International Trade

Flashcards about International Trade concepts.

Role of exports in creating domestic income

Selling goods and services to the foreign economy generates employment and income for factors of production in the home economy.

Role of imports in generating income for foreigners

Imports by the foreign economy from the home economy provide employment and income for the factors of production from the foreign economy.

International Price

The goods and services exported and imported by an economy depend on its relative international price.

Domestic production

An economy produces and exports commodities in which it has an abundance of factors of production and imports commodities that call for factor proportions in the opposite direction.

Domestic prices and exchange rates

An overvalued exchange rate makes it easier for domestic consumers to buy goods and services produced in the foreign economy but more difficult for the domestic economy to export.

Tourism's impact on balance of payments

Tourism can provide valuable foreign exchange which can be used to import capital goods necessary for the economic development of the host nation.

Tourism and unemployed resources

Tourism activity can bring into 'commercial' use formerly unemployed resources from which the host economy can derive rents.

Changes in international income

When there is an increase in international incomes the export revenues of economies exporting low income elasticity commodities would realise a relative decline in export revenues.

Foreign exchange earnings from exports: Access to capital goods

When a country exports its goods and services to the international community it earns valuable foreign exchange, which it can use to purchase capital goods produced in foreign economies.

Foreign exchange earnings from exports: Access to consumer goods

An increase in export revenue earnings also allows domestic consumers to purchase foreign consumer goods and so improve their consumption welfare.

Access to capital goods leading to Increased domestic production

Constraints on the imports of capital goods are eased, as occurs when an economy has an adequate flow of export revenues, this facilitates an increase in the production of goods and services in the domestic economy.

Theory of Absolute Advantage

Nations can specialize in the production of commodities in which they have an absolute advantage and import those commodities in which they have a disadvantage. International specialization would lead to an increase in world output and all nations would benefit.

Theory of Comparative Advantage

It is beneficial for two countries to trade, although one country may be able to produce all of the items traded more cheaply than the other. Emphasis is placed on the ratio between how easily two countries can produce different kinds of goods.

Commodity terms of trade

Formula: (export price index / import price index) * 100

Methods of protection

Tariffs, quotas and other non-tariff methods

Tariffs

Tariffs are taxes on imports

Arguments for protection

The infant industry argument, employment, and food security

Arguments for trade liberalization

Access to technology, availability of cheaper goods and services, application of the Theory of Comparative Advantage

Quotas

Quotas are limits on the amount of goods that can enter a country.

Embargoes

An embargo is the most extreme form of a quota. It represents a zero import volume for a commodity.

Exchange controls

A government can require that its exporters declare all of the foreign exchange that they earn with the central bank.

Import deposit schemes

Some governments limit the amount of goods imported by requiring importers to make a deposit at the central bank before they can import goods from abroad.

Voluntary Export Restraint

An agreement between governments for one country, say country A, to limit its exports of a particular good to the other country, say country B.