4.1 Benefits of International Trade Questionbank

Iran, officially the Islamic Republic of Iran, is located in Western Asia. It has the second-largest natural gas supply and the fourth-largest proven oil reserves in the world. The economy is heavily reliant on oil exports, which are a major source of government revenue. Although Iran has some diversified sectors, persistent inflation, currency fluctuations, and international sanctions have impacted economic performance.

In recent years, Iran has experienced fluctuating real GDP growth rates. The government collects tax revenue through a progressive personal income tax system as well as a flat corporate tax rate. A value added tax (VAT) applies to most goods and services.

Table 1: Real GDP of Iran (2019–2022, approximate figures)

Table 2: Saffron Market Data in Iran (annual production and demand, approximate figures)

Table 3: Selected Tax Rates in Iran

Additional information:

• The Gini coefficient in Iran is approximately 0.42.
• The government is planning an infrastructure spending program of US$2 billion. Economists estimate the marginal propensity to consume (MPC) is 0.75.
• Iran relies on export revenues from oil, but saffron is also an important export product.

Fiji is an archipelago located in the South Pacific, known for its thriving tourism industry and longstanding sugar sector. Tourism directly and indirectly accounts for nearly 38% of Fiji’s gross domestic product (GDP), making it one of the country’s main sources of foreign exchange. The island nation receives over 800 000 international visitors in a normal (non-pandemic) year, with most tourists arriving from Australia and New Zealand. However, dependence on tourism also makes Fiji vulnerable to external shocks such as global economic downturns or natural disasters.

The sugar industry is the second-largest contributor to Fiji’s export earnings, employing workers in growing, harvesting, and processing sugarcane. Due to changing weather patterns and competition from other sugar-producing nations, sugar production in Fiji faces challenges in expanding supply. In an effort to diversify government revenue, Fiji applies a 9% value added tax (VAT) on domestic sugar sales.

In 2022, the Fijian government announced a 200 million FJD infrastructure investment program aimed at improving rural roads, upgrading port facilities, and modernizing sugar processing plants. Economists estimate Fiji’s marginal propensity to consume (MPC) at 0.75, suggesting a potentially significant boost to aggregate demand if the infrastructure spending is effectively implemented.

Table 1: Key Macroeconomic Indicators for Fiji (2019–2020)

Table 2: Sugar Market Data in Fiji

Additional Information

• Fiji’s VAT on sugar is 9%.
• The government’s total planned infrastructure investment in 2022 is 200 million FJD.
• Economists estimate Fiji’s MPC = 0.75.
• Corporate tax rate is 20%.
• Personal income tax is a progressive system up to 20%.

Greenland, an autonomous territory of Denmark, is the world’s largest island with a population of about 56000 people. The economy relies heavily on fisheries (accounting for more than 90% of Greenland’s total exports), public sector services financed through grants from Denmark, and (increasingly) tourism. Recent explorations suggest that Greenland has untapped reserves of minerals and rare earth elements. However, high infrastructure costs and environmental considerations pose challenges to diversification.

Real GDP growth has been volatile due to changes in global demand for fish products and fluctuations in fish prices, while the population faces income inequality concerns. Recent debates in Greenland’s Parliament (Inatsisartut) focus on reforms to taxation and public spending, seeking to foster inclusive economic growth and reduce income disparities.

Table 1: Key Macroeconomic Indicators of Greenland (2018–2021)

Table 2: Fish Exports Data (2019–2021)

Table 3: Income Distribution and Taxation(2021)

Figure 1: Simplified market for Greenlandic Halibut (2021)

Prices are measured in DKK per tonne. Demand (D) and supply (S) represent domestic demand and supply. Pw1 is the initial world price of 28 000 DKK per tonne, while Pw2 is a possible world price of 30 000 DKK per tonne.

Overvaluation of the NZD

New Zealand’s strong economic performance has led to a surge in the value of its currency, the New Zealand dollar (NZD). The finance minister has expressed concern that the NZD is overvalued by 10–15%, potentially impacting the country’s export sector by making its goods and services more expensive for foreign buyers.

Despite the strong currency, New Zealand’s export sector has demonstrated resilience, adapting to the challenging environment. However, the Reserve Bank of New Zealand (RBNZ) has taken steps to curb inflationary pressures and maintain economic stability. The central bank has raised interest rates four times this year, reaching 3.5%. This tightening of monetary policy aims to keep inflation expectations in check and ensure sustainable economic expansion.

New Zealand’s economy is projected to grow at a robust 3.7% in 2014. The country has also achieved a trade surplus, driven by strong global demand for its dairy products. However, recent declines in dairy prices have moderated export growth, as New Zealand’s dairy exports are a key contributor to the economy.

To address the overvalued currency, the central bank may consider intervening in the foreign exchange market to induce a depreciation of the NZD. A weaker NZD would boost exports by making them more competitive internationally and reduce inflationary pressures caused by expensive imports. By carefully managing monetary policy, the Reserve Bank aims to strike a balance between supporting economic growth and maintaining price stability.

The NZD had been near its record high against the US dollar before weakening last week due to slower inflation figures and a fall in dairy prices. The NZD has gained about 6% so far this year.

An economist recently suggested that the central bank might intervene in the currency market to prevent further appreciation of the NZD.

New Zealand government figures showed a monthly trade (goods) surplus of NZD 247 million in June 2014, compared to NZD 371 million in June 2013. The annual trade (goods) balance shifted to a surplus of NZD 1.2 billion from a deficit of NZD 819 million a year earlier.

Global demand for New Zealand dairy products has been a key support for exports over the past 18 months, though prices have dropped this year due to an increase in global supply.

Table 1: New Zealand’s Trade Data

Table 2: NZD Exchange Rate and Dairy Price Index

Current account deficit poses a challenge to Pakistan’s economy

Pakistan’s president has raised concerns about the increasing current account deficit, which grew to USD 12.12 billion in 2016/17 from USD 4.86 billion in 2015/16. This deficit is driven by rising imports and declining exports. Due to low prices of the imported goods in foreign markets, the president has proposed restricting the import of luxury, non-essential goods through quotas, aiming to mitigate the issue and reduce dependence on external borrowing.

The governor of Pakistan’s central bank supports the president’s concern, emphasizing that excessive non-essential imports contribute to the deficit and require borrowing from abroad. However, he noted that 32% of imports consist of capital goods essential for the growth of small and medium enterprises (SMEs), agriculture, and construction.

Central bank advisors have suggested depreciating the rupee to address the trade deficit. The currency operates under a managed exchange rate system and is estimated to be overvalued by 20%. However, the central bank governor warns of the negative effects of depreciation, such as higher inflation.

Pakistan’s economic growth reached 5.3% in 2016, its highest in a decade, with an estimated increase to 6% in 2017. The government believes that boosting SME loans from 7-8% to 15-17% of total business loans will further enhance economic growth.

In addition to the current account deficit, fiscal policy decisions have led to a budget deficit, increasing public debt to 62% of GDP in 2016. The central bank recommends limiting public debt to 60% of GDP.

Table 1: Pakistan’s Current Account Data

Table 2: Key Economic Indicators

Northland Free Trade Agreement

Northland is a landlocked developing country of 5 million people. Despite agriculture employing 60% of the labor force, the sector contributes only 25% to GDP, highlighting significant productivity challenges. The country's trade profile reflects this economic structure, with exports concentrated in primary products like coffee, tea, and textiles, while relying heavily on imports of machinery, oil, and processed foods, resulting in a persistent annual trade deficit of $1 billion.

In response to growing concerns about import dependency and the need to protect domestic industries, Northland's government initially implemented substantial tariffs on processed food imports. This protection policy aimed to nurture local food processing capabilities and reduce the trade deficit. However, while these measures provided some shelter for domestic producers, they also resulted in higher consumer prices and limited market competition.

Recently, Northland has taken a significant step by signing a free trade agreement (FTA) with a neighboring country, marking a shift from protectionist policies toward regional integration. This move presents both opportunities and challenges: while it promises improved market access for Northland's exports and potential technology transfer through increased regional trade, it also exposes local producers to stronger competition. However, to maintain domestic standards of living in face of fear of machinery replacing jobs, the Northland's government has imposed a minimum wage. The success of these policy shifts will largely depend on how well Northland's agricultural sector can adapt to new market pressures while leveraging its traditional export strengths.

Table 1: Northland's Trade Data Before and After FTA

Table 2: Price Elasticities of Demand for Northland’s Key Exports and Imports

Cuba is an island nation in the Caribbean with a long history of state-led economic policies and a continued trade embargo imposed by the United States since 1960. The Cuban economy is heavily dependent on two key sectors: sugar and tourism. Sugar has traditionally been Cuba’s largest export, accounting for over 70% of export revenues, although inefficiencies and outdated technology have constrained growth in output. Meanwhile, tourism has become an increasingly important source of foreign exchange, representing nearly 24% of the nation’s gross domestic product (GDP). However, environmental concerns have arisen from rapid growth in visitor arrivals, including water pollution and congestion in popular coastal areas.

Cuba’s real GDP grew modestly from 2021 to 2022, although high inflation and global supply chain disruptions presented serious challenges. The government has attempted some economic reforms, including allowing limited private enterprise and trying to attract modest amounts of foreign direct investment (FDI). Nevertheless, significant barriers to trade remain in place due to the decades-long embargo, as do restrictions on access to many imported goods.

The Cuban government operates a progressive tax system to finance public healthcare, education, and subsidized food programmes. Alongside this, it has announced a new subsidy plan to boost sugar production and modernize processing facilities. Policymakers hope that these measures will generate both export revenues and improved economic prospects.

Below are selected data from the Cuban economy:

Table 1: Key Macroeconomic Indicators for Cuba (2021–2022)

Table 2: Demand for Sugar in Cuba

Table 3: Tourism in Cuba

Table 4: Selected Cuban Tax Rates