What are the reasons behind international specialization What does Dubai specializes in - Essay Example

[Import Tariff Assignment] 1st Question: What are the reasons behind international specialization What does Dubai specializes in Answer: One of the current trends in international business is that the manufacture of a product or the provision of services is done by a certain country or group of countries instead of being produced by everybody. There are two reasons behind this: First, certain countries have the necessary resources to manufacture the product and secondly, certain countries have a comparative advantage over other countries such as labor costs.

This second reason takes into account, why for example, the USA has the labor force for garments manufacture but the industry is dominated by Philippines and China. For the first case, a good example would be the OPEC member states which specialize in the production of oil. Since they are rich in oil reserves, it stands to reason that their focus would be in that product. For the second case, one good product example would be men's cotton shirts. Compared to the Philippines, production in Japan is roughly thirty times as expensive although they are almost identical.

This is because the Philippines have lower labor costs due to the abundance of their labor force. This comparative advantage makes it more appropriate for Japan, being abundant in capital, to focus on focus on capital intensive machinery and chemicals and labor abundant Philippines to focus on labor intensive apparel and toys (Bowen et al 1987, Trefler 1995).In general, the economy of the Emirate of Dubai is based on two main activities: oil production and export and non-oil trade and. The first activity is very well known.

The second would be the export of manufacturing industries which are imported by the Arabian Gulf countries and other international markets. These include aluminum ingots, liquefied gas and readymade garments to Japan, the People's Republic of China, India, Taiwan, the United States and some industrial countries in Western Europe. The Emirate also exports traditional commodities which include dates, hides, frozen and dried fish, iron scrap and other metals. It has currently widened the export portfolio to include chemicals, plastic products and building materials.

It is noticeable that Dubai's exports of traditional agricultural commodities are minimal due to the unfavorable condition for agriculture. 2nd Question: What are the welfare effects of import tariffsAnswer: To answer this question, let us suppose that there are two trading countries, one importing and the other exporting. The supply and demand curves for the two countries are shown in diagram below. This diagram was the result of observed real world situations: PFT is the free trade equilibrium price.

At that price, the excess demand by the importing country equals excess supply by the exporter. From the graph of the importing country, it can be seen that when the PTIM (Import Price) is increased, the demand decreases leading to the lowering of prices of the exporting country. With reference to the importing country and to the graphs, the following would be its effects: 1. Product consumers in the importing country suffer a reduction in well-being as a result of the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in the market.2. Producers in the importing country experience an increase in well-being because the increase in the price of their product on the domestic market increases producer surplus in the industry.

The price increases also induces an increase in output of existing firms, an increase in employment, and an increase in profit and/or payments to fixed costs.3. The government receives tariff revenue as a result of the tariff. With reference to the importing country, the following would be its effects: 1. Product consumers in the exporting country experience an increase in well-being because the decrease in their domestic price raises the amount of consumer surplus in the market. 2. Producers in the exporting country experience a decrease in well-being because the decrease in the price of their product in their own market decreases producer surplus in the industry.

The price decline also induces a decrease in output, a decrease in employment, and a decrease in profit and/or payments to fixed costs. 3. There is no observable effect on the exporting country government revenue as a result of the importer's tariff. References:Bowen, Harry P, Edward E. Leamer and Leo Sveikauskas (1987). Multicountry, Multifactor Tests of the Factor Abundance Theory. American Economic Review 77(5):791-809. Trefler, Daniel (1995). The Case of the Missing Trade and Other Mysteries.

American Economic Review 85(5):1029-1046.Dubai Chamber of Commerce and Industry (2006). General Information. Retrieved Dec. 8, 2006 from www.dcci.aeSuranovic, Steven (1997). Welfare Effects of a Tariff: Large Country. Retrieved from http://internationalecon.com/v1.0/ch90/90c110.html