When comparing the composition of world trade in the early 20th Century to the early 21st Century, we find major compositional changes. These include a relative decline in agricultural and primary-products (including raw materials). How would you explain this in terms of broad historical developments during this period?
In the past half century, the developing countries have experienced major compositional shifts from exports of primary products (including agricultural and raw materials) to exports of manufactures. How might you explain this in terms of broad historical developments during this period?
The Services sector has been steadily rising in relative importance in GDP of the United States, as well as elsewhere around the world. Since "services" have been identified as "non-tradables" (e.g. it is difficult to export haircuts), it may be argued that this trend will likely slow the rapid growth in international trade. Discuss.© BrainMass Inc. brainmass.com December 19, 2018, 11:30 pm ad1c9bdddf
Over the past century Americans and citizens of virtually all nations have witnessed significant changes in the structure and composition of international trade. This shift has resulted in manufactured goods comprising the largest share of world trade, with primary goods (agriculture, minerals, etc) having experienced decline as a proportion of overall trade, and services growing at the fastest rate. Not all changes, however, have been perfectly linear. As such, it is not surprising that there are individual shifts and components of theory which compliment each other in explaining these net changes in composition of international trade. Put in empirical terms: there are several explanations, each of which contributes to the r-squared of our model and, as always, an error term remains due to unobservable or undiscovered factors.
Consider some descriptive statistics reproduced by Krugman and Obstfeld (2006). In the early 21st century (2003, to be precise), primary products jointly represent only about 19% of world trade, whereas services are 20%, and manufactured goods make up the remaining 61%. This can be differentiated from the early 20th century, when primary products played a much lager role. In the case of Great Britain, manufactured goods have heavily replaced primary products on the import side of trade (rising from 24.5% of exports to 80.4%). The U.S. experienced this change even more broadly, with primary products declining in importance for both imports and exports.
A simple Ricardian explanation is that this indicates a change in the international concentrations of comparative advantages - with fewer economies specializing in primary products. Stated differently, in international markets the equilibrium between supply and demand for primary products intersects at a level proportionally lower than manufactured goods. But why?
A priori reasoning brings several factors to mind. As Adam Smith recognized almost two and a half centuries ago, technological developments are often a key determinant of trade. We now live in a world where crops, particularly in the U.S., can be genetically modified (GM) to produce higher quantity and quality at an equal or relatively lower price. Thus nations that engage in the manufacture of GM foods will have a reduced demand for these products ...
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