International Trade

What is international trade?

The exchange of goods and services between different countries

What is the TIGS equation?

Transfer balances + Income from investment balance + Trade in goods and services balance

What are the benefits of international trade on welfare?

Cheaper imports from developing countries so lower prices
Wider choice of products

What are the drawbacks of international trade on welfare?

Scarce resources will be lost forever and will limit the benefits for future generations

What are the benefits of international trade on economic objectives?

Boost AD due to more trade so more employment as a result
Cheaper imports and components so lower inflation rate
Possible economics of scale for MNC’s

What are the drawbacks of international trade on economic objectives?

Asymmetric current accounts
Cheaper labour competition leading to unemployment as firms relocate to countries with fewer labour laws
Global interdependence

What are the benefits of international trade on living standards?

Cheaper imports lower inflation and boost living standards
GDP per capita may rise
Fiscal dividend means welfare state is better financed
Growth means more jobs for everyone

What are the drawbacks of international trade on living standards?

Cheap competition leads to areas of country suffering mass unemployment
Cheap wage competition drives down wages

What is globalisation?

A process by which economies, societies and cultures have become integrated through the reduction in barriers to trade, transportation and the transfer of knowledge

What is foreign direct investment (FDI)?

Investment made by a firm in one country into production or a business based in another country

What is off-shoring?

Relocating a business process from one country to another

What are the four causes of globalisation?

Transportation improvements including containerisation
Incomes growing across the globe
Technology and communication
Liberalisation of markets

What is the World Trade Organisation (WTO)?

The only international organisation dealing with the global rules of trade. Its main function is to ensure that trade flows smoothly

What is migration?

The movement by people from one place to another with the intention of settling, permanently or temporarily

What is immigration?

The action of coming to live permanently in a foreign country

What is emigration?

The act of leaving one’s own country to settle permanently in another

What was the advantages for the UK of immigration?

More skilled workers, more spending in the economy

What was the disadvantages for the UK of immigration?

More job competition for UK citizens, pressure on social services, remittances sent abroad

What was the advantages for the UK of emigration?

UK citizens can get better jobs, remittances back to the UK

What was the disadvantages for the UK of emigration?

Loss of skills
If working age then it increases the dependency ratio

What is protectionism?

Describes the ways that a country seeks to gain an advantage in world trade by reducing imports. Done by increasing import barriers

What are tariff barriers?

A charge on an import into a country to increase the relative price of that product and reduce the number of imports

What are non-tariff barriers?

Additional rules and regulations put in place by a country with the purpose of making importing into that country more difficult

What are the benefits of globalisation for developed countries?

Cheaper imports, wider choice, boost AD, new markets for MNC’s, cheaper imports will lower inflation, raise GDP per capita

What are the drawbacks of globalisation for developed countries?

Use of finite resources so more negative externalities, asymmetric current accounts, cheap labour competition so unemployment, more wealth inequality

What are the benefits of globalisation for developing countries?

Knowledge transfer, fiscal dividend from growth, AD boost from exports, technology transfer from MNC’s, better infrastructure

What are the drawbacks of globalisation for developing countries?

Cultural practices disrupted, poor working conditions, use of finite resources, export dependency causes fluctuations in revenue, MNC’s might benefit most

What is the definition of an exchange rate?

The value of one currency in terms of another, how much of one currency another buys

What is appreciation?

When one currency increases in value against another so can buy more of that currency

What is depreciation?

When one currency decreases in value against another so can buy less of that currency

What are two changes in the demand for a currency?

Export demand, more exports so more demand for Sterling
Inward investment flows, more investment into the UK so more demand for Sterling

What are two changes in the supply of a currency?

Import demand, more imports so more supply of Sterling
Outward investment flows, more investment out of UK so more supply of Sterling

What is the pneumonic for a strong pound?

SPICED: strong pound, imports cheaper, exports dearer

What is the pneumonic for a weak pound?

WPIDEC: weak pound, imports dearer, exports cheaper

Who does a strong pound benefit? Why?

Consumers, imports are cheaper so save money

Who does a weak pound benefit? Why?

Producers, exports are cheaper so more demand

What is free trade?

The exchange of goods and services across national frontiers without artificial barriers. If there is free trade, there are no protectionist measures.

What is economic integration?

Refers to the process of removing the boundaries that separate economic activity in one country for that in another country

What are free trade agreements?

An agreement to remove barriers to the exchange of good and services across national frontiers. Involves removing protectionist measures.

What is a free trade area?

The region encompassing a trade bloc whose members countries have signed a free trade agreement

What are the benefits of free trade agreements?

Welfare increases as consumers can access more goods at lower prices
Economic growth leads to more employment and efficiency
Living standards raised as have access to cheaper imports

What are the drawbacks of free trade agreements?

Lower wages in response to foreign competition so welfare and living standards threatened.
Employment threats due to losing out to cheap imports

What is a Customs Union?

Removes tariffs and quotas between members and adds the same external tariff known as a common external tariff. Non-tariff barriers still exist.

What is a single market?

A Customs Union that is also trading bloc that removes non-tariff barrier

What is a Monetary Union?

The deepest form of integration in which countries share the same currency and have a common monetary policy

What are 5 features of the EU?

Free trade, movement of workers, common external tariff, free movement of goods and services, capital movement