INFLUENCES ON TRADE AND INVESTMENT PATTERNS
INFLUENCES ON TRADE AND INVESTMENT PATTERNS
Economic Conditions
Changes in worldwide affluence have affected the total value of world trade and investment, the types of products involved, and the proportionate value of international business accounted for by individual countries. Definitive figures on the changes in historic world output are unavailable, but indications are that international trade has remained a fairly constant percentage of gross world product (GWP) over a long period. This does not mean that trade and production will be related in exactly the same way every year. During economic booms, as in much of the 1970s, trade tends to grow more rapidly than production. Conversely, a slow economic growth rate, as in the early 1980s, causes trade to increase more slowly than production. In the late 1980s, trade and production both grew at about the same moderate rate. The reason for this cyclical relationship is that consumers and government policy-makers consider many foreign goods marginal and thus curtail imports as the economy slackens. Producers may also attempt to export only when they have surpluses and will add capacity to serve foreign markets only if the foreign demand is sustained for a long period of time.
Changing world affluence has affected the types of products and their relative importance in world trade. In the mid-nineteenth century, Ernst Engel, a German political economist and statistician, observed that as family incomes increase, the percentage spent on food tends to decrease, whereas
the percentage spent on other items tends to remain fairly constant or increase. This is true even though the absolute amount spent on food increases due to substitution of more expensive food items. When the human body has reached the limit of its intake capacity, food purchases are replaced by nonfood items. This trend has decreased the proportion of world trade and investment accounted for by agricultural products and increased the proportion accounted for by the manufacturing sector. In addition to traditional goods and services, the world mass market now has access to commodities that once were luxuries, such as watches and foreign travel.
Technology
Rapid technological changes in this century have created new
products, displaced old ones, and altered the relative positions of countries in
world trade and investment. The most obvious examples of change are new
products, such as jets, computers, and transistor radios, which make up a
large portion of international business. Products that existed in earlier periods have increased their share in world trade because of technological changes in the production process, as with automobiles, or because new uses have been found for them, as with soybeans and fish meal. Other products have been at least partially displaced by substitutes, such as artificial fibers for cotton, wool, and silk and synthetic rubber and synthetic nitrate for the natural products. Still other products have experienced reduced growth in demand because technology has resulted in methods of conservation. Thinner tin cans and copper wiring that can carry more telephone messages simultaneously have moderated demand for these metals. Because most technical advances have emanated from the most industrialized (richer) countries, firms from these countries control a greater share of the trade and investment in the manufacturing sector, which has been the major growth area. As a result, many of the poorer countries have had a proportionately smaller share of international business.
Economic Conditions
Changes in worldwide affluence have affected the total value of world trade and investment, the types of products involved, and the proportionate value of international business accounted for by individual countries. Definitive figures on the changes in historic world output are unavailable, but indications are that international trade has remained a fairly constant percentage of gross world product (GWP) over a long period. This does not mean that trade and production will be related in exactly the same way every year. During economic booms, as in much of the 1970s, trade tends to grow more rapidly than production. Conversely, a slow economic growth rate, as in the early 1980s, causes trade to increase more slowly than production. In the late 1980s, trade and production both grew at about the same moderate rate. The reason for this cyclical relationship is that consumers and government policy-makers consider many foreign goods marginal and thus curtail imports as the economy slackens. Producers may also attempt to export only when they have surpluses and will add capacity to serve foreign markets only if the foreign demand is sustained for a long period of time.
Changing world affluence has affected the types of products and their relative importance in world trade. In the mid-nineteenth century, Ernst Engel, a German political economist and statistician, observed that as family incomes increase, the percentage spent on food tends to decrease, whereas
the percentage spent on other items tends to remain fairly constant or increase. This is true even though the absolute amount spent on food increases due to substitution of more expensive food items. When the human body has reached the limit of its intake capacity, food purchases are replaced by nonfood items. This trend has decreased the proportion of world trade and investment accounted for by agricultural products and increased the proportion accounted for by the manufacturing sector. In addition to traditional goods and services, the world mass market now has access to commodities that once were luxuries, such as watches and foreign travel.
Technology
Rapid technological changes in this century have created new
products, displaced old ones, and altered the relative positions of countries in
world trade and investment. The most obvious examples of change are new
products, such as jets, computers, and transistor radios, which make up a
large portion of international business. Products that existed in earlier periods have increased their share in world trade because of technological changes in the production process, as with automobiles, or because new uses have been found for them, as with soybeans and fish meal. Other products have been at least partially displaced by substitutes, such as artificial fibers for cotton, wool, and silk and synthetic rubber and synthetic nitrate for the natural products. Still other products have experienced reduced growth in demand because technology has resulted in methods of conservation. Thinner tin cans and copper wiring that can carry more telephone messages simultaneously have moderated demand for these metals. Because most technical advances have emanated from the most industrialized (richer) countries, firms from these countries control a greater share of the trade and investment in the manufacturing sector, which has been the major growth area. As a result, many of the poorer countries have had a proportionately smaller share of international business.
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