INTERNATIONAL TRADE: THE GAME OF NATIONS AND RESOURCES

INTERNATIONAL TRADE: THE GAME OF NATIONS AND RESOURCES

Trade has been as old as man himself, beginning from a local stage to its ‘climax’ at the international arena. Theories on trade have also been established; these theories which have seen modifications and adaptations include:

·         the classical theories

o   the absolute advantage

o   the comparative advantage

·         The Neoclassical theories

o   The Heckscher-Ohlin theory

o   Rybcynski

o   Stolper-Samuelson Income Distribution theory

·         The Post Hecksher Ohlin Theories

o   Linder Theory

o   Product life-cycle Theory

From the foundational theory of comparative advantage, its proponent- David Ricardo made us realize that trade was still feasible between nations producing similar products through specialization and the Heckscher Ohlin theories expatiate further in clarifying the significance of factor endowments. Now I’d like us to look at some nations of the world, their resources and their trading partners.

The World Trade Organization (WTO) define natural resources as “stocks of materials that exist in the natural environment that are both scarce and economically useful in production or consumption, either in their raw state or after a minimal amount of processing”

There are however certain features associated with natural resources, these include;

1.      Exhaustibility

2.      Uneven distribution across countries

3.      Negative externalities consequences in other areas,

4.      Dominance within national economies

5.      Price volatility.

Charity must begin at home, so we kick off with Nigeria

NIGERIA

Apart from oil (which serves as the major source of the nation’s revenue, which is about 90%) we have other resources such as Tin, Columbite, Iron ore, Lignite (brown coal) and Limestone.

According to the WTO trade report, Nigeria has exports composed of Agricultural, fuels and mining and manufacturing products to the tune of 5%, 88.5% and 2.6% respectively. Its export trading partners include United States, European Union, India, Brazil and Equatorial Guinea.

GHANA

Ghana also trades Cocoa, Gold, Daimns adn bauxite. Its trade exports composed of Agricultural, fuels and mining and manufacturing products are the tune of 27.8%, 59.3% and 12.9%. The main destinations of its exports are the European Union (25.7%), Togo (25%), South Africa (17.1%), United Arab Emirates (5.4%) and Switzerland (4.7%)

U.S.A.

Having Coal, Oil, Iron and Steel. It exports proportion of Agriculture, Fuels and Mining and Manufactured products are 11.4%, 12.5% and 65.3% with its exports destination finding its way in Canada (19%), European Union (18.2%), Mexico (13.4%), China (7%) and Japan (4.5%).

CHINA

The Predicted Future World Economic giant is rich in Iron metals, Aluminum, Tin, Antimony, mercury, Tungsten Manganese, Lead, Zinc and Copper. It also has deposits of oil and natural gas Its exports of Agriculture, Fuels and Mining and Manufactured products are 3.4%, 3.1% and 93.3% respectively while its export destinations are the European Union (18.8%), United States (17.1%), Hong Kong (14.1%), Japan (7.8%)  and the Republic of Korea (4.4%).

GERMANY

The Economic giant of the European Union has large deposits of Coal and Steel and is a rich grower of Cereal and Potato crops. Its commodity export proportion of Agriculture, fuels and Mining and Manufactured products are 6.4%, 5.9% and 85.3% with their destinations to the following countries: European Union (58.2%), United States (7%), China (6.1%), Switzerland (4.5%), and Russian Federation (3.3%)

...THE RICH, THE POOR AND THE OKAY

A common index of measuring inequality of income distribution is the gini index. The gini index developed by Italian statistician Corrado Gini ranges from 0 to 1. Where 0 expresses perfect equality of income and a value of 1 depicts that a single person possesses all the available income. It could also be rated in percentile yet having the same interpretation as above Country Gini Index % (year) South Africa 63.14(2009) Nigeria 48.83(2010) Cote d'Ivoire 41.5(2008) Rwanda 50.8(2011) Senegal 40.3(2011) Gini Index by Nations: Source World Bank States Gini Index (2010) Lagos 0.3719 F.C.T 0.5116 Bauchi 0.3348 Rivers 0.4614 Imo 0.4250 Sokoto 0.3550 Source National Bureau of Statistics Nigeria Poverty Profile The orthodox measures of capturing poverty include the Head count Index, Human Development index, the physical quality of life index, the misery or discomfort index, absolute poverty measurement index, subjective poverty measurement approach. In Nigeria for example the Nigeria Living Standard Survey, a survey unit of the National Bureau of Statistics and initiated by the World Bank makes use of four (4) basic poverty measurement approaches of which the first has gained dominance in measuring poverty in Nigeria  Relative Poverty Measurement approach  Absolute (Objective) or Food Energy In-take measurement approach  Subjective Poverty Measurement approach and  Dollar per day measurement approach The relative measure of poverty divides population into three categories; the Extreme poor, the moderate poor and the Non Poor. Taking a national consumption expenditure and deflating it with an index deflator i.e. consumer price index (CPI), households having expenditures more than two-thirds of the household per capita expenditure are considered non-poor. A household having less than two-third but greater than one-third is seen as moderate poor, while those having less than one third are the extreme poor. The objective measure involves food and non-food expenditure, with more emphasis on the former. It attempts to measure the energy intake (calories) of about 40% of the poor and the amount spent. The subjective poverty measure is based on self-approach, looking at what members feel or think about themselves and finally the dollar per day approach makes use of the current exchange rate; here families unable to spend a dollar per day on consumption are regarded as poor. However we must realize that the relative poverty measure has gained strong grounds in Nigerian poverty surveys. I would like my fellow readers to ponder on these questions. Which of these factors is a major contributor to income inequality in Nigeria? a. Oil b. Ignorance c. Corruption to be continued……

THE RICH, THE POOR AND THE OKAY (1)

The rich, the poor and the okay (1) Back in school, one of my teachers, Professor Oni once said “the concept poverty is multi-dimensional, not having a specific definition.” The late Professor Aboyade in 1972 at a guest lecture described poverty “as an elephant that could be easily recognized than defined”. Economists unanimously view poverty as a state of low income and consumption. One fact which has been noticed pertaining to world nations is that rapid economic growth has failed to eliminate widespread absolute poverty due to its failure in exhibiting a trickle-down effect to the average man. Nigeria has been averaging growth of 6% and I ask if that has reduced the percentage of the poor in the country? A new concept of growth has indeed been proposed, tagged as “inclusive growth” to capture the need for economic growth to be effected on the average poor. Analysts have emphasized that the poor distribution of the wealth obtained from the country has further contributed to the widening income gap between the rich and the poor. Psychologists on the other hand see poverty from the angle of deprivations. This therefore infer us to believe that one could be physically poor, mentally poor, materially poor, and emotionally poor and so on. However we must identify five (5) key forms of deprivation viz.: a)Economic: Economic resources have been said to be scarce, therefore the allocation of scarce resources in various sets of economies ensures that a certain proportion of individuals are left with minimal amount of certain resource. This proportion would be minimal in command economies; b)Political: in this era of democracy, every individual is entitled to certain rights and such rights does not preclude his choice in the field of politics which involves one’s enfranchisement; c)Social: denial of social life with emphasis on association and relations; d)Physical: denial of access to basic social goods such as education, health, shelter and food; and e)Cultural: unappreciativeness of one’s culture and way of life.

RESERVE REQUIREMENT

Today I’d like us to consider the Reserve Requirement (RR). This is one of the policy stances adopted by a nation’s monetary authority to promote and maintain financial stability; by and large, it is adjudged by some as the most effective market instrument, due to its effects on interest rates and borrowings. As renowned economists: Ajayi and Ojo put it, money supply is influenced through reserve ratios than through the monetary base. The reserve requirement is a proportion of deposit liabilities mandated to be set aside as reserves by Deposit Money Banks (DMBs) with the monetary authority in their vault. It could be divided into three a) Cash Reserve Ratio (CRR) b) Liquidity Reserve Ratio (LRR) c) Stabilization securities and special deposits( these both are supplementary reserve requirements) A ratio is fixed by the Monetary Authorities at committee meetings to determine the proportion to be set aside. This ratio is referred to as the reserve requirement ratio. A high reserve requirement ratio has a squeezing effect on the movement of liquid funds (assets and cash) in an economy, through high rate of interest charged by the DMBs and the discouraging effect on borrowing, while a low reserve requirement ratio relaxes the flow of liquidity, encouraging low interest rate and borrowing. In Nigeria, this ratio is fixed at 8% as of July, 2013. What this implies is that for every deposit made, 8% of that deposit should be kept as cash or whatever non-interest bearing asset imposed by the Central Bank. The balance of 92% (which is an asset for the bank) could be used as a loan or investment. Here, it is important to note, that; • if the reserve requirement is held as a non-interest bearing government assets, depositors become financiers of government as well through their deposits • the reserve requirement ratio is applicable to banking financial institutions and not to non-banking financial institutions Indonesia employs the use of government bonds as reserve requirements. The nation in its effort to maintain the value of its currency against inflation (spurred by high fuel costs) is caught at the risk of slow growth through its tightening rates. Consumer prices rose 8.61% in July 2013 after a 5.9% gain in June 2013. The Central Bank of Indonesia boosted its reserves by raising its rate from 2.5% to 4% with a benchmark reference rate of 6.5%. Its move in raising reserve requirements has brought about $4 billion across its banking system. China on the other hand has lowered its reserve rate by 50 basis point to a rate of 20% in May; this is to allow for correction of its recent slow-down in growth. This was commented on by its chief economist at Australia and New Zealand banking group (ANZ) Liu Li-Gang who proposed another cut in June 2103 explaining that the growth momentum of China was weak with a rise in external risk. MATHEMATICAL ANALYSIS R = rD Where: R is the reserve r is the reserve ratio D is deposits Example: a deposit of N200,000 with the existing reserve ratio of 8% would bring about a reserve of R= rD R = 0.08 * 200,000 = N16,000 This means that an 8% reserve ratio would generate a reserve of N16, 000 DANIEL KAYODE-ALLI