trade

International trade

is the exchange of goods and services across international boundaries

Open economy

one that engages in international trade whereas a closed economy does not

Importance of international trade to ireland

Greater standard of living/increased wealth, greater choice of commodities, more competitive prices of goods and services

Balance of international payments

is a record of a countrys monetary transitions with the rest of the world over a period of time. It deals with all inflows and outflows of funds to and from other countries

visible exports

goods sold to other countries

visible imports

goods bought from other countries

Invisible exports

services sold to other countries

Invisible imports

services bought from other countries

BOP current account

This shows the reciepts and payments for visible and invisible trade over a period of time

Bop 4 elements

balance of trade-merchandise/goods, balance of invisible trade, net factor income from abroad, net secondary income or current transfers

BOP surplus

on the current account means that the money value of imports is less than the money value of exports. A current account surplus indicates that a nation is a net lender to the rest of the world

BOP deficit

on the current account means that the money value of imports is greater than the money value of exports. A current account deficit indicates that a nation is a net borrower from the rest of the world

Implications of a bop surplus-good

Economic growth, jobs created, helps attract FDI

BOP surplus -Economic growth

a BOP surplus indicates that more money is injected into the economy than leaks from the economy

BOP surplus-Jobs created

Higher exports may result in job creation within the economy and this may curb the increase in emigration

BOP surplus-Helps attract fdi

MNCs may become aware of Irelands sucsess on foreign markets and this may encourage them to locate in ireland

Implication of a Bop surplus-bad

Bop surplus due to weak domestic demand, current acount surpluses could cause demand pull inflation-economy may grow if close to full employment can lead to demand-pull inflation

How could gov improve our BOP position

Import subsititution-gov encourage to buy irish, reduce business costs to keep ireland competitve, encourage exports

Balance of Payments on capital account

The record of capital reciepts and capital payments for a country. The inflow and outflow of items of non-reccuring expenditure

The BOP financial account

This section covers transactions in foreign financial assets and financial liabilities

National competitiveness of a country

Refers to the overall ability of enterprises in that country to compete sucsesfully in international markets

What determines irish competitveness

Inflation rates in ireland vs that of competitors, cost of production, labour market costs

Government policies to improve competitivness

Reduce national minimum wage, reduce taxation, reduce utility charges

Absolute advantage

The capability of a country to produce more of a given product using fewer factor inputs than another country

Specilisation

Takes place when an individual, firm or country produces a narrow range of goods and services and over time develops a comparative cost advantage in producing these goods and services

Law of Comparitive advantage

States that a country should speciliase in the production of those goods and services in which it is relatively most efficient and trade for the remainder of its requirements

Assumptions/Limitations of LOCA

Transport costs do not exist, free trade takes place-countries may have barriers, law of diminishing marginal returns does not apply

How does specilisation encourage trade

greater efficieny-specilase in comartive advantage maximise output allocate resources more efficiently, lower costs and prices-improves efficieny lowers prices countries may then import lower priced goods, economies of scale- greater eos may be available when producing for world market rather than domestic

exchange rates

The price of one currency in terms of another

Economic effects of euro falling in value compared to us dollar for Irish economy

Import prices more expensive, export prices cheaper and easier to sell, Us investment in ireland-less costly to purchase capital or invest

Economic effects of euro rising in value compared to us dollar for Irish economy

Imports cheaper, export more expensive, foreign investment discouraged

Factors affecting exchange rates

demand for exports-fall in demand for euros to pay for the goods, demand for imports-rise in demand leads to rise in demand for dollars to pay-rise in price of dollars then, currency speculation-speculations contribute to supply and demand of a currency

Disadvantages of international trade

Pollution from transport, imports are leakage, explotation of LDcs, over dependence on foreing markets

Protectionism

Refers to efforts by the government to restrict free trade, particularly imports

Free trade area

Member countries can trade freely without tarriffs being imposed on one another

Customs unions

More advanced than a free trade area member countries agree to trade freely with each other an impose tarriffs on countries outside the union

A common market

Member countries agree to trade freely with each other an impose common tarriffs on countries outside the union. It also allows free movement of labour and capital between members

Arguments for restricting free trade

Protecting indigenous firms/infant industries-cannot compete with worldwide companies, protect domestic employment-foreign competition may result in job losses, encourage domestic production on vital goods-do not want to be dependent on foreign for vital

Arguments against restricting free trade

firms may become over dependent on protection-no need for innovation as have advantage over foreign firms, may lead to retaliation- countries may place tarriffs, reduction in world output

Barriers to trade

tarriffs-tax on imports, quotas-limit on quantity of particular good that can be imported, embargoes-total ban on import of good

Economic benefits of fairtrade

self sufficiency-fairtrade eliminates explotation farmers incomes rise reducing poverty, improves farming practices leading to increased output

Enviromental benfits of fair trade

Producers adhere to fairtrade standards-fairtrade cover enviromental protection, training oppurtunities for sustainable farming-faitrade promote training for farmers

Social benefits of fair trade

Participants have greater control over futures,standards promote equality

Roles of world trade organization

1-trade negotiations, 2-implementation/monitoring, 3-Dispute resolution, 4-Building the trade capacity of developing countries

Fairtrade premium

Communities that produce the goods also recieve an additional sum of money to be spent locally

Fair trade minimum price

Consumers of the product know that the producer recieves a fair trade minimum price

Globilisation

is the proccess by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange

Factors leading to an increasingly globalised world

Improvements in technology, improvements in transportation and a reduction in costs, increased trade between countries

Positive impacts of globilisation

Increased economies of scale-firms can grow in size as can acsess more markets, increased job oppurtunities-global companies create jobs in both develop and undeveloped countries, innovation is encouraged-motivated to innovate due to competitive market

Negative Impacts of globilisation

Small firms may disapear-cant compete, Loss of culture-giant firms dominate domestic markets in many countries, explotation of workers-firms may move to developing countries where labour costs are lower

MNCs- Factor influencing decision to locate in another country

Access to suitably skilled labour, attractive tax rates, lower costs of production

What has attracted mncs to Ireland

Low coorporation tax-12.5%, skilled/educated workforce, Language-Only english speaking country in the Eu

Benefits of FDI to ireland

Creates employment, tax revenue-labour taxes, coorporation taxes, exports-mncs goods are exported injection

Challenges of fdi to ireland

vunerability to relocation-if move big effect on economy, hinders balanced regional development-many choose to locate in cities boosting economic devlopment while rural lose out, International reputation-eu seek to reduce profit