in 2012

Germany

Mexico

Product

Price per unit, USD

Product

Price per unit, USD

Sugar Beet

50.00

Sugar cane

49.30

Oats

252.80

Vetches

51.40

Barley

256.90

Sugar Beer

64.60

Potatoes

263.90

Tea

114.70

Cucumbers and gherkins

262.50

Oranges

116.90

Source: FAOSTAT 2013. Retrieved from: http://faostat3.fao.org/faostat- gateway/go/to/download/P/PP/E. (13 May, 2014).

4. Factor endowment, trade and income distribution

(a) Hecksher-Ohlin (H-O) model

Analysis H-O model for Germany and Mexico

The HO theorem predicts the pattern of trade between countries based on the characteristics of the countries. The HO theorem says that a capital-abundant country will export the capital-intensive good while the labor-abundant country will export the labor-intensive good.

(Steven, M. S, 2006, July 31)

Germany has good capital and Mexico has good labor.

Table 4: Factor endowment and pattern of trade of Germany and Mexico in 2012

Germany

Mexico

Factors

Factors

Agricultural Land (million hectares) sq. km

170,680.00

Agricultural Land (million hectares) sq. km

1,058,000.00

Agricultural Land (% of land area)

48.9

Agricultural Land (% of land area)

54.4

Labour (millions)

81.84

Labour (millions)

116.90

Capital (USD, millions)

4,230,000

Capital (USD, millions)

1,570,000

Five major exported products

Five major imported products

Five major exported products

Five major imported products

Car

Crude Petroleum

Crude Petroleum

Refined Petroleum

Vehicle Parts

Petroleum Gas

Cars

Vehicle Parts

Packaged Medicaments

Cars

Video Displays

Integrated Circuits

Planes, Helicopters, and/or Spacecraft

Vehicle Parts

Vehicle Parts

Telephones

Machinery Having Individual Functions

Refined Petroleum

Computers

Broadcasting Accessories

Source: World Development Indicator 2014. World Bank. . Retrieved from:

http://stat.wto.org/Home/WSDBHome.aspx?Language=E. (13 May, 2014).

(b) Stolper-Samuelson (S-S) model

Analysis S-S model for Germany and Mexico

Stolper-Samuelson: d the price of goods which are intensive in their use of goods production to raise the price of the elements.

(Jolie, 2005 October 22)

Between Germany and Mexico that Germany rising demand for capital and decrease demand for labor, but Mexico decrease demand for capital and rising demand for labor.

Therefore, both countries will have the balance of the price of labor.

5. Context of new trade theories

(a) Economies of scale

Analysis economics of scale for Germany and Mexico

Economies of scale in Germany

Germany is ranked 4 of GDP in the world and best of export country.

The country has been developed after defeated in World War II. So, the average annual growth rate of 5.9% to a high of "the miracle of the Rhine 'to achieve from 1950 to 1973 the economic growth, employment, inflation, fiscal exemplary country in terms of development and nowadays, the country has kept high competitiveness of the country.

Many small businesses have made products of global high value, therefore the country has a good economic base.

(Naver copyright-3, n.d.)

Economies of scale in Mexico

Mexico has changed three kinds of thing.

First, changed economic from agriculture to industry so the GDP of agriculture decreased fat in 1940’s 19% GDP of agriculture and then in 1999’s 5% GDP of agriculture.

Second, changed from a closed economy to open economy so, the government was focusing on export.

Third, changed from state enterprise to private enterprise, many public enterprises changed privatization in 1990’

The country possesses abundant natural resources, but vulnerable to the development of manufacturing technology, almost economy is depends largely on USA so, the economic crisis was repeated from in 1980’s to in 1990’s.

However, many economic specialized sites said the country will develop between 10 years.

(Naver copyright-4, n.d.)

Trade 5: domestic consumption and export: five selected agricultural products of Germany and Mexico in 2012

Germany

Mexico

Product

Domestic consumption (tone)

Export (tone)

Product

Domestic consumption (tone)

Export (tone)

Sugar beet

27,866,465

24,535

Sugar cane

50,946,483

0

Wheat

16,263,110

6,168,890

Maize

21,968,235

101,019

Potatoes

9,069,305

1,596,295

Sorghum

6,969,205

297

Barley

10,418,508

3,492

Oranges

3,650,328

16,462

Maize

4,226,638

764,362

Tomatoes

1,940,251

1,493,316

Source: UN Comtrade Database 2013. Retrieved from: http://faostat3.fao.org/faostat-gateway/go/to/download/T/TP/E. (13 May, 2014).

(b) Imperfect competition and market power

Analysis imperfect competition and market power of five top producing/exporting countries on one selected agricultural product.

Market power: A company made product of the world that it can change demand or supply in the market.

(Investopedia, n.d.)

Product of Maize/corn of countries is America, China, Brazil and so on. Best of three countries have market power for Maize/corn.

WTO (world trade Organization) is rules of trade between nations. So in WTO countries are doing a trade for WTO rules.

(World trade organization., n.d.)

Table 6: One selected agricultural product in 2012

Agricultural product name: Maize/Corn

Top five producing/exporting countries

Volume of production/export (tone)

Percent of world production/export (%)

United States of America

273,832,130

46.00

China, mainland

208,130,000

34.96

Brazil

71,072,810

11.94

Argentina

21,196,637

3.56

India

21,060,000

3.54

World

595,291,577

100

Source: FAOSTAT 2012. Retrieved from: http://faostat.fao.org/site/339/default.aspx. (13 May, 2014).

6. Conclusion

I can know how a country's trade in the world and how a country show economy in a chart from find both countries which are Germany and Mexico.

The result of the comparison that Germany is higher level than Mexico and United States of America is being most production of the Maize/corn in the world.

7. Reference

Economies Online. (n.d.). Global economics. Retrieved from

http://www.economicsonline.co.uk/Global_economics/Why_do_countries_trade.html

Economy watch content. (2010, March 24). Mexico exports, imports & trade. Retrieved from

http://www.economywatch.com/world_economy/mexico/export-import.html

Ew world economy team. (2013, June 09). Germany exports, imports & trade. Retrieved from http://www.economywatch.com/world_economy/germany/export-import.html

Investopedia. (n.d.). Market power. Retrieved from

http://www.investopedia.com/terms/m/market-power.asp

Jolie. (2005 October 22). International Business. Retrieved from

http://blog.naver.com/jolie84/120018875683

Naver copyright-1. (n.d.). Germany Trade. Retrieved from http://terms.naver.com/entry.nhn?docId=1175506&cid=40942&categoryId=31863

Naver copyright-2. (n.d.). Mexico Trade Status. Retrieved from http://terms.naver.com/entry.nhn?docId=1522894&cid=518&categoryId=518

Naver copyright-3. (n.d.). Magnitude and phase of the German economy. Retrieved from

http://terms.naver.com/entry.nhn?docId=985690&cid=3290&categoryId=3290

Naver copyright-4. (n.d.). Mexico Economy. Retrieved from

http://terms.naver.com/entry.nhn?docId=1178478&cid=40942&categoryId=31906

Shmoop. (n.d.). International teade. Retrieved from

http://www.shmoop.com/international-trade/absolute-comparative-advantage.html

Steven, M. S. (2006, July 31). International trade theory and policy. Retrieved from

http://internationalecon.com/Trade/Tch60/T60-0.php

Wisegeek. (2003-2014) what is a comparative advantage. Retrieved from

http://www.wisegeek.com/what-is-a-comparative-advantage.htm

World trade organization. (n.d.). what is the WTO. Retrieved from

http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm

  • Junghwa LIM

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