Book 13B - Costs of trade flows, labour flows

Explain how trade flows can lead to non-inclusive growth in developed countries

• Globalisation leads to economic restructuring 

• Countries specialise in the production of the good in which they have comparative advantage and engage in free trade to promote economic growth and development AND free trade leads to the import of low-skilled labour-intensive products (demand for LSW fall) -> change in demand for different types of FOP and skills mismatch -> sunrise and sunset industry thing -> S-UN -> income inequality

Explain how trade flows can lead to vulnerability to External demand and supply shocks

• (X-M) will take up larger proportion of AD 

• As capital flower increase -> greater reliance on FDI -> FDI take up larger proportion of country’s I

Explain how trade flows can lead to -ve EG IF foreign firms undergo unfair competition

• Foreign firms may engage in unfair competition practises such as dumping to establish a monopoly in the domestic market 

  • Dumping: foreign producers sell exports at prices below MCOP -> foreign imports cheaper than domestic (with help of foreign government subsidies) 

• Domestic firms that cannot match lower prices will shut down -> If consumers switch from goods produced by domestic firms to imported goods, domestic consumption expenditure C falls -> AD falls

• When foreign firms obtained monopoly power in the future -> foreign firms will raise prices back up to profit maximising levels -> prices increase

 Explain how subsidies allow firms to dump solar panels in the EU

• Define dumping  -> describe subsides (SS increase -> surplus -> P decrease and Q increase) -> true price that producers would have to receive to produce this quantity is MC2

• HENCE, the subsidies allows firms to sell their exports at P2 is lower than their initial MCOP  of MC2 -> allowing them to dump in the EU

Draw subsidy causing dumping graph

State costs of trade flows

1. Non-inclusive growth (Developed countries)

2. Vulnerability to External demand and supply shocks

3. -ve EG and Greater UN IF foreign firms undergo unfair competition

Describe the benefit of labour flows for developed countries

1. PEG and price stability (increase quantity of labour) 

• Eased labour shortages 

• “Brain gain” 

• Counter slowing down in growth due to problem of shrinking and ageing labour force

Describe the benefits of labour flows for developing countries

1. Foreign income from remittances sent back to home country 

2. Decrease in UN-rate 

3. Acquisition of new skills and knowledge by migrants who may eventually return

4. Reduce pressure on social welfare system 

• When citizens migrate to work elsewhere, they are no longer drawing directly on the social welfare provisions of their home country

Describe costs of labour flows for developed countries

1. Non-inclusive growth and inequity 

• Great labor inflow concentrated in low-skill labour markets -> SS workers increase -> surplus -> WR falls

Describe costs of labour flows for developing countries + eval

1. -ve EG 

• As labour leaves a developing economy to seek higher wages or better SOL in developed countries -> quantity of labour falls 

• If workers are HSW -> quality of labours falls (brain drain) 

• Eval: If these migrants return to their home countries, the returning migrants bring back foreign knowledge and experience -> facilitate the transfer of foreign technologies that expands PC