Determinants of International Trade

Why do some countries export or import more than others? Several studies have been con¬ducted to establish major factors that influence exports. The trade and exchange-rate re¬gime (import tariffs, quotas, and exchange rates), presence of an entrepreneurial class, and efficiency-enhancing government policy, as well as secure access to transport (and reasonable transport costs) and marketing services are considered to be important influential factors of export behavior (Fugazza, 2004; Kaynak and Kothavi,1984). A study on the nature, composi¬tion, and determinants of Singapore’s technology exports suggests that the country’s open trade and investment regime and development-oriented economic policy have been the key factors in enhancing the country’s exports. Singapore’s economy has shown continued and remarkable growth in exports for more than thirty years, with only two brief and mild reces¬sions in the mid-1970s and mid-1980s. Its total trade as a proportion of GDP remains one of the highest in the world, approximately 416 percent in 2012 (WTO, 2013). A recent study on the determinants of export performance underlines the importance of foreign direct invest¬ment (FDI) and the general quality of the institutional framework. FDI contributes to capital formation and helps promote the development and export of knowledge-based industries (Fugazza, 2004).

Much of the research literature on imports underlines the importance of high per capita incomes, price of imports, and the exchange rate in determining import levels (Lutz, 1994). For developing countries, however, determinants of import demand also include factors such as government restrictions on imports and availability of foreign exchange. A study exam¬ining the factors influencing import demand in Pakistan from 1959 to 1986 found that the policy of devaluation and raising tariffs was not significant in reducing imports except in the case of imports of machinery and equipment (Sarmand, 1989).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

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