HI5016 International Trade and Enterprise Assignment Sample

HI5016 International Trade and Enterprise Assignment

All responses must be entered in the answer boxes at the end of each question

Question 1: 10 Marks

“Today nearly all countries of the world consume Coca Cola. Anwar Abdi (2021) indicated that in 2019, the per capita Coca Cola consumption in Mexico was 634 of 8-ounce cups, which is the highest consumption of Coca Cola in the world. This was followed by the USA with 403, Brazil with 280, Canada with 259, South Africa with 247, the UK with 201, Nigeria with 49 and Kenya with 40 8-ounce cups respectively”.

Required:

Use the Gravity Model to explain the recent increase in Coca Cola consumption in Mexico although Coca Cola is a USA product.

ANSWER: (box will enlarge as you enter your response)

The Gravity Model, traditionally used in international trade theory, predicts bilateral trade flows based on economic size (often GDP) and distance between two countries. In the context of Coca Cola consumption, this model can be adapted to understand the factors influencing the beverage's consumption rates in countries like Mexico, despite its origins in the USA (Alviarez et al., 2020).

Firstly, the economic relationship between Mexico and the USA plays a crucial role. The proximity of Mexico to the United States significantly reduces cultural and physical distances, facilitating not only trade but also cultural exchanges. Because of the vast border and the NAFTA, now renamed the United States Mexico Canada Agreement (USMCA), there has been a transformed economic corridor from which goods including consumer goods like Coca Cola are flowing. This access to easy becomes the increase in availability and consumption (Zahniser, 2022).

Secondly, the economic size and the population dynamics contribute to this model. As a populous country with a growing middle class, Mexico has enjoyed an increase in disposable income coupled with higher consumption of non essential goods in the food business such as Coca Cola. Brand presence and usage levels are also tied to the brand’s historical presence and its aggressive marketing strategies and the degree to which Mexican consumers are brand loyal and brand preferred (Abu-Reidah, 2020).

Figure 1 Gravity Model for Coca Cola consumption in Mexico

What’s more, cultural factors play an equally big role here. In Mexico, Coca Cola has successfully melted itself into local traditions and social practice. Moreover, the brand is also viewed as a part of social gathering or celebration and therefore consumption of the product is more.

Coca Cola’s local manufacturing and bottling investments in Mexico have lastly made certain that the item is not actually simply readied to buy however furthermore monetarily valued since it favors the local market. Simplicity of Gravity Model's principle leads to local production that surmounts the barriers typically concomitant with international trade.

Finally, the Gravity Model for MBA Assignment Expert contributes explaining the big consumption of Coca Cola in Mexico based on economic, geographical and cultural factors, highlighting the effect of proximity, economic Network and market integration strategies (Castro-Muñoz et al., 2022).

Question 2: 10 marks

The Comparative Advantage Theory and Factor Endowment Theory can explain the pattern of trade between Mexico and the USA. Assume two commodities, i.e. Coca Cola and technology, and using two figures, namely one for comparative advantage and another for factor endowment, to explain the differences between the Comparative Advantage Theory and Factor Endowment Theory.

ANSWER:

The trade relationship between Mexico and the USA can be elucidated through two prominent economic theories: factor endowment theory; Comparative Advantage Theory. These theories explain the bilateral trade dynamics (e.g., Coca Cola and technology) (Sampson, 2023).

Comparative Advantage Theory: It suggests that countries should produce the goods where they have a relative productivity advantage, and trade the goods among countries. The USA has a comparative advantage with its advanced marketing abilities, strong brand identity and innovation in beverage technology for Coca Cola. Importing Coca Cola into Mexico serves as a good opportunity for Mexico to import the strong brand value and the established market position of US. On the other hand, Mexico has comparative advantage of production of labour intensive goods because of lower labour costs that can be seen in manufacturing and agriculture rather than in high technology industries (Escaith, 2020).

Figure 2 Comparative Advantage Theory Diagram

Factor Endowment Theory: This theory suggests that a country's trade patterns are determined by its endowment of factors of production like land, labor, and capital. The USA, being rich in capital and technology, naturally has an advantage in producing high-tech goods, including advanced technology products, which require significant capital investment and R&D. Mexico, with its abundant labor supply, is better suited to produce labor-intensive goods such as textiles or agricultural products but extends this to include the manufacturing aspects of technology production, albeit at a lower spectrum of value addition (Shen et al., 2022).

Figure 3 Factor Endowment Theory Diagram

Differences Between the Theories:

• Comparative Advantage: Focuses on efficiency and productivity differences in production. It encourages countries to specialize based on relative efficiencies, not absolute efficiencies.

• Factor Endowment: Concentrates on the differences in factor availability and the intrinsic characteristics of the economy. It explains why countries export what they are plentiful in and import what they are deficient in (Brondino, 2021).

In the case of Coca Cola and technology:

• USA exports Coca Cola leveraging its strong branding and marketing capabilities (Comparative Advantage) and exports technology due to its capital-intensive nature and advanced R&D (Factor Endowment).

• Mexico imports Coca Cola benefiting from the USA’s branding prowess and imports technology to complement its growing manufacturing capabilities, particularly in less advanced technological assemblies, making use of its labor abundance (Factor Endowment).

Question 3: 10 Marks

Explain the effects of migration of labour between Mexico and the USA. Use the graph below and the marginal product of labour (MPL) concept to explain your answer. Assume Mexico is Country M while USA is Country Y.

ANSWER:

In this analysis, the wages and MPL are key elements in understanding labor dynamics (da Conceição Bento, 2020).

Initial Conditions:

• Country M (Mexico) has a lower MPL (MPL_Country M) compared to Country Y (USA) (MPL_Country Y), reflecting lower labor productivity possibly due to differences in technology, capital availability, or skill levels.

• Wages in Country M (W_M) are lower than in Country Y (W_Y), as represented by the horizontal lines in the graph. This wage differential is a primary driver for migration.

Migration Effects:

1. Labor Supply Reduction in Mexico:

o As workers migrate from Mexico to the USA, the labor supply in Mexico decreases.

o This reduction shifts the labor supply curve to the left, leading to a rise in wages in Mexico from W_M to W_E (intersection at E), assuming the demand for labor remains constant.

o The decrease in labor supply potentially increases the MPL in Mexico due to a higher capital-to-labor ratio or as industries adjust to a smaller workforce, potentially increasing productivity per worker (Monteforte, 2020).

2. Labor Supply Increase in the USA:

o Conversely, the influx of laborers from Mexico increases the labor supply in the USA.

o This shift moves the labor supply curve to the right in the USA, putting downward pressure on wages from W_Y to W_E (intersection at E).

o The increase in labor can decrease the MPL in the USA if the additional labor does not match with proportional increases in capital or if the incoming workers have lower skills or productivity compared to the existing workforce.

Economic Adjustments and Long-term Effects:

• Adjustment in Industries: With smaller workforce, Mexico may be forced to move into industries that require more capital or inject technology to achieve the same productivity. On the contrary, for industries in USA, they can expand or adjust their production strategy to accept the higher labor supply (Kallevik, 2014).

• Wage Convergence: The migration can lead to some level of wage convergence between the two countries as the supply and demand dynamics adjust internationally.

• Economic Growth and Welfare: Both countries could potentially experience benefits; Mexico through remittances and a higher average MPL, and the USA through increased economic output and potentially lower costs of goods and services.

Overall, the migration of labor from Mexico to the USA can have significant economic effects on both countries, influencing wages, employment, productivity, and economic growth, as depicted in the changes to the MPL and wage levels shown in your graph.

Question 4: 10 marks

High average cost is a threat to industrialization in developing countries. Examine the reasons that support infant industry protection as a key solution for the growth of industrialization of developing countries. Use a graph to explain your answer.

ANSWER

Infant Industry Protection as a Solution for Industrialization in Developing Countries:

Infant industry protection is a significant economic policy tool used by governments of developing countries to nurture and protect their emerging industries from international competition. These industries often suffer from high average costs due to several factors, such as lack of scale economies, limited access to technology, and inexperienced management. Protectionist measures, such as tariffs, subsidies, and import quotas, can provide these industries the necessary time and space to grow until they become competitive on a global scale (Aiginger & Rodrik, 2020).

Reasons Supporting Infant Industry Protection:

1. Development of Scale Economies: New industries may initially operate at a smaller scale, leading to higher per-unit costs. Protection allows these industries to grow and achieve economies of scale, thereby reducing their average costs over time.

2. Technological Learning and Innovation: Protection provides a shield against external competition, encouraging domestic industries to invest in research and development. This investment can lead to innovations that enhance productivity and competitiveness.

3. Creation of Employment: Developing industries often generate significant employment opportunities, contributing to economic stability and growth. Protection helps ensure these industries survive long enough to become stable employers.

4. Development of Related Industries: The growth of infant industries can stimulate the development of local supply chains and ancillary industries, further broadening the industrial base of a country (Hauge, 2020).

Graph Explanation:

The graph will depict how protection helps reduce average costs over time through learning and achieving economies of scale.

Figure 4 Impact of Infant Industry Protection on Average Costs

1. Blue Line (With Protection): Shows a significant decrease in average costs over time for industries in developing countries protected by tariffs, subsidies, or quotas. This downward trend reflects the industry's ability to achieve economies of scale, improve technology, and gain operational efficiency under protective measures.

2. Red Line (Without Protection): Represents the scenario where industries are not protected. Here, average costs decrease at a slower rate due to continued competition from more established foreign industries, leading to possible struggles in achieving scale and efficiency (Chang & Andreoni, 2020).

Question 5: 10 Marks

After the Seattle 1999 World Trade Organisation Ministerial Conference fiasco, in the next two years, large anti-globalisation demonstrations rocked the International Monetary Fund and World Bank in Washington. What was the goal of the anti-globalisation movement - and was it right? Explain your answer with the use of relevant figures

ANSWER:

Anti-globalization movement that emerged strongly around the 1999 Seattle WTO Ministerial Conference and going on thereafter was essentially directed at opposing and opposing the expected bad elements of globalization. It was an eclectic mix of interests: environmentalists, human rights groups, labor unions and development activists. The focus of their main goal was to focus on the negative impacts of globalization on the environment, social equity, economic stability and cultural integrity (Nguyen, 2022).

Goals of the Anti-Globalization Movement:

1. Social Equity: Globalization division costs said advantage powerful countries and corporate curious and broke down the austerity condition between rich and poor. They called for fair trade practices, to be in support of small and indigenous producers in the developing countries.

2. Environmental Protection: In pushing for rapid industrialization, the movement said too often global trade agreements in turn helped encourage environmental degradation. Sustainable development was their call for stringent environmental regulation.

3. Labor Rights: This focus was in protecting workers’ rights and preventing the exploitation of labor—frequently considered byproduct of multinational corporations trying to avoid high costs.

4. Cultural Preservation: Participants contended that globalization was responsible for the cultural homogenization and the loss of the indigenous identity. They hoped to protect cultural diversity and heritage.

Was the Anti-Globalization Movement Right? It’s a question of whether the movement was right, and that’s a subjective discussion based on one’s view as to how these capitalist economies should develop, how some form of justice would guide them, and how sustainable they could be with regard to a healthy environment. Yet while the movement certainly brought many issues to the table, it certainly created additional space for discussion around the cost of international economic policies more generally (Serdar Altay, 2024).

Relevant Figures:

• Income Inequality: In many regions, income inequality is increasing, even as globalization is lifted millions out of poverty, the World Bank and other sources often show.

• Environmental Impact: Environmental agencies all over the world found that there is an association between increased industrial activity and environmental damage, like the loss of biodiversity and more pollution.

• Labor Markets: The International Labour Organization (ILO) has reported on labor issues created and exploited in global supply chains.

While the movement did not stop globalisation, it forced an increase in the responsible and equitable economic polices and practices. This stimulated organizations such as WTO, IMF, World Bank to take their social and environmental impacts more seriously, which caused them to create a number of different compliance standards and frameworks that aim to make globalization benefits distributed more widely (Lugo-Ocando, 2019).

END OF FINAL INDIVIDUAL ASSESSMENT

References

Abu-Reidah, I. M. (2020, January 1). Chapter 1 - Carbonated Beverages (C. M. Galanakis, Ed.). ScienceDirect; Academic Press. https://www.sciencedirect.com/science/article/abs/pii/B978012816938400001X

Aiginger, K., & Rodrik, D. (2020). Rebirth of Industrial Policy and an Agenda for the Twenty-First Century. Journal of Industry, Competition and Trade, 20. https://doi.org/10.1007/s10842-019-00322-3

Alviarez, V., Head, K., & Mayer, T. (2020, April). Global Giants and Local Stars: How Changes in Brand Ownership Affect Competition. Ssrn.com. https://ssrn.com/abstract=3594259

Brondino, G. (2021). Fragmentation of Production, Comparative Advantage, and the Heckscher-Ohlin Theory. Review of Political Economy, 35(3), 1–20. https://doi.org/10.1080/09538259.2021.1977540

Castro-Muñoz, R., Correa-Delgado, M., Córdova-Almeida, R., Lara-Nava, D., Chávez-Muñoz, M., Velásquez-Chávez, V. F., Hernández-Torres, C. E., Gontarek-Castro, E., & Ahmad, M. Z. (2022). Natural sweeteners: Sources, extraction and current uses in foods and food industries. Food Chemistry, 370, 130991. https://doi.org/10.1016/j.foodchem.2021.130991

Chang, H., & Andreoni, A. (2020). Industrial Policy in the 21st Century. Development and Change, 51(2).
da Conceição Bento. (2020). Labor Productivity Gains and Spillover Effects from International Migration - ProQuest. Proquest.com. https://www.proquest.com/openview/4ef2012ef328f3635ea470ee6abbf3d7/1?pq-origsite=gscholar&cbl=2026366&diss=y

Escaith, H. (2020, October 19). Contrasting Revealed Comparative Advantages when Trade is (also) in Intermediate Products. Ssrn.com. https://ssrn.com/abstract=3720169
Hauge, J. (2020). Industrial policy in the era of global value chains: Towards a developmentalist framework drawing on the industrialisation experiences of South Korea and Taiwan. The World Economy, 43(8). https://doi.org/10.1111/twec.12922

Kallevik, S. (2014). The Impact of Migrant Labour on Development in India: A case study from the new city of Gurgaon. https://www.shram.org/uploadFiles/210916071659.pdf

Lugo-Ocando, J. (2019). The “changing” face of media discourses on poverty in the age of populism and anti-globalisation: The political appeal of anti-modernity and certainty in Brazil. International Communication Gazette, 82(1), 101–116. https://doi.org/10.1177/1748048519880749

Monteforte, F. (2020). Structural change, the push-pull hypothesis and the Spanish labour market. Economic Modelling, 86, 148–169. https://doi.org/10.1016/j.econmod.2019.06.008

Nguyen, Q. (2022). The Green Backlash against Economic Globalization. International Studies Review, 24(2). https://doi.org/10.1093/isr/viac020

Sampson, T. (2023). Technology Gaps, Trade, and Income. American Economic Review, 113(2), 472–513. https://doi.org/10.1257/aer.20201940

Serdar Altay. (2024). The Rise and Decline of the Liberal World Order and the Multilateral Trade System: A Critical-Constructivist Synthesis to International Regime Analysis. Uluslararası İlişkiler Dergisi, 1–19. https://doi.org/10.33458/uidergisi.1489978

Shen, J. H., Long, Z., Lee, C.-C., & Zhang, J. (2022). Comparative advantage, endowment structure, and trade imbalances. Structural Change and Economic Dynamics, 60(1), 365–375. https://doi.org/10.1016/j.strueco.2021.12.012

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