Trading Patterns in Syria - Research Paper Example

Trade theories Table of Contents Table of Contents 2 Trading patterns in Syria 3 Trade theories explaining the nature and direction of trade 5  Syrias absolute and comparative advantages 8 Works cited 10 Name of student: Name of Professor: Course Number: Date of Paper: Trade theories Trading patterns in Syria The trading patterns in any region are highly influenced by its geographical features and the economic conditions prevailing in that region. Syria’s trading activities are also influenced by such factors. The trade statistics of Syria significantly reveal the trade outline of the country. According to a recent estimate of 2010, Syria’s total export value stands at $12.84 billion and the total import of Syria is estimated to be $13.57 billion (Younes 11-13). The major export partners of Syria are Iraq, Germany, Lebanon, Saudi Arabia, Egypt and Italy. The goods that are primarily exported by Syria are petroleum products, crude oil, minerals, wheat cotton fibre, clothing, fruits, vegetables, meat and live animals. The imports of Syria consists of transport equipments, livestock and food, paper, chemicals, machinery, electric power machinery, metal and metal products, chemical products and yarn. The import partners of Syria are China, Egypt, Saudi Arabia, Turkey, UAE, Russia, Lebanon and Italy (Younes 11-13). The trading partners and their concerned good and services gives a picture of Syria’s trade conditions and trade relations with its partners. Syria has enhanced trade relations with Iraq by reopening pipelines for the export of oil. Syria also benefitted from economic policies implemented by China. Syria maintains a trading relation with India by importing wheat from it. Syria’s geographical closeness with Europe has been quite beneficial. The country was able to serve the huge customer base of Europe (Russett 360-379). Syria’s trade history reveals that the country always had import figures that were almost double the export figures. But both the import and export had similar growth trends. The imports and exports increased at a slow pace over time. This led to worsening of the balance of trade position of Syria. This trade patterns were seen before the 1970s. But after the 1970s, trade patterns started improving. There was a rapid expansion in the import and export figures since 1970s. In the 1980s, the trade imbalance widened further. Syria also started taking various measures concerning the budget and foreign exchange reserve. Syria started taking advantage of the higher revenues from oil in the 1990s. Finally in the beginning of 2011, Syria recorded a surplus in balance of trade (“Syria Balance of Trade”). The figure below gives some idea of the movements in balance of trade over the time and also shows Syria’s favorable trade conditions that was prevailing at the onset of 2011. Figure 1: Balance of Trade of Syria (Source: “Syria Balance of Trade”) The figure shows However, trade conditions began to deteriorate during the civil war. Syria started importing more and its exports also started falling. This led to a deficit in trade for the country. The civil war brought a halt in trading activities in the country. Production of oil dropped drastically which affected the export position of Syria as the country was a major exporter of oil. This further worsened the problem of trade deficit. Syria faced various trade restrictions due to the repressions in Syria (“Syria Balance of Trade”). Trade theories explaining the nature and direction of trade The nature and pattern of trade discussed above helps to identify trade theories that are compatible with Syria. The states in the Eastern Europe were Syria’s chief trading partners during the 1960s (Russett, 360-379). But with the restrictions implemented by the government on liberalization policies, there was a change in the direction of activities related to trade in the 1970s. Western Europe started gaining importance. Syria started producing goods which involved lower opportunity cost. The markets in Western Europe served as the main revenue generator for exports of Syria. This trade pattern was supported by the comparative advantage theory of Ricardo. Another directional shift in trading pattern of Syria was recorded in the 1980s. Exports to Eastern Europe again rose as compared to Western Europe. There was also a major change in trading pattern that was encountered by Syria. Rather than concentrating on lower opportunity cost, Syria started producing goods that increased product efficiency. These products were easy to produce. This trade strategy reflected on Adam Smith’s theory of absolute advantage theory. These Syrian goods were traded in the export market of Eastern Europe with the help of cash transactions. But due to foreign exchange dearth in Syria’s reserve, cash transactions were changed with deals based on barter (“Foreign Trade”). The goods traded by Syria reveals that it is mainly a labor intensive country. Syria specializes in oil related products. The Hecksher-Ohlin trade theory can also explain such trade patterns of Syria. This model is a modification and advancement of the Ricardian model. Production of oil requires huge involvement of labor and therefore the country involves in trade activities, wherein it can export goods that it specializes in and imports capital intensive goods from the same country. Trade relations between Syria and the European Union (EU) follow such a trade pattern. The geographical location of Syria helped the country to maintain favourable trade relations with Europe. But with the civil war, there was a major change in trade policies and agreements between Syria and the other countries of Europe. In the late 1970s, an agreement was signed between Syria and EU which aimed at promoting cooperation in trading activities. However, due to the internal resentments in Syria associated with the war, the terms of the agreement failed to exist (Perthes 37-58). A close look on Syria’s economy can help to have a clear idea about its trading patterns that is compatible with the Hecksher-Ohlin theory of trade. About 70% of Syria’s GDP comes from income that is generated through trading activities (The World Bank 209-332). This implies that Syria is highly influenced by markets all over the world. A study of Syria’s trade patterns reflect that most of the import and export activities are with the EU. Thus, Syria has always developed and maintained affable trade relations with the EU. Syria’s economic health is also affected when there is a crisis situation in the EU. This bilateral trade relation can be explained by the Hecksher-Ohlin theory where both the countries depend on each other for trade. Figure 2: Syrian Trade as % of GDP (Source: The World Bank) Immediately after Syria’s independence, there were a lot of trade restrictions and barriers. A planned economy was structured by its government. The economy moved into a free market structure over time. This implied that more liberal trade policies were implemented (Chemingui 917-928). The recessionary trend all over the world, specifically the Euro crisis has led to problems related to trade. Disputes between the West and Syria have also worsened with time. Syria has been facing significant challenges that hinder trading activities to a great deal. However, the trading activities also depended on the nature and type of goods that were traded. Here, the role of Hechsher-Ohlin theory comes into play. The main products transacted between the EU and Syria were Petroleum and goods related to petroleum. The EU in return provided with capital intensive products like machinery. It was seen that even after the crisis in Europe, petroleum consumption and production was not much affected. Thus, there was no or little change in trade activities related to this product. However, this may not be the case for other goods. In Syria, a commodity like oil is not influenced by economic volatility. This is because Syria did not depended on oil to a large extent. Syria also had less hold on foreign assets. Thus, as long as Syria is engaged in export products in which it specializes in and import products that have been a specialized product of its trading partner, trading activities will flourish (Krueger 105-124).  Syrias absolute and comparative advantages In trade theory, absolute advantage is a situation when a country can produce a good or service more efficiently and effectively as compared to some other country. On the other hand, comparative advantage is referred to the situation when a country can effectively produce a good or service at a lower transaction cost as compared to any other country. The trade patterns and the production conditions in Syria reveal that the country has an absolute advantage in the production of goods related to agriculture. Agricultural products are comparatively lower value products. These products are not much sensitive to economic collapses as suggested by trends in trade patterns. The geographical location of Syria is favorable to growth of agricultural products. It is also typically a labor oriented economy which gives it ample scope for enhancing its production of agricultural goods. The country used this advantage and had a record growth in the production of spice cumin (Cools, Pauw and Deckers 327-342). Syria has a considerable reserve of oil as compared to other resources. Oil resources are readily available in Syria. This makes production of oil cheaper compared to other products. In Syria, oil can also be exported by incurring a lower expenditure as compared to other goods. Syria’s dependence on oil also reduces due to the comparative advantage that it enjoys over the product. The country has also strategically developed pipelines for the distribution of oil. This has also reduced the transaction cost and made exports feasible for the country. Due to the comparative advantage enjoyed by Syria, the country is not affected by the crisis prevailing in other countries where trading activities are associated with oil and oil related products (Hinnebusch 95-113). Works cited Chemingui, Mohamed Abdelbasset, and Sebastien Dessus. "Assessing non-tariff barriers in Syria." Journal of Policy Modeling 30.5 (2008): 917-928. Print. Cools, N., E. De Pauw, and J. Deckers. "Towards an integration of conventional land evaluation methods and farmers’ soil suitability assessment: a case study in northwestern Syria." Agriculture, ecosystems & environment 95.1 (2003): 327-342. Print. “Foreign Trade.” U.S. Library of Congress. U.S. Library of Congress, no date. Web. 22 September, 2014. Hinnebusch, Raymond. "Syria: from ‘authoritarian upgrading’ to revolution?."International Affairs 88.1 (2012): 95-113. Print. Krueger, Anne O. "Are preferential trading arrangements trade-liberalizing or protectionist?" The Journal of Economic Perspectives (1999): 105-124. Print. Perthes, Volker. "The Syrian economy in the 1980s." The Middle East Journal (1992): 37-58. Print. Russett, Bruce M. "" Regional" Trading Patterns 1938-1963." International Studies Quarterly (1968): 360-379. Print. “Syria Balance of Trade.” Trading Economics. Trading Economics, 2014. Web. 22 September, 2014. The World Bank. World Development Indicators. Washington, D.C.: The World Bank. (2012). Print. Younes, Hossam. "The Contribution of Trade to Growth of the Arab Countries." Conference on Empirical Investigation in Trade and Investment. March. (2010): 11-13. Print. Read More