3.1.2 trade and growth

What is free trade?

Trading between countries without protectionist barriers such as tariffs

How does free trade affect world GDP?

It increases output through specialisation and raises living standards and economic growth

How has global trade changed since WW2?

It has increased due to trading blocs

What is trade creation?

Increased trade between members of a trading bloc due to reduced barriers

What is trade diversion?

Trade shifting away from cheaper non-members to more expensive members because of protectionist barriers

What is the role of the WTO?

To promote free trade by reducing barriers

What does the WTO regulate besides goods?

Trade in services and intellectual property rights

How many WTO members were there in 2015?

161 member states

Why have developing countries increased manufactured exports?

Lower labour costs gave them a comparative advantage

What is deindustrialisation?

Decline of manufacturing in developed countries like the UK

How has China and India’s role in trade changed?

Increased industrialisation and higher manufactured exports

Why is China becoming less wage competitive?

Ageing population and rising middle-class wages

Why do countries specialise in production?

To trade for goods and services they cannot produce efficiently

What is comparative advantage?

Ability to produce a good at a lower opportunity cost than another country

What is absolute advantage?

Ability to produce more of a good using the same resources

What is a benefit of specialisation?

Higher world output and economic welfare

How does specialisation affect costs?

It lowers average costs through competition and economies of scale

What happens to the PPF with specialisation?

It shifts outwards

What is a disadvantage of specialisation for developing countries?

Overuse of non-renewable resources

Why is reliance on one export risky?

Price falls or poor conditions can damage the whole economy

How does trade liberalisation promote growth?

By increasing efficiency

What is foreign direct investment (FDI)?

Capital flow into another country to gain a lasting business interest

How does FDI support economic growth?

Creates jobs

Why is FDI important for developing countries?

Provides funds for investment and development

How has globalisation affected capital flows?

Increased FDI

Why have capital flows increased globally?

Removal of capital controls and greater global integration