4.1 International economics Flashcards
Globalisation
An expansion of world trade in goods and services leading to greater international interdependence.
Interdependence
When countries become reliant on each other. Their economies are closely linked through trade, production, finance and migration.
Containerisation
Technology of massive ship containers to transport goods. A cause of globalisation through lowering transport costs.
ICT
Information and Communications Technology (Internet) which has reduced the cost of communication and to almost zero.
Specialisation
When a person, firm or country concentrates on doing one thing.
Absolute advantage
The ability to produce a good or service at a lower cost or with fewer resources than your competitors.
Comparative advantage
The ability to produce a good or service at a lower opportunity cost than your competitors.
Balance of Payments
(B of P)
A set of accounts showing the transactions between residents of a country and the rest of the world – sets out exports, imports and flows of money. The Balance of Payments has two parts – the Current Account, and the Capital or Financial Account.
Current Account
a) the value imports and the value of exports of goods and services b) net income payments received from/paid to abroad and c) government transfers (international aid to developing countries or money we pay to the EU).
Financial/Capital Account
Financial Account includes any trade of Foreign Exchange reserves as well as the buying and selling of assets held in different countries. If the current account is a deficit, the financial account will be a surplus.
Balance of Trade
Value of Exports minus the value of imports of physical goods as well as invisible services.
Global imbalances
The spread of trade balances is very unequal – Britain & the USA are running huge current account deficits whilst China, Russia, Germany and middle eastern oil states are running massive surpluses.
Trading bloc
A group of countries who agree some level of Free Trade (international trade without restrictions) between them.
Free Trade Area
A group of countries who abolish tariffs and quotas to allow the free movement of goods between them. The North American Free Trade Area (NAFTA) is a good example – including the USA, Canada and Mexico.
Common (or single) Market
A Free Trade Area which also has free movement of services and factors of production (land, labour, capital, profits) between members, using harmonised rules. Example: The EU.
Customs Union
A Free Trade area or Customs Union with a common external trade policy – all the countries have the same tariffs against external countries outside the bloc. Example: The EU.
Single Currency area
A trading bloc which adopts a single currency between nations in order to encourage price transparency and increase trade.
The European Union
The World’s largest trading bloc – a single market and customs Union for 27 nations (including the UK till 2019). Also contains a large single currency area.
The Eurozone
The single currency area within the EU. Contains 18 countries.
The WTO
The World trade Organisation. International organisation founded in 1995 to encourage free trade between its members and handle trade disputes between them.
GATT
General Agreement on Tariff and Trade. The predecessor to the WTO.
Protectionism
When countries try to reduce the amount of imports they receive. This could be to protect their own industries or workers. The main methods are Tariffs, Quotas and regulations.
Tariffs
Indirect taxes on imports
Quotas
A physical limit on the amount of imports allowed.
Regulations or non-tariff barriers
Rules and regulations which have been deigned to raise the cost of imports or deter foreign firms from exporting to your country.
Floating exchange rates
Exchange rates determined by Supply and Demand for your currency. This depends on speculative flows, long-term competitiveness/demand for your exports, relative inflation and relative interest rates.
Fixed exchange rates
Currencies’ exchange rates are fixed against each other to provide stability for trade, to help control inflation, or to draw the economies closer together. Examples are the Exchanges Rate Mechanism (ERM) and the Gold Standard.
Managed exchange rates
Where the Government or Central Bank intervenes in the currency markets to manage the exchange rate by buying and selling currency.
Appreciation
When a floating currency rises in value.
Depreciation
When a floating currency falls in value.
Revaluation
When a fixed currency gets set at a stronger value.
Devaluation
When a fixed currency gets set at a weaker value, of the fix is abandoned and the currency falls.
International competitiveness
The ability of companies in your country to successfully compete with companies from other countries.
Productivity
Output per factor of production/input - the amount you get out for the stuff you put in. Labour productivity= output per worker for example. Higher productivity raises the LRAS & international competitiveness.
Relative Unit Labour Costs
Average cost of an hour of labour compared to other countries.
Relative export prices
Average cost of exports compared to exports from another country.
Terms of Trade
Ratio of export prices to import prices. Tells you what value of exports you need to ‘pay for’ a given value of imports. Stronger terms of trade imply greater competitiveness.
Innovation
Creative process of finding new ways to do things or to make things, including new technologies. Increases productivity/competitiveness.
Research and Development
Spending by firms/Government on science and technology designed to create new products or find better ways of doing things (innovation).
