3.1.2 Trade and growth Flashcards
1
Q
tariffs
A
Taxes on imported goods → protect domestic products as imports are less price competitive
2
Q
trade liberalisation
A
Reducing barriers to trade so that economies can move gradually closer to free trade, no trade barriers at all
3
Q
specialisation
A
Producing more of the goods and services that have a competitive advantage → can be enhanced by economies of scale
4
Q
outsourcing
A
Buying in G/S from other businesses
5
Q
supply chain management
A
Organising processes that lead to sale of the final product
6
Q
supply chain
A
Sequence of processes, some that may be outsourced to different businesses
7
Q
comparative advantage
A
If two countries specialise in the product with the lowest opportunity cost and then trade, real incomes increase for both
8
Q
how has ease of trade changed
A
- Tariffs introduced to keep high demand for domestic goods → imports were more expensive in comparison
- Had same effect on their exports, so decided to altogether reduce trade barriers to make their products cheaper
- Increased economic growth and spending power
- Free trade opens up new markets
Trade negotiations between govs reduced trade barriers → gave businesses everywhere chance to develop products for international markets and expand output → TRADE LIBERALISATION
9
Q
trade barriers reduction with the WTO
A
- Aim is to oversee and regulate international trade
- 97% of world trade
- Main objective is to make smooth trade, promote free trade and encourage economic growth by reducing barriers
- Forum for trade negotiations, facilitating trade agreements
- Helps developing nations with technical matters and training programmes
- Dispute resolution for member countries with trade disagreements
BUT
- Accused of favouring rich countries at the expense of developing ones
- Some doubt tha free trade and liberalisation are the best solutions for developing nations
10
Q
imposing a tariff
A
- Tariff is tax on import
- S shifts up
- New equip at higher price
- Demand imports contracts q—>q1
- Consumers buy domestic substitutes
- It depends on Elasticity —> if something is luxury high price won’t affect demand
11
Q
removal of a tariff
A
- Liberalisation
- Lowers prices
- Consumers standard of living - increases with more disposable income
- Firms costs decrease
12
Q
imposition of a quota
A
- Limit amount of good
- New equip at higher price
- Lower quantity of imported good
- Encourage consumers to buy domestic goods
- Increase quota to allow more trade
- Shift right to led price decrease but quantity increase (remove quota)
13
Q
specialisation in a country
A
- Specialisation in a product where you have competitive advantage and exporting → can increase total output if other countries do the same
- Identify products with competive advantage
Specialise in this area
Use increased export revenue to buy cheap imports - Specialisation leads to enhances economic growth, GDP and personal incomes increase
- The link between trade and growth → higher exports increase GDP, as they increase AD as an injection
14
Q
specialisation and firms
A
- Specialisation is linked to the division of labour
- Individuals specialise and become more competent in their work
- Fewer employees are needed
- The availability of finance for investment allows firms to use the best tech available
- The productivity of both capital and labour increases
- Production costs are reduced and competitive advantages emerge
- Increases efficiency, output and economies of scale
15
Q
risks of specialisation
A
- Over reliance on one area of economy increases risk
- Comparative advantage can move elsewhere eg shipbuilding and britain → structural unemployment
- Commodity prices fluctuate and emerging economies rely on them
- Natural resources can run out
Increases overeliance on imports for other goods and services
16
Q
trade liberalisation and economic growth
A
- TL makes it easier for businesses to export → find new markets, creating opportunities to specialise and benefit from economies of scale
- Many businesses benefit if they are adaptable and accustomed to functioning in a dynamic economy, especially if they can operate efficiently
- When trade is growing, businesses with CA can expand quickly
- Some businesses find it difficult to adapt to global demand → may shrink or many be closed down
- Associated with structural change
- works best when all countries have an equal playing field
17
Q
trade liberalisation and changing supply chains
A
- B2B providers contribute to finished product in supply chain
- Chosen because they are the most efficient suppliers, having competitive advantage in whatever they supply
- Nowadays, alot of this its outsourced by offshoring
- Help cut costs and give many EE faster economic growth
- Complex supply chains rely on trade liberalisation to keep trade barriers at low levels
- Create opportunities for new businesses to grow, by minimising resource costs of production → open up new markets and spread expansion over many locations
- Supply chain management can make it easier for businesses to adapt flexibly to dynamic markets that keep on changing
18
Q
foreign direct investment and link to growth
A
- Reduction in trade barriers increases FDI as business increase factories/distribution abroad
- Much FDI flows from one developed country to another to another but increasingly, FDI is flowing into emerging and developing economies
19
Q
FDI and offshoring production
A
- FDI may be associated with the offshoring of production to countries with lower input costs or with production in foreign markets
- Eg china investment in and out of the country → eg in african countries for raw materials
- India is now powerful enough to acquire some of the world’s leading companies → Tata and Tetley, JLR, spent 15 million dolards
- Can increase FDI in a country within a coveted tradunf block like the EU to avoid paying tariffs → Britain has lost this advantage with Brexit
20
Q
governments welcoming FDI
A
- Almost all governments welcome FDI because it provides finance for investment and helps create jobs
- Especially when the country has little money for investment itself
- Not just for developing countries → Nissan and England due to unemployed skilled workers due to deindustrialisation
21
Q
ways to attract FDI for investment
A
- Lower corporation taxes
- Subsidies
- Flexible labour markets
- Investment in infrastructure
22
Q
FDI is good
A
- Infrastructure accelerator
- Higher capital intensity
- Better training for local workers, improved human capital
- Grows a countries export capacity
- More competitive in markets
- Created new jobs, increasing incomes and savings
- Even if FDI is gone, workers retain skills
23
Q
FDI is bad
A
- Inequality
- Ethical standards from MNCs may be poor
- Volatile FDI
- Monopsony power of of TNCs
- Especially bad if gov has less power than MNC
