13.1. Trade Flows and Trading Patterns

Question 1

Globalisation

Answer 1

The growing interdependence of countries worldwide through an increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and through the more widespread diffusion of technology
- Evidence: Cargo ships and containerisation

Question 2

What is meant by Growing interdependence of countries

Answer 2

a network of dependence of countries on each other like a relationship between country A, B and C.

Question 3

What is meant by Increasing volume and variety of cross-border transactions in goods and services

Answer 3

increasing amount and variety of goods / services being traded with one another

Question 4

What is meant by International capital flows

Answer 4

movement of money into and out of a country for trade, investment or business production

Question 5

What is meant by Diffusion of technology

Answer 5

slow spread of technology from HICs to LICs

Question 6

International Trade

Answer 6

the exchange of capital, goods, and services across international borders or territories

Question 7

What is Capital?

Answer 7

• Financial or physical assets which can generate income, such as property or investments
• One of the factors of production, it is the stock of man-made resources used in the production of goods and services

Question 8

Visible imports and exports

Answer 8

• Actual goods that are sold to other nations;
• For example, agricultural goods, extracted minerals, oil,
  manufactured goods.

Question 9

Invisible imports & exports

Answer 9

• Services which are sold to other nations.
• For example, banking and financial services, insurance,
  construction, tourism etc

Question 10

Trade Balance

Answer 10

the difference between the monetary value of the exports and imports of a country.

Question 11

A positive trade balance is known as a

Answer 11

Trade Surplus

Question 12

A negative trade balance is known as a

Answer 12

Trade Deficit

Question 13

Would governments prefer Trade surpluses or deficits?

Answer 13

• A trade surplus is often seen as a positive thing, as there is a flow of money into a country and hence national income and employment should rise.
• However, it’s not as simple as this and some countries, notably the US, operate with a trade deficit.

Question 14

Patterns of Visible Trade around the world

Answer 14

• Dominated by North America, Western Europe and Asia
• In 2012, Asia’s share of exports of manufactured goods at 41%, Europe at 38%.
• Majority of manufactured exports go to HICs as people there can afford it more and less in LICs due to lower standards of living, smaller market with few affluent people
• In HICs, luxury goods (high-end products) would be produced so they would need to import low value goods being made in LICs / MICs like clothes (in countries who have a comparative advantage to manufacture these goods)

Question 15

Patterns of Invisible Trade around the world

Answer 15

• North America and Western Europe are the only net importers of services.
• North American trade in services dominated by receipts from royalties and license fees (18% of regional share).
• Europe’s exports of financial services accounted for 8% of regional share.
• HIgher number of exports from HICs due to high level education, development
• Headquarters of TNCs are mostly located in HICs like Europe, Japan and USA

Question 16

Factors affecting Global Trade

Answer 16

1) Resource endowment
2) Locational Advantage
3) Historical Factors
4) Trade Blocs / Free Trade
5) Changes in the global market

Question 17

Resource endowment (Factors affecting Global Trade)

Answer 17

• Countries endowed with raw materials (coal, oil, gas, spices) are more involved in trade
• Middle East countries dominate the export of oil because of their large oil reserves.
• Countries endowed with other raw materials such as food products, timber, minerals and fish also figure prominently in world trade statistics.

Question 18

Locational Advantage (Factors affecting Global Trade)

Answer 18

• Location of market demand influences trade patterns.
• It is advantageous for an exporting country to be close to the markets for its products; for example, it reduces transport costs.
• Some countries and cities are strategically located along important trade routes, giving them significant advantages in international trade.
• For example, Singapore, at the southern tip of the Malay peninsula is situated at a strategic location along the main trade route between the Indian and Pacific Oceans.

Question 19

Historical Factors (Factors affecting Global Trade)

Answer 19

• Historical relationships, often based on colonial ties, remain an important factor in global trade patterns.
• For example, the UK still maintains significant trading links with Commonwealth countries.
• Colonial expansion heralded a trading relationship
  dictated by the European countries mainly for their own benefit.
• The colonies played a subordinate role, which brought them only very limited benefits at the expense of distortion of their economies.
• The historical legacy of this trade dependency is one of the reasons why poorer tropical countries have such a limited share of world trade according to development economists.

Question 20

Trade Blocs / Free Trade (Factors affecting Global Trade)

Answer 20

• It increases the trading going on between countries.
• Almost all countries are now part of some sort of trade bloc.
• The different trade blocs around the world all have varying degrees of economic integration between member states.
• Trade blocs arguably work to the advantage of member
  states and the disadvantage of those outside them.
• Etc. The EU is an economic union so there is free trade between countries.

Question 21

Changes in the global market (Factors affecting Global Trade)

Answer 21

• The changes in the global market in the past 70 years or so are sometimes referred to as a global shift.
• The global shift is the movement of economic activity from HICs initially to MICs and more recently to LICs (especially in Asia and Latin America).
• Initially in the 1960s this was a movement of manufacturing (goods) activity, but since the 1990s, service activity has been involved.
• Foreign Direct Investment has also changed the global
  market.
• RRICS have rapidly expanding economies = emerging economies.
• Exporting more, but also more affluent populations means growing domestic demand for imported goods.

Question 22

Foreign Direct Investment (FDI)

Answer 22

• Foreign Direct Investment (FDI) is when a company from one country buys a company in another country, or expands an existing business in that country.
• FDI can improve economic growth in LIC and MIC countries through the influx of capital, advanced technology and increased productivity.
• This can increase the amount of trade for these countries.
• One criticism is that the profits from this may be repatriated to the original investing company and not benefit the LIC.

Question 23

Trade Bloc

Answer 23

• A trade bloc is a group of countries that share trade
  agreements between each other to stimulate trade.
• Since the Second World War, there have been many examples of groups of countries joining together to stimulate trade between themselves and to obtain other benefits from economic co-operation.

Question 24

Trade Tariff

Answer 24

A tax on any imports or exports into the country;

Question 25

Import Quota

Answer 25

• A limit on the quantity of a commodity or service that can be produced abroad and sold domestically.
• Quotas raise the domestic price above the world price so that domestic suppliers are better off.

Question 26

NAFTA

Answer 26

• the world’s largest free trade area, covering the United States, Canada, and Mexico.
• It was the first time that a trade bloc was established between two HICs and an LIC.