4.3.1.2 INTERNATIONAL TRADE & BUSINESS GROWTH

Business U4 INTERNATIONAL TRADE & BUSINESS GROWTH

What’s an Export?

Selling of goods/services to other countries.

What’s an Import?

Buying of goods and services from other countries.

What’s a Balance of Payments on Current Account?

BOPOCA = Exports - Imports

Factors affecting imports & exports?

• Price elasticity

• State of the world economy

• Non-price factors

• Exchange rates (SPICED)

• Competitive Advantage

BOPOCA Terms?

Deficit - Imports > Exports (because there’s 2 i’s in deficit)

Surplus - Imports < Exports

If an Import is PRICE INELASTIC, Total spending on the import will ____?

INCREASE

What is imported inflation?

Inflation brought into the economy due to the currency weakening and therefore making imports more expensive.

What can happen in the long term if imports are too expensive?

Domestic substitutes may arise.

Non-Price Factors that affect Exports

• GDP of other countries increases

• Changes in taste and fashion

• Productive capacity increases

• Product differentiation increases demand

Specialisation

• When economic units concentrate on producing specific goods or services.

• Likely to lead to increased productivity (output per worker

Benefits & Drawbacks of specialisation

• Comp adv

• Efficient use of time

• Technical economies of scale

• Overreliance

• Lack of diversification

Foreign Direct Investment

Investment made by one business/entity from one country into the production capacity of another entity from another country.

Why does FDI occur?

• Differing interest rates in different countries, businesses aim to obtain highest

• Cluster production geographically or cluster in countries close to business