Internetional Raw Materials Market

|St-Petersburg State Technical University                         |
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|The Department of Economic & Management                          |
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|The Chair of World Economics                                     |
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|Work on subject                                                  |
|«International Raw Materials Market»                             |
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|The Student                                       A.E  Epechourin|
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|Group                                  1078/2                    |
|The Tutor                                          O.G.          |
|Lebedinskaj                                                      |
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|St-Petersburg                                                    |
|1997                                                             |


|                                                 |Pages         |
|Introduction                                     |1             |
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|Trade intermediates and natural resources        |3             |
|I.I Middle products (intermediates)              |3             |
|I.II Natural resources                           |5             |
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|Raw Materials                                    |6             |
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|Summary                                          |10            |
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|Addendum 1                                       |12            |
|                                                 |              |
|Bibliography                                     |13            |


1.  Raw  Materials  -  A  natural  of  semifinished  god  that  is  used  in
  manufacturing or processing to make some other good. Bauxite is  the  raw
  materials (ore) from which aluminum is made; aluminum is turn can be  the
  raw material from which household utensils are manufactured.[1]

2. There is another definitions from  the  subject  area  of  raw  materials
distinct from the above mentioned:

 Raw materials are products immediately extracted  from  nature  which  have
undergone a first processing through which they have become marketable  and,
consequently, a tradable commodity. Raw materials  include  all  energy  raw
materials (crude oil, natural gas, coal, uranium), metals,  semi-metals  and
industrial minerals (kaolin, graphite, sulfur,  salts,  phosphates),  rocks,
water as well as all plant and  animal  products,  whether  they  come  from
tropical  regions  (coffee,  jute,  tropical  timber)  or   from   temperate
latitudes (wheat, meat, wool, etc.).[2]
 Raw material economy: It comprises all activities which  are  part  of  the
planned  handling  of   raw   materials,   i.e.   explanation,   evaluation,
extraction, conversion into  a  tradable  product,  trade  and  forecasting.
"Planned"  here  means  economically  useful,  ecologically   and   socially
responsible activities.[2]
  Resources  are  all  natural  material  systems  which  as  such  are   no
commodities, but the intactness of which is a  basic  prerequisite  for  the
continued existence of the earth's chemical and  physical  equilibrium  and,
consequently, for the survival of  mankind.  Resources  include:  the  ozone
balance, the CO2  balance,  the  equilibrium  of  sea  water,  the  tropical
forest, the krill and fish population, etc.[2]
 World resource balances are  the  planned  (i.e.  ecologically  useful  and
socially  responsible)  handling   of   resources.   This   comprises:   the
explanation, evaluation, risk assessment  and  forecasting  regarding  world

                        Current research emphasis [2]

 international raw material balances
 supply problems of the industrial countries
 location disadvantages of the developing countries
 dumping problems in international raw material trade
 recycling as a source for raw materials
 raw material deposits and connected environmental problems in east  Siberia
(addendum 1)
 structural questions and environmental problems of the  Polish  energy  and
metal economy[2]

                I. Trade intermediates and natural resources

      Once international trade in more than final consumer goods is allowed,
basic notions of comparative advantage  need  to  be  re-examined.  We  have
already discussed the limitations in a  multi-commodity  word  of  comparing
autarky prices in two countries  to  predict  item-by-item  the  pattern  of
trade; generally only correlations  can  be  made  except  under  additional
assumptions.  With  trade  in  intermediates  allowed,   the   problems   in
predicting trade in final goods became even  greater.  As  MakKenzie  (1945)
remarked in one of his classic problem on the Ricardian model, the  familiar
nineteenth century trade pattern in which Lancashire produced and   exported
cotton textiles would most probably not have been observed if  England   had
had to grow its own cotton [1]. We shall have occasion both in this  section
and to revert to this theme: the pattern of trade in final goods may not  be
readily deducible from the comparison of pre-trade relative prices in  these

                     I.I Middle products (intermediates)

      The phrase «middle-products» was used by Sanyal and  Jones  (1982)  to
encompass what traditionally are referred to as intermediate  goods,  goods-
in-process, and natural resources which have  been  extracted  and  prepared
for trade on world markets. The core concept in their model  is  that  of  a
productive spectrum whereby, at initial stages, natural  resources  and  raw
materials are processed and,  in  the  final  stages,  goods-in-process  and
intermediate  products  are  locally  assembled  for  national  consumption.
International trade, according to this view,  takes  place  in  commodities,
somewhere in  the  «middle»  of  this  productive  spectrum,  freeing  up  a
nation’s input requirements in the  final  stages  of  production  from  its
output tradeable middle products at earlier stages.[3]

      Such a view of the role of  international  trade  suggests  a  natural
division between  that  part  of  the  economy  which  produces  commodities
(middle products) for  the  world  market  (including  the  local  economy),
called the Input Tier, and that section of the economy which  makes  use  of
internationally traded middle products as input along with  local  resources
to produce none-trade goods for final consumption (the Output  Tier).  Ruled
out by assumption in the simple version on this model  is  the  notion  that
the «middle» stages of the productive  spectrum  might  be  «thick»  in  the
sense that tradeable  middle  products  might  use  other  tradeable  middle
products as inputs. In addition, in production structure  in  each  tier  of
the economy as assumed to  resemble  that  of  the  specific-factors  model.
Labor is mobile both among sectors in  each  tier  and  between  tiers.  The
balance of payments provides an additional link between the  two  tiers;  if
the trade account is balanced, the value of  total  output  from  the  Input
Tier of the economy is matched by the  value  of  middle  products  used  as
inputs (along with labour) in the Output Tier.[3]

      Several types of questions have been raised in  the  context  on  this
model, and of central concern in each  case  is  the  allocation  of  labour
between tiers and the real wage. Fore  example,  a  transfer  payment  which
gives rise to a trade surplus requires  labour  to  be  reallocated  to  the
Input Tier  as consumption falls, and this serves  unambiguously  to  reduce
the real wage.[3]

        If domestic (and world)  prices  of  trade  middle  products  remain
constant to the small country, all non-labour inputs in the Output Tier  can
be aggregated, a la Hicks, into a  composite  middle  product  input,  which
serves to convert the production structure in the Output Tier from an (n+1)-
factor,  n-commodity  specific-factors  model  into  a  two-factors,   many-
commodity Heckscher-Ohlin model.[3]

      In the middle-products model Input Tier is the existence  of  a  world
market in which middle  products  can  be  exchanged  for  each  other  that
permits such a conversion.[3]

      The middle-products model allows countries and sectors  to  differ  in
the extent to which local value must be added to transform  middle  products
into final commodities,  and  much  depends   upon   this   comparison.   It
does    not,   however,  focus  upon  another  question:  in   а    vertical
production  structure with  many stages, which goods-in-process   or  middle
products does  а country  import and  which does it   export?   Two   recent
papers   have   tackled   this   issue  independently   and  with  different
models.  Sanyal   (1980)  assumes   that  in   each  of   two  countries   а
commodity is produced in а continuum of stages,  with   different  Ricardian
labor-only input structures. Depending upon  technological  differences  and
relative country  size, а cut-off point   will  be   determined,  with   one
country   producing  the   commodity  from  raw  material  stage   to   some
intermediate  point, and  then  exporting   this  good-in-process   to   the
other  country  where labor  is applied  to finish  the production  process.
 By  contrast,  Dixit and  Grossman (1982)  use а   specific-factors  model,
with  one  of  the  commodities (manufacturing)  produced  in   а  continuum
of stages using capital and labor (the other sector using land  and   labor)
[2]. These  stages are arranged  such  that,  as  goods-in-process   develop
towards  the final  stage, more  labor-intensive  techniques  are  required.
Thus  with   two  countries,   the  labor-abundant  country  will  tend   to
specialize in later stages of the productive spectrum[3].[3]

      They analyze how  endowment changes  alter  the   cut-off  point,   as
well  as investigating issues related to content protection.[3]

                           I.II Natural resources

      As Chapter 8 in this volume discusses,   the  normative   question  of
pricing natural resources  (exhaustible  or  renewable)  has  received  much
attention in  the literature  of  the  past   decade.  The   middle-products
approach   stresses  that   some  activities,  the  extraction  of   natural
resources, must take place locally although international trade then  allows
other  countries   access  to   these  resources.   Obviously,   comparative
advantage  changes   over  time   for  countries   engaged   in    exporting
exhaustible resource. In  early work   Vanek  (1963)   traced  through   the
changing   pattern  of  United  States  trade  in  natural  resources,   and
suggested that asymmetries in resource use and  availability  could  account
for the Leontief paradox. In а context of multi-level trade,  the  costs  of
recourse extraction  in one  country often depend  on  the  availability  of
foreign capital. Kemp and Ohyama (1978) have  presented   а   simple   model
of  North  -  South  trade in  which South  makes use of  Northern   capital
 to  develop  its  resources  and  exports  these resources   to  the  North
where  they  are  used  to  produce  final  commodities[4]. They put   their
model to use in  exploring the  normative issue  of  different   degrees  of
bargaining strength and ability to exploit via export taxes and  tariffs  in
the two  regions.  But   the  model  also   stresses   the  involvement   of
capital  flows in  resource  extraction.   Schmitz  and  Helmberger   (1979)
argue  strongly  for  complementarity  between   trade   in   resources  and
trade in capital, а point also stressed  by Williams  in his  1929  article.
 We turn to  consider   more   generally,  now,   the  interaction   between
trade  in goods  and trade in factors.[3]

                                 Addendum 1

            Siberia is Among Leaders in Raw Materials Markets[5]

      Siberia's rating looks more impressive in some groups  of  goods  than
its 7-th general placing. Split the whole flow of commercial  projects  into
9 groups of goods, and for 6 of them Siberia joins the leading three:

Timber and Paper
I       Siberia         32.6
II      Moscow          19.1
III     St.-Petersburg  14.2

I       Siberia         20.3
II      Urals           13.2
III     Moscow          12.3

Chemical Products
I       Moscow          17.2
II      Siberia         15.7
III     St.-Petersburg  11.9

Construction Materials
I       Moscow          22.0
II      Siberia         14.1
III     Urals           5.6

I       Moscow          23.6
II      Siberia         12.4
III     Volga           12.1

I       St.-Petersburg  20.9
II      Urals           19.6
III     Siberia         11.7


1.  «The  New  Polgrave  a  dictionary  of  economic»   Editor:   J.Eatwell,
  M.Mmilgate P.Newman

2.  Chair  of  Raw  Material  Economy  and  World  Resource  Balances  Prof.
  Dr.rer.nat. E. Machens (temporary appointment)

3. «Positive Theory of International Trade» Editor: R.W. Jones,  J.P.  Neary
  (pages 31-37)

4. «The World Economy  History & Prospect» Editor: W.W Rostow (part 52  «The
  Future of the World Economy» , pages 610-618)

5. «Siberia is  Among  Leaders  in  Raw  Materials  Markets»Editors:  Alexei
  Alexeev, Andrey Kiselev

[1] In Jones (1980) a two-country Recardian model is illustrated in which
one commodity requires an intermediate input and technologies differ
between countries The pattern of trade can be reversed as a result of
variations in the price of the traded intermediate.
[2] Both papers cite the use of the continuum concept  in Dornbusch,
Fischer, and  Samuelson (1977).
[3] А limitation of both papers is the assumption that costs (or  factor
proportions)  move monotonically from lower to higher stages of production.
If not, trade may take place а1 many points  in the productive spectrum in
the absence of inhibiting transport costs.
[4] This model is described in simplified terms by Findlay (1979).