A Study On Full Cost Of International Trade

In the background of scientific and technological progress and economic globalization, contemporary international trade is developing rapidly, and showing a series of new trends and characteristics. Firstly, the trade subject is mainly made up of multinational corporations. Secondly, the volume of trade object increases and the structure of trade object upgrades. Thirdly, the mode of trade is increasingly diversified. Fourthly, trade policy tends to liberalize as a whole, but there are still many non-tariff barriers. Fifthly, "Green Marketing" arises gradually. In this context, many scholars are questioning and criticizing the traditional comparative advantage theory. So, is comparative cost advantage theory still working, and can it convincingly explain and interpret the new trends and characteristics of international trade? From the perspective of "cost", This dissertation, based on the theory of generalized comparative cost advantage, analyzes the full cost of international trade surrounding the core viewpoint "full cost is the foundation for shaping comparative advantage" systematically.This dissertation includes five chapters and its structure is "total-sub-combining". The first chapter introduces the background and significance of the dissertation, reviews the literatures, and describes the theoretical support points, the core viewpoint and the framework of the dissertation. Then the chapter points out the method of study and the innovations and drawbacks of the dissertation. The existing literatures discuss the motivation of international trade from the perspectives of supply, demand and "comprehensive view", the literatures attempt to bring transaction costs, environmental costs and intergenerational costs into international trade based on motivation of supply side in recent years to expand the cost view of international trade. The existing literatures provide important ideas and basic materials for my writing this dissertation, but there still exist the following shortcomings among these existing literatures:Firstly, the existing literatures still lack uniform kernel for interpretation of motivation of international trade. Secondly, the expansion of the cost view needs to be systematic. These constitute a starting point of the dissertation.Chapter two firstly determines the analysis perspective of the motivation of international trade. Since the historical materialism expresses the decisive significance of production and supply factors, the evolution of international trade theories follow the context of supply-side factors basically, cost factors can be compatible with the other supply side factors, and cost analysis can reveal the essence of comparative advantage etc. The dissertation explores the motivation of international trade systematically and analyzes the formation of a country's comparative advantage in international division of labor comprehensively based on the cost perspective. According to Lakatos's theoretical dichotomy——"hard core" and "auxiliary hypothesis", or "kernel" and "perimeter protective belt", the dissertation insists that the "kernel" of the comparative advantage theory is "analyzing the comparative advantage with the relative cost"(comparison of comparison), the "perimeter protection zone" of comparative advantage theory is the denotation of the factors and costs. Therefore, in order to study and discuss the full cost of international trade, this dissertation takes the method of the advantage analysis (choose the better when balancing the two advantages or two disadvantages) to construct generalized comparative cost advantage theory based on "cost" perspective and the methodology of "comparative of comparison"(the kernel of the theory). International trade is the transnational exchange of goods and services in the form and it is transnational (or transregional) transfer of the property rights in essence. As a kind of exchange activity, it must play a role in production, consumption, economic and social institution, the flow of resources, ecological environment and the living standards of people today and future generations etc. Cost is the cost of using resources and factors, with time passing by and the development of social practice, the scope of factors is expanding. The seven types of factors, which are labor, capital, land, management, institution, ecological environment and "sustainability", have the characteristics such as: the usefulness in essence, the scarcity in quantity, the ownership of the property and measurement of the value, and the denotation of cost becomes generalized gradually. The bearer of the cost can be enterprise, government, society or future generations, it will be paid by the modes of monetary or non-monetary, directly or indirectly, self-pay or others-pay etc. Furthermore, cost is the sacrificed value in the economic relations of production, distribution, exchange and consumption based on the use of generalized factor. The dissertation summarizes various costs of international trade as production costs, transaction costs, environmental costs and intergenerational costs according to the realistic characteristics of international trade combined with factors using or spending in international trade, and constructs "full cost of international trade" which is the core concept of the dissertation. From the content perspective, it is the whole costs of using all resources in the process of international trade, involving in production and consumption, economic and ecological, modern people and future generations when the property right of some goods is in the process of transnational transferring. From the extension perspective, it is a dynamic and open system which includes sub-system such as production costs, transaction costs, environmental costs and intergenerational costs. This concept includes three meanings:firstly, full cost is a kind of whole cost; secondly, full cost is a dynamic and open system; thirdly, the sub-system of full cost includes production costs, transaction costs, environmental costs and intergenerational costs at present. On the above basis, the dissertation constructs the generalized comparative cost advantage theory on the premise of the expansion of factor and cost foundation of international trade. The comparative advantage model with full cost demonstrates that the full cost, including production costs, transaction costs, environmental costs and intergenerational costs, is the foundation of a country's comparative advantage when participating in the international division of labor and international trade. The dissertation points out that the classical, neoclassical and new trade theories all demonstrate the comparative advantage based on production costs, and they can all be expressed as "Relative Production Costs Inequality", i.e. PCXA/PCYA<PCXB/PCYB (the meaning of relevant variables, please refer to the text). Classical trade theory, neoclassical trade theory and new trade theory point out the reason of the above inequality from labor productivity, endowment and economies of scale respectively. The dissertation proves the viewpoint with mathematical logic method strictly, then constructs the integrated model from classical trade theory to the new trade theory, and proves the equivalence between comparative cost and opportunity cost. The dissertation also points out that the competitive advantage is a kind of generalized comparative cost advantage, and explains that the comprehensive or generalized comparative advantage can be converted into generalized comparative cost advantage. So generalized comparative cost advantage is the expansion of the comparative advantage based on the production costs from the vertical perspective, and generalized comparative cost advantage can be compatible with competitive advantage theory and comprehensive or generalized comparative advantage from the horizontal view.Chapter three analyzes the four sub-systems of full cost respectively. Firstly, the production costs of international trade are the sacrificed value of using or spending labor, capital, land and management when producing products in foreign trade. The international division of labor has been further deepened and refined since the appearance of intra-product division of labor, and it helps to optimize the allocation of resources in the world, and reduce the production costs. The specific forms of production costs include wages, the rent of housing and equipment, bank interest, the expenses of education and training, land rent and manager's remuneration etc. From the quantitative point of view, the production costs of international trade are equal to the sum of the product of the quantity and price of each factor. No matter whether the inter-industry trade theory (including classical, neoclassical trade theory), the intra-industry trade theory (the new trade theory), or the intra-product trade theory embodies specifically comparative cost advantage in different patterns of division. Secondly, the transaction costs of international trade are the sacrificed value of using various institutions of international trade, its specific performance is the costs of related parties deal with each other when institution integrating other resources. The specific forms of transaction costs include the costs of searching for business partners, the costs of negotiation, the costs of contracting, the costs of performance of the contract and the costs of settlement of disputes etc.. From the quantitative point of view, the dissertation analyzes the trend of bilateral trade costs between China and Japan from 1980 to 2006 in the case of Sino-Japanese trade taking "trade costs" as the proxy variable of "transaction costs of international trade" with Novy(2008) model. The result shows that trade costs rise or fall at different times, but the trade costs between China and Japan decline much more rapidly after China's accession into WTO. If we take institution as an endogenous variable, the costs of using the factor of institution in international trade, i.e. transaction costs must be added into the formation of comparative advantage necessarily. Thirdly, the environmental costs of international trade are the sacrificed value of using the factor of ecological environment in international trade and related activities (such as production, transportation, consumption and recycling for the purpose of foreign trade). The specific forms of environmental costs include the cost caused by the institution of environmental taxes and charges, green technology standards, green health and quarantine, green packaging, green environmental label, green tariff, green subsidies and countervailing etc. From the quantitative point of view, different methods often lead to mixed results in the process of measurement of environmental costs. It is difficult to reach consensus in the measurement of environmental costs of international trade since we still can't get a unified methodology between different measurement methods, and perfect market of ecological environment are not formed in various countries yet. "Better spinning than desiring the fish near the pool." The dissertation advocates using the "market" approach based on explicit property right to measure the environmental costs of international trade. Once we expand the vision from economic system to economy-environment system and take ecological environment as endogenous variable, the costs of using the factor of ecological environment in international trade, i.e. environmental costs must be added into the formation of comparative advantage necessarily. Fourthly, the intergenerational costs of international trade are the sacrificed value of spending "sustainability" factor in international trade and related activities (such as production, transportation, consumption and recycling for the purpose of foreign trade). The "sustainability" is understood as a intergenerational public goods and input factor in the dissertation, it has the following characteristics such as non-competitive, non-exclusive, temporal and absence of future generations etc. The specific forms of intergenerational costs include the cost caused by the institution of resource taxes and charges, resource export quota, resources tariff (export tariff), administrative restrictions on the export of resources and resource imports reserves policy etc. From the quantitative point of view, there are many methods for measurement of intergenerational costs of international trade, and the substitution method has the greatest influence, the dissertation introduces the thought and formula of substitution method, and gives some comments on it in order to improve the method for measurement of intergenerational costs. Once we expand vision from static economy-environment system to dynamic economy-environment system and take "sustainability" as endogenous variable, the costs of spending the factor of "sustainability" in international trade, i.e. intergenerational costs must be added into the formation of comparative advantage necessarily.Chapter four attempts to construct an analytical framework of full cost of international trade through adopting the approach of the combination of history and logic. From the logic perspective, production costs and transaction costs are endogenous variables in economic system since "production" reflects the relationship between persons and things (not including the ecological environment), and "transaction" reflects the relationship among people. Environmental costs can be included as a new cost if we expand the cost concept through including natural support system on the basis of economy system in the space dimension. Intergenerational costs can be included as a new cost if we expand the cost concept in the time dimension and change it from a static system to a dynamic one on the basis of economy and natural support system. Then full cost consists of the above four costs. Firstly, the production costs and transaction costs of international trade mutually promote and restrict each other, and they constitute the two major costs within the economic system. Secondly, the formation of environmental costs cannot be separated from the process among people, it can be said that it is a kind of transaction costs or institution costs since the environmental regulation of government, and the internalization of environmental costs can be understood as an additional part of the production costs from the perspective between persons and things. Thirdly, environmental costs and intergenerational costs are the two kinds of costs of social responsibility in foreign trade enterprises; there is a "trade-off" relationship between them. From the perspective of the relationship between people, intergenerational costs can be understood as a special manifestation of transaction costs, and there is a "trade-off" relationship between short-run production costs and long-run intergenerational costs. The dissertation then makes the state-level analysis of full cost of international trade on the above basis, summarizes the propositions in different historical periods, such as "production costsⅠshapes the comparative advantage", "production costsⅡand transaction costsⅠshape the comparative advantage", "production costsⅢ, transaction costsⅡand environmental costsⅠshape the comparative advantage", and "production costsⅣ, transaction costsⅢ, environmental costsⅡand intergenerational costsⅠshape the comparative advantage" etc., and points out the differences between the denotation of comparative cost in different periods. Then the dissertation takes the "social man", sustainable development, and economy-environment system as basic assumption of human nature and time-space, constructs the comparative advantage model with production costs, transaction costs, environmental costs and intergenerational costs, and proves the core proposition with strict logical proof. The dissertation argues that comparative advantage based on full cost is a comprehensive comparative advantage; it is the combination of endowments comparative advantage, institutional comparative advantage, environmental comparative advantage and sustainable comparative advantage.Chapter five is the policy implication of full cost analysis in international trade. Firstly, the dissertation points out the policy objectives, instruments and roles of the government. The policy objectives of full cost analysis are to promote the compatibility between individual rationality and collective rationality, and the unity between short-run rationality and long-run rationality. We are supposed to internalize the external costs to achieve this goal. Institution, ecological environment and sustainability can be converted from exogenous variables into endogenous variables, and then transaction costs, environmental costs and intergenerational costs are converted from external costs into internal costs accordingly, and become the integral part of "full cost of international trade". In the formation of the above costs, the status and role of the government can be reflected as the following aspects:the government is a "night watchman" in the formation of production costs, the government is a regulator in the formation of transaction costs, the government is an adjuster in the formation of environmental costs, the government is a rye in the formation of intergenerational costs. Then, the dissertation takes "full cost shaping comparative advantage" as guiding ideology, and proposes "a fundamental principle" and "four specific strategies" on how to participate in the international division of labor and international trade for China. "A fundamental principle" means "understanding the costs and benefits of foreign trade with system concept". "Four specific strategies" means:participating in the international division of labor rationally to seek comparative advantage based on production costs; institutional innovation working closely with other means to seek comparative advantage based on transaction costs; improving the environmental pricing mechanism gradually to seek comparative advantage based on environmental costs; adhering to the philosophy of sustainable development, to seek comparative advantage based on intergenerational costs.