Trade Cotton

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COTTON
University of Wolverhampton International Business Management Global Business Commodities Rustam Nabizade (1122924)

COTTON
University of Wolverhampton International Business Management Global Business Commodities Rustam Nabizade (1122924)

Cotton is a major fibre crop of global importance and has high commercial value. It is grown commercially in the temperate and tropical regions of more than 70 countries. Specific areas of production include countries such as China, USA, India, Pakistan, Uzbekistan, Turkey, Australia, Greece, Brazil, Egypt etc. where climatic conditions suit the natural growth requirements of cotton, which includes periods of hot and dry weather and adequate moisture obtained through irrigation. Cotton is harvested as ‘seed cotton’ which is then ‘ginned’ to separate the seed and lint. The long ‘lint’ fibres are further processed by spinning to produce yarn which is knitted or woven into fabrics.

Trade theories
International Trade
* All economies, regardless of their size, depend to some extent on other economies and are affected by events outside their borders. * The “internationalization” or “globalization” of the U.S. economy has occurred in the private and public sectors, in input and output markets, and in business firms and households. The Economic Basis for Trade:

Comparative Advantage
* Corn Laws were the tariffs, subsidies, and restrictions enacted by the British Parliament in the early nineteenth century to discourage imports and encourage exports of grain. * David Ricardo’s theory of comparative advantage , which he used to argue against the corn laws, states that specialization and free trade will benefit all trading partners (real wages will rise), even those that may be absolutely less efficient producers.

Mutual Absolute Advantage
* Suppose that each country divides its land to obtain equal units of cotton and wheat production. TOTAL PRODUCTION OF WHEAT AND COTTON ASSUMING NO TRADE, MUTUAL ABSOLUTE ADVANTAGE, AND 100 AVAILABLE ACRES| | NEW ZEALAND| AUSTRALIA|

Wheat| 25 acres x 6 bushels/acre
150 bushels| 75 acres x 2 bushels/acre
150 bushels|
Cotton| 75 acres x 2 bales/acre
150 bales| 25 acres x 6 bales/acre
150 bales|

* Because both countries have an absolute advantage in the production of one product, specialization and trade will benefit both. * An agreement to trade 300 bushels of wheat for 300 bales of cotton would double both wheat and cotton consumption in both countries.

* Even if a country had a considerable absolute advantage in the production of both goods, Ricardo would argue that specialization and trade are still mutually beneficial. * When countries specialize in producing the goods in which they have a comparative advantage, they maximize their combined output and allocate their resources more efficiently. * The real cost of producing cotton is the wheat that must be sacrificed to produce it. * A country has a comparative advantage in cotton production if its opportunity cost, in terms of wheat, is lower than the other country. * Australia transfers all its land into cotton production. New Zealand cannot completely specialize in wheat because it needs 300 bales of cotton and will not be able to get enough cotton from Australia (if countries are to consume equal amounts of cotton and wheat).

* Australia transfers all its land into cotton production. New Zealand cannot completely specialize in wheat because it needs 300 bales of cotton and will not be able to get enough cotton from Australia (if countries are to consume equal amounts of cotton and wheat).

Factor endowments refer to the quantity and quality of labor, land, and natural resources of a country. Factor endowments seem to explain a significant portion of actual world trade patterns. The Heckscher-Ohlin theorem is a theory that explains the existence of a...
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