Patterns and volume of world trade

Define emerging economies

• Middle income countries that could become high-income countries over the next 20 or 30 years or sooner (Thailand, India)

• Move towards more modern, industrialised economy

• (BRICS)

Patterns of trade definition

• Types of goods and services countries or regions import / export, and their trading partners

• Regions are grouped together if they have similar imports/exports (Geographical - Middle East… or Level of development - developing, emerging, developed)

Reason why patterns of trade are important

These help us understand global trends (eg developing economies rely on exporting commodities and importing manufactured goods) + trends over time

What is increased volume of trade a sign of

• Increased volume of trade is a sign that a country is more involved in the globalised economy

Characteristics of emerging economies

• higher standards of living

• High rates of growth

• Increased per capita national income

• Increasing % of the workforce in manufacturing/service

How do governments encourage emerging economies

• Increase FDI

• Improve infrastructure

• Deregulate

• Modernize financial system

• Strengthen currency

Effects of emerging economies on patterns of trade

Emerging economies rely on export-led growth (improving standards of living, increases government revenue and allows purchase of more factors of production)

• Export more = encourage FDI

• FDI = reverse brain drain (bring expertise and technology)

• Improves quality = increased revenue from exports

• Wealthier = larger middle class, more imports of higher quality products

Change in comparative advantage effect on patterns of trade

• As countries develop comparative advantage in a good, they shift manufacturing to that good and trade accordingly (comparative advantage comes from factor endowments)

  • Developed economies shift manufacturing towards higher-value finished goods

  • Developing and emerging economies have comparative advantage in goods like raw materials and simple manufactured goods like clothing

• + change comes from developments in transport and communication

Growth in trading blocs and trade agreements effect on trade patterns

• Growth in trading blocs makes economy more globalised (lower trade barriers) = trade more easily according to comparative advantage

• HOWEVER growth of trading blocs may make agreements more inefficient

ALSO may not be true, EU may not trade according to comparative advantage (trade with other EU countries) as low/no trade barriers

Trading bloc definition

Groups of countries that sign agreements to reduce or remove trade barriers to make trade and movement of factors of production easier

(bilateral) trade agreement definition

Agreement between two or more countries and a trading bloc to reduce trade barreirs

Changes in protectionism effects on trade patterns

• If trade barriers removed, countries trade more (tariffs, quotas, subsidies or rules on imports that are costly)

• Trading blocs/agreements + WTO encourage removal of trade barriers

Changes in currency and exchange rates effect on trade patterns

Exchange rate impacts relative prices of exports and imports **especially against USD (as it is what oil and commodities are traded in)

• Fluctuations in short term have no effect (small + trade deals made in advance + hard to find new place to export from during fluctuations)

• Long term effects ability to import/prices of exports