3.1.2 Trade and growth Flashcards
tariffs
Taxes on imported goods → protect domestic products as imports are less price competitive
trade liberalisation
Reducing barriers to trade so that economies can move gradually closer to free trade, no trade barriers at all
specialisation
Producing more of the goods and services that have a competitive advantage → can be enhanced by economies of scale
outsourcing
Buying in G/S from other businesses
supply chain management
Organising processes that lead to sale of the final product
supply chain
Sequence of processes, some that may be outsourced to different businesses
comparative advantage
If two countries specialise in the product with the lowest opportunity cost and then trade, real incomes increase for both
how has ease of trade changed
- 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
trade barriers reduction with the WTO
- 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
imposing a tariff
- 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
removal of a tariff
- Liberalisation
- Lowers prices
- Consumers standard of living - increases with more disposable income
- Firms costs decrease
imposition of a quota
- 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)
specialisation in a country
- 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
specialisation and firms
- 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
risks of specialisation
- 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
trade liberalisation and economic growth
- 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
trade liberalisation and changing supply chains
- 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
foreign direct investment and link to growth
- 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
FDI and offshoring production
- 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
governments welcoming FDI
- 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
ways to attract FDI for investment
- Lower corporation taxes
- Subsidies
- Flexible labour markets
- Investment in infrastructure
FDI is good
- 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
FDI is bad
- Inequality
- Ethical standards from MNCs may be poor
- Volatile FDI
- Monopsony power of of TNCs
- Especially bad if gov has less power than MNC