The theory of comparative advantage

The theory of absolute advantage A. Smith, David Ricardo developed (1772-1823), proving that absolute advantage is only a partial case of general rules.

Advantages of the theory of comparative advantage:

1) first described the balance of aggregate demand and aggregate supply. Although It was envisaged that the cost of goods determined by the amount of work, necessary for its production, the theory of comparative advantage showed that the cost really depends on the ratio of aggregate demand and offers the goods on the domestic and foreign markets.

2) proved existence of gains from specialization and trade for all member countries, not just one country due to the fact that others suffer losses.

3) Allows you to conduct scientifically based foreign policy.

Shortcomings of the theory of comparative advantage resulting from these assumptions, the which it is based.

Therefore, applying it to analyze foreign economic relations should take into account that it:

1) No takes into account transport costs.

2) Ignores the impact of foreign trade on income distribution within countries, fluctuations in prices and wages, inflation and international capital flows.

3) Based on the assumption existence of only one factor of production - labor.

4) Ignore existence of such important conditions of international trade, the differences in the provision of inputs.

5) Based on the premise full employment, which means that one industry workers freed can immediately find jobs in other, more productive. In other words, an assumption about fixed costs and therefore ignored law costs are rising.

6) Do not explain trade between approximately equal in economic development, none of which has relative advantage over another.

Current theories of international trade

Current theories of international trade can be grouped in two main areas: Keynesianism (neokeynsianstvo) and Monetarism (neoclassicism).

Keynesianism - macroeconomic theory, which emerged as a response economic theory on the Great Depression in the United States. Of this work was work "General Theory of Employment percent and Money by John Maynard Keynes.

The essence of Keynesianism. The market is characterized by balance, which provides full employment. The reason is - a tendency to keep some profits which leads to the fact that the total demand less than the total supply.

Keynes proposed the following output. If the mass consumer is not able revive the total demand in the scale of national economy, it should make state. If the state will do (and pay) great entrepreneurs order that will cause additional hiring labor. Getting salaries cost, past unemployed will increase their spending on consumer goods and this will increase overall economic demand, and this in turn will increase total supply of goods and services and economic recovery.

Monetarism - macroeconomic theory, one of the main areas neo-conservative economic thought. It appeared in 1950 as a series empirical research in the field of currency circulation.

Key provisions

1. Regulating role of state in the economy should be limited to control over monetary circulation.

2. Market economy - self-regulatory system. All the negative signs related to stay overweight state in the economy.

3. Money supply to affect the consumers' firms. Increase money supply leads to the growth of production, and after full loading of opportunities - to inflation and prices.

4. Inflation must be overcome by any means, including a by reducing social programs.

5. When choosing a money growth rate should rule "Mechanical" money supply growth, which would reflect two factors: level of expected inflation and the growth rate of public product.

According to the views of monetarist money is the main area which sets the movement and production development. The demand for money is constant tend to increase and to ensure consistency between the demand for money and their proposal to conduct a course for gradual increase money in circulation. State regulation should be limited to control over money turnover.

Regulation of foreign trade

Foreign trade policy subdivided into following basic groups: tariff (custom duties) and non-tariff (quantitative restrictions, other non-tariff methods, trading - political methods of stimulation of export, trading contracts and agreements).

Tariff regulation

Custom duties are a list of the customs duties with which the goods are assessed at their import and export. The customs duties represent some kind of the tax raised at crossing by the goods of customs border the one who these goods import or take out. The customs duties raise goods cost as the exporter (importer) it is compelled to compensate the expenses on payment of the duty at the expense of increase in the price at the goods. High import duties make foreign goods noncompetitive in home market and used for protection of national manufacturers of the similar goods.

Duties: ad value - raised in percentage of goods cost; specific - raised in the form of a certain sum of money from weight, volume or goods piece; mixed, a simultaneous application ad value and specific duties.

According to this law the Custom duties of _Ukraine are systematized according to the Ukrainian classification of the goods of foreign trade activities - the list of rates of the import customs duties raised from the goods which are imported on customs territory of Ukraine.

The Ukrainian classification of the goods of foreign trade activities (national variant of the qualifier of the Commodity nomenclature of foreign trade activities) which is based on Harmonized system of the description and coding of the goods of 2007 is put in a basis of the commodity classification scheme of Custom duties of Ukraine (the commodity nomenclature).

The duty which is subject to payment, pays off customs body under the rates of the tariff operating at date of giving of the customs declaration.

The custom duties rates of Ukraine are divided as follows:

Preferential rates, including clearings of duty payment, are applied to the goods occurring from the countries, entering together with Ukraine in the customs unions or forming special zones or to which the special mode according to the international contracts is given, and also an origin from a number of developing countries;

Preferential rates are applied to the goods occurring from the countries, using on Ukraine by a most favored nation treatment;

Full rates are applied to other goods.

Non-tariff regulation

Quantitative restrictions, other non-tariff methods, trading-political methods of stimulation of export, trading contracts and other non-tariff methods of regulation of foreign trade activities. Quantitative restrictions include quota and licensing.

Quotas are limiting volumes of the certain goods which are authorised for importing to (export) on territory of the country during certain term. Quotas are individual, limiting import (export) in one concrete country; group, establishing volume of import (export) in certain group of the countries, and also global when import (export) is limited without instructions of the countries on which this restriction extends.

Licences are permissions to import (export) of the goods during any time, given out by competent bodies (Ministry of Economy).

Licences are general which represent permissions to import (export) operations with the certain goods during all period of validity of a mode of licensing. Besides, licences are individual, resolving to one subject of enterprise activity realisation of one import (export) operation on the licensed goods. Licences establish volumes of the imported (taken out) goods in quantitative expression when it is authorised to import to (take out) certain quantity of the goods, or cost expression when under the licence it is possible to import to (take out) the goods for the certain sum.

Quotas and licenses limit independence of businessmen concerning a choice of the market and trade volume, however, these kinds of the external economic regulation have gained now the greatest distribution.

Except quantitative, non-tariff methods of the foreign trade regulation complication of customs procedures, increase in quantity of the necessary documentation, increase of requirements concern quality of packing and marks, an establishment phytosanitary, veterinary and other kinds of the sanitary and ecological control. Various taxes to import and export concern not tariff methods over the duty, the currency restrictions connected with reception of the permission to use of currency for import purchase, etc.

The state can take measures also on unfair competition suppression at foreign trade activities realisation, in particular, dumping that sales of the goods under the prices below international commodity market. The establishment of the facts of a dumping in Ukraine, for example, is done by the claim to the Ministry of Economy of Ukraine or the State committee on the prices. In case of an establishment of the fact of a dumping to the Ukrainian or foreign businessmen the antidumping duty can be applied.

Except antidumping duties can be applied as well countervailing duties which are raised in case of an establishment of that fact, that the exporter by goods manufacture used the state grants that has allowed it to underestimate the price for the goods.

Measures of stimulation of export have for an object encouragement of the national enterprises-exporters. These measures include subsidizing (grants), preferential crediting, the state insurance of export (when the exporter has an opportunity to sell the goods and the risk of non-payment by the importer of the put sum incurs the state), carrying out of a special currency policy (maintenance of the underestimated rate of national currency), tax privileges to exporters (clearing of a part of profit taxes or the income of payment of the tax to the added cost), information, consulting service, a professional training for foreign trade, diplomatic support of exporters. These measures are applied usually in a complex, therefore it is necessary for exporter to be guided in stimulation system to take advantage of possible privileges.

The inclusion of Ukraine in world economic relations requires a major adaptation of its structure, the entire economic mechanism to extremely severe requirements, which dictate the world economy and its economic institutions. Slowing the pace of reforms and policy uncertainty puts Ukraine in the face of losing the chance of joining the world community. The important factor for reform in Ukraine is restructuring the economy.