International Raw Materials Market /english/

International Raw Materials Market /english/

St-Petersburg State Technical University

The Department of Economic & Management


The Chair of World Economics 

Work on subject
«International Raw Materials Market»

The Student                                       A.E  Epechourin

Group                                  1078/2

The Tutor                                          O.G. Lebedinskaj







Trade intermediates and natural

Middle products (intermediates)

Natural resources












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]


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 resources.[2]

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

· 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 markets.[3]    

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

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

  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 à  vertical
production  structure with  many stages, which goods-in-process  or middle 
products does  à 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  à
commodity is produced in à continuum of stages, with  different
Ricardian  labor-only input structures. Depending upon technological
differences and  relative country  size, à 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 à 
specific-factors model, with  one  of  the  commodities (manufacturing) 
produced in  à 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 à
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  à  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, à 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

and Paper

Siberia         32.6

St.-Petersburg  14.2


Siberia         20.3

Urals           13.2

Moscow          12.3


Moscow          17.2

Siberia         15.7

St.-Petersburg  11.9


Moscow          22.0

Siberia         14.1

Urals           5.6


Moscow          23.6

Siberia         12.4

Volga           12.1


St.-Petersburg  20.9

Urals           19.6


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] À 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 à1 many points  in the productive spectrum in the absence of inhibiting
transport costs.

[4] This model is described in
simplified terms by Findlay (1979).

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