International Raw Materials Market

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 resourcesAs 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