International Trade Economics
Assignment 1

Question 1

a. Trade in services occur when there is no physical movement which is opposite to trade in goods. Based on case study of South African citizen visiting NZ, the modes of Trade in Services that would result from the transactions and activities of this individual are:

mode1. Cross-border when South African citizen purchase a ticket online (IT services),

mode2. Consumption abroad which has result after person has moved abroad as tourists to consume the respective services

and

mode4. Movement of natural persons that has accrued when person have had attended business meeting in NZ. In other words this mode can be described as supplying by nationals of one member in the territory of another, requiring the physical presence of the service provider in the host country or skilled worker using his services in another country.

b. Trade between the countries, economic cooperation, expansion of communications, international division of labour bear in itself notable mutual benefits for trading courtiers. The world economy is a result of economic interaction and integration. To penetrate into an essence of economic relations between the different countries, it is necessary to highlight the most common factor that would result in trade. The gravity model, in its basic form, assumes that only size and distance are important for trade in the following way:

Tij = A x Yi x Yj /Dij

• where

Tij is the value of trade between country i and country j

A is a constant

Yi the GDP of country i

Yj is the GDP of country j

Dij is the distance between country i and country j (Krugman et al.,2012)

However there are other factors that should be considered in trade, such cultural similarities and common borders. Let’s observe it in more details thought example of these two countries: