Assignment Cover Sheet

|Family Name: |First Name: |Student ID Number: |
|Nguyen Da |Huong Quynh | |
|Course: SNHU2010 |
|Unit Code: |Unit Title: |
|Eco 322 |International Economics |
|Assignment Title: |
|Application of theory to study of trade |
|Name of Lecturer: |Place of Lectures: |
|Nguyen Thanh Tung | |
|Date Submitted: |Student Email Address: |
| |katynguyenrus@gmail.com |

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Application of theory to study of trade
Italy

I) Comparative Advantages

➢ Quick overview:

• Government: Republic

➢ People
Nationality: Noun and adjective--Italian(s).
Population (January 2011 est.): 60.6 million.
Annual population growth rate (2010 est.): 0.04%, mostly due to immigration.
Ethnic groups: Primarily Italian, but there are small groups of German-, French-, Slovene-, and Albanian-Italians.
Religion: Roman Catholic (majority).
Language: Italian (official).
Education: Years compulsory--16. Literacy--98%.
Health: Infant mortality rate--3.7/1,000 live births. Life expectancy--79.1 years for men; 84.3 years for women.
Work force (25.01 million, 2010): Services--67%; industry and commerce--29%; agriculture--4%. Unemployment rate is 8.5%.

➢ Geography

Italy is located in Southern Europe and comprises the boot-shaped Italian Peninsula and a number of islands including the two largest, Sicily and Sardinia. It lies between latitudes 35° and 47° N, and longitudes 6° and 19° E.

The country is situated at the meeting point of the Eurasian Plate and the African Plate, leading to considerable seismic and volcanic activity. There are 14 volcanoes in Italy, three of which are active: Etna (the traditional site of Vulcan’s smithy), Stromboli and Vesuvius. Vesuvius is the only active volcano in mainland Europe and is most famous for the destruction of Pompeii and Herculanum. Several islands and hills have been created by volcanic activity, and there is still a large active caldera, the Campi Flegrei north-west of Naples.

➢ Environment

National parks cover about five percent of the country. In the last decade, Italy has become one of the world's leading producers of renewable energy, ranking as the world’s fourth largest holder of installed solar energy capacity and the sixth largest holder of wind power capacity in 2010. Renewable energies now make up about 12% of the total primary and final energy consumption in Italy, with a future target share set at 17% for the year 2020.

Italy is the twelfth largest carbon dioxide producer. Extensive traffic and congestion in the largest metropolitan areas continue to cause severe environmental and health issues, even if smog levels have decreased dramatically since the 1970s and 1980s, and the presence of smog is becoming an increasingly rarer phenomenon and levels of sulphur dioxide are decreasing.

➢ Climate

The coastal areas of Liguria have a Mediterranean climate.
The climate of Italy is highly diverse and can be quite different from the stereotypical Mediterranean climate. Most of the inland northern regions of Italy, for example Piedmont, Lombardy and Emilia-Romagna, have a climate variously described as humid continental or temperate. The coastal areas of Liguria and most of the peninsula south of Florence generally fit the Mediterranean stereotype. Conditions on peninsular coastal areas can be very different from the interior's higher ground and valleys, particularly during the winter months when the higher altitudes tend to be cold, wet, and often snowy. The coastal regions have mild winters and warm and generally dry summers, although lowland valleys can be quite hot in summer.

➢ Natural resources: coal, mercury, zinc, potash, marble, barite, asbestos, pumice, fluorspar, feldspar, pyrite (sulfur), natural gas and crude oil reserves, fish, arable land

➢ Agriculture
Italy's agriculture is typical of the division between the agricultures of the northern and southern countries of the European Union. The northern part of Italy produces primarily grains, sugar beets, soybeans, meat, and dairy products, while the south specializes in fruits, vegetables, olive oil, wine, and durum wheat. Even though much of its mountainous terrain is unsuitable for farming, Italy has a large work force (1.4 million) employed in farming. Most farms are small, with the average size being only seven hectares (about 17 acres).

II) Exchange Rates Policy

Italy is a member of the G8 industrialized nations and in 2008 was the seventh-largest economy in the world (fourth-largest in Europe). The country's most important mineral resource is natural gas, whereas, most raw materials needed for manufacturing are imported. Northern Italy produces maize corn, rice, sugar beets, soybeans, meat, fruits and dairy products, while southern Italy mostly produces wheat and citrus fruits. Italy is one of the largest producers of wine in the world. It is also one of the leading producers of olive oil and fruits such as apples, oranges, lemons, pears, apricots, peaches, cherries, strawberries, and kiwi.

➢ Italian money

In Italy, as in most of Western Europe, the official currency is the Euro (€). The Euro is divided into 100 cents (centimes, centesimi), with two decimals after the comma. So, a price will often be displayed as €10,00 (ten euros); or €2,14 (two euro and 14 cents), etc.

1 Euro is, right now, about US$1.32 To make things a bit simpler, consider that 3 Euro equal approx. US$ 4.

➢ EUR/USD - Exchange Rate in Italy

The euro is the official currency of Italy, which is a member of the European Union. The Euro Area refers to a currency union among the European Union member states that have adopted the euro as their sole official currency. In Italy, interest rate decisions are taken by the Governing Council of the European Central Bank. The Euro exchange rate (EURUSD) depreciated 1.22 percent against the US Dollar during the last month. During the last 12 months, the Euro exchange rate (EURUSD) depreciated 11.27 percent against the US Dollar. Historically, from 1975 until 2012 the EURUSD exchange averaged 1.19 reaching an historical high of 1.60 in April of 2008 and a record low of 0.64 in February of 1985. The Euro spot exchange rate specifies how much one currency, the EUR, is currently worth in terms of the other, the USD. While the Euro spot exchange rate is quoted and exchanged in the same day, the Euro forward rate is quoted today but for delivery and payment on a specific future date.

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In 2009, government expenditure substantially increased by 6.28% compared to 2008.

[pic] ➢ GDP per capita at PPP
The GDP per capita at purchasing power parity (PPP) was USD 29,418 billion in 2010, as compared to USD 29,068 billion in 2009, thus increasing by 1.20%.
Alternatively GDP per capita in 2010 was USD 33,829 billion declining 4.53% from the previous year.

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➢ Gross domestic product (GDP)

The gross domestic product for 2010 Q4 was EUR 305,985 million, increasing 0.05% over the previous quarter.
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➢ Current account balance

The current account balance of Italy registers a deficit of EUR 9,955 million as of 2010 Q3.
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US Dollar vs Italian Lira Chart Last 30 Days

[pic] ➢ Euro Currency Analysis
Italy (EUR) has a slowly developing capitalist economy with an industrial northern territory and an agricultural southern territory. Italy's Fundamental Currency Analysis (short term investment): Italy is part of the Euro economic zone, whose currency is moderately valued on a global scale per the purchase price parity. Italian investment flow potential greatly improves their economic situation; however, a debt crisis could affect their economy over the long term. Italy's Value Investor Survey (short term investment): Italy’s economic environment is neutral for long term economic growth according to the investor survey. Italy's Currency Trading

Strategy: High investment flow potential and moderate a business environment lead to a slightly positive outlook for Italian investments.

Factors That Positively Affect the Euro ✓ Cultural heritage ✓ Climate ✓ Tourism in Italy With more than 36.5 million tourists a year, Italy is the fifth most visited country in the world, behind France (76.0 million), Spain (55.6 million), United States (49.4 million), and China (46.8)

Factors That Negatively Affect the Euro ▪ Declining Birth Rate the effects of a declining population can be adverse for an economy which has borrowed extensively for repayment by younger generations; however, a smaller human population has a smaller impact on. ▪ Political situation ▪ Xenophobic Northern Italy The seats of power in Italy are full of Xenophobic citizens that tolerate and perpetuate violence against outsiders, especially Africa and Arab immigrants. These immigrants make up a large work force.

➢ Balance of Trade
Italy reported a trade surplus equivalent to 1447 Million EUR in December of 2011. Italy’s major exports are food, clothing, precision machinery, motor vehicles, chemicals and electric goods. Italy imports mainly engineering products, chemicals, transport equipment, energy products, minerals, textiles and clothing; automobiles, electronics, food, beverages and tobacco. Italy’s closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy’s largest EU trade partners are Germany and France. This page includes: Italy Balance of Trade chart, historical data and news.

[pic] ➢ Gross national income (GNI) per capita at PPP
In 2009, the nation’s gross national income (GNI) per capita, PPP was USD 31,360.

➢ Income tax rate

Income tax on individual incomes in Italy varies from 23% to 43%. Additionally, the country’s direct taxation includes a regional tax of 0.9% to 1.4% and a municipal tax of 0.1% to 0.8%.

|Tax rate for individuals (EUR) |Tax (%) |
|0 - 15,000 |23 |
|15,001-28,000 |27 |
|28,001-55,00 |38 |
|55,001-75,000 |41 |
|75,001 and over |43 |

➢ Corporate tax

Standard corporate tax in Italy is 31.4%.

➢ Inflation rate

The inflation rate in Italy has witnessed fluctuations, varying from a high of 3.5% in 2008 to a low of 0.8% in 2009.

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➢ Tax revenue [pic] Tax revenue decreased from 2007 to 2009, but was expected to rise to EUR 446,981 million in 2010. The country’s tax revenue, as a percentage of GDP, was 29.1% stable of in 2009.

III) Balance of Payments

|Current Account |-163 |
|Balance on goods |15,862 |
|Balance on services |203 |
|Balance on income |-10,280 |
|Current transfers |-5,949 |
|Capital Account |846 |
|Financial Account |-3,211 |
|Direct investment abroad |-21,758 |
|Direct investment in Italy |14,874 |
|Portfolio investment assets | -36,167 |
|Portfolio investment liabilities |29,329 |
|Other investment assets |717 |
|Other investment liabilities | 10,233 |
|Net Errors and Omissions |1,940 |
|Reserves and Related Items |588 |

Italy did not have serious balance of payments problems since the mid-1970s. Exports soared since 1992, turning Italy's balance of payments positive. The growth in exports has been extremely strong in the northeast, where small and medium-sized companies produce high quality and low cost products—ranging from industrial machinery to ski boots—for French, German, Japanese, and Indian customers.

Italy had current account surpluses from 1993 to 1999, but in 2000 the country registered a $5.6 billion deficit, after an $8.2 billion surplus in 1999.

The US Central Intelligence Agency (CIA) reports that in 2002 the purchasing power parity of Italy's exports was $259.2 billion while imports totaled $238.2 billion resulting in a trade surplus of $21 billion.

The International Monetary Fund (IMF) reports that in 2001 Italy had exports of goods totaling $242.4 billion and imports totaling $226.6 billion. The services credit totaled $57.5 billion and debit $57.4 billion. The following table summarizes Italy's balance of payments as reported by the IMF for 2001 in millions of US dollars.

Balance of Payments in February 2012

Foreign Trade Overview:

Italy is amongst the top 10 trade countries in the world and trade represents almost 60% of the GDP. Manufactured goods account for more than 90% of the country's exports. The country shows a deficit in trade and its balance got worse after the rise in oil prices in 2008 (the country imports 80% of its energy resources), and the appreciation of the euro. Despite its recent improvement, the trade balance should continue to deteriorate in the next coming years. The main trade partners of Italy are the European Union (Germany, France, Spain, Netherlands, and United Kingdom), China, the United States, Switzerland and Russia.

Italy Trade: Exports

Italy reported a trade surplus equivalent to 1447 Million EUR in December of 2011. Italy's major exports are food, clothing, precision machinery, motor vehicles, chemicals and electric goods. Italy imports mainly engineering products, chemicals, transport equipment, energy products, minerals, textiles and clothing; automobiles, electronics, food, beverages and tobacco. Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy's largest EU trade partners are Germany and France.
The 2008 recession decreased Italy's global trade volumes significantly. Its export volumes decreased from $546.9 billion in 2008 to $369 billion in 2010. However, the country's economy remained relatively strong and ranked 8th in the world for export volumes.

Italy Trade: Imports

Italy imports were worth 30 Billion EUR in December of 2011. Italy’s major imports are: engineering products, chemicals, transport equipment, energy products, minerals and nonferrous metals, textiles and clothing; automobiles, electronics, food, beverages and tobacco. Italy’s main import partners are European Union countries (Germany, France, Netherlands, Belgium, Spain), China and United States.

Italian trade is dominated by automobiles and machinery. The country is challenged by mountainous terrain where cultivation of agriculture isn't possible. For the same reason, Italian trade depends on the manufacturing sector.

Around the world, Italy’s famous brands such as Armani, Valentino, Versace, Benetton, Prada, FIAT, Lancia, Alfa Romeo, Maserati and Lamborghini have created a niche in the global marketplace where there is a demand for high quality and superior goods.
Italy's imports dipped as well following the 2008 recession. The figures dropped from $546.9 billion in 2008 to $358.7 billion in 2010.

IV) Italy-Vietnam Partnership

Trade relations between Italy and Vietnam have been good and growing at a satisfactory pace, especially considering how far the two countries are from each other and how small many of the companies involved in this bilateral trade are.

➢ Exchange

In 2006, the exchange between Italy and Vietnam amounted to about 900 millions of Euro. This amount grew significantly, to over 1200 million in 2007 (+33%) and withstood even the crisis year with a small growth in 2008, to slightly over 1250 million and a modest decline in 2009 with about 1183 millions. Then it recovered brilliantly in 2010 with the record value, for Italian-Vietnamese trade, of over 1480 million of Euro (+25%).

It is hard to say whether Italian investment in Vietnam matches or does not match its potential. In order to invest in any foreign country, investors have to take into consideration many issues.

➢ Investments

First of all, the Italian economy is driven by small and medium size enterprises which are very dynamic but not always ready to invest abroad. Secondly, long distance and culture differences are obstacles that not all Italian businessmen can overcome. Finally, although Vietnam has strongly developed in recent years, some Italian companies are still worried about the supply of raw materials, parts and components and also skillful workers.
In addition to the usual activities that we have been carrying out to promote trade and investment between Italy and Vietnam (trade shows, seminars, B2B matching missions)

Italian firms begin to recognize the importance of Vietnamese market. They are interested in participating in tenders for design and consultancy services in construction (as main contractor or subcontractor) and equipment supply for infrastructure projects. They also look for local partners to cooperate, especially in projects concerning railways, highways, metro, water treatment and waste treatment.
However, the Italian firms still play a marginal role in this sector.

➢ Italian firms in Vietnam

In 2009 ICE launched a project to promote the participation of Italian firms to the development of infrastructures in Vietnam. The project aims to help Italian firms to get up to date with the Vietnamese Government plans, new projects, regulations and tenders as well as to link Italian companies to the local counterparts.

The implementation of some PPP pilot projects in 2009-2010 has helped Italian companies to analyze the opportunities offered and to understand the way to join in a project as an investor. As most Italian companies are small and medium, the cooperation between them in order to approach to foreign markets can be very effective. The support of the Italian bank association and the organization of Italian industry as well as the region chamber of commerce is also very important.

The Italian business community in Vietnam has done well overall. It is a small community (almost 60 resident companies) but a very active one, with companies of highly varying size. We have both SME and large companies. Most of our companies are quite satisfied with the results up to now, even though the linguistical and cultural differences have not always made it easy to deal with local partners.

Italian investments have grown in the past few years in a significant manner with the arrival of Carvico, Curvatura friulana, Datalogic, Piaggio and the increase of commitment to Vietnam by companies like Medexport and others.

Furthermore in November 2008 an Italian Chamber of Commerce was established in Vietnam, in place of the previous Italian business association with upgraded potential and capabilities.

Some of the Italian companies sell in the local market where they are leaders, the other companies produce here in Vietnam in order to export to other countries, mostly in the area or Asia but sometimes even to Europe or America. Recently there have been many inquiries from potential investors, some of these asking for the services of the Italian Trade Commission to explore the market, its details (financial, legal, etc) and its opportunities.

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Pages for collecting data: http://www.vccinews.com http://www.euromoneycountryrisk.com http://www.heritage.org http://www.state.gov http://dati.istat.it http://daniel-workman.suite101.com http://www.tradingeconomics.com http://fita.org
http://www.internationaltrader.com