4.1.2 International trade and business growth

Question 1

What is international trade

Answer 1

The exchange of goods and services
Trade doesn’t take place between countries it takes place between the economic agents of that country, such as businesses, governments or consumers
When conditions are right international trade brings benefits to all involved and it can be a powerful driver for sustained GDP growth, employment, rising living standards

Question 2

Benefits of international trade

Answer 2

+ export helps reduce poverty
+ low prices for consumer as markets are more competitive
+ technology is spread raising productivity
+ knowledge and skills cross borders
+ economies of scale - lower unit costs and prices
+ better use of scare resources

Question 3

Potential drawbacks of international trade

Answer 3

Transport costs e.g emissions
Negative externalise from production and communication
Structural unemployment as patterns of trade change
Rising inequality - uneven gains from trade
Pressure on wages and working conditions
Risks from global external shocks

Question 4

Exports and imports - what are they

Answer 4

Exports = Exports arise as a function of international trade whereby goods and services produced in one country are sold to another
Imports = Opposite - imports are goods or services brought into one country from another

Question 5

The importance of specialisation

Answer 5

Why some countries are better at producing certain goods or services than others
- relative opportunity cost of production for a good or service is lower than in another country
- A country is relatively more productively efficient than another
Specialise in goods and services business is relatively good at

If country specialises total economic output can be increased across global economy
Nations at a lower stage of development tend to have fewer capabilities - narrow range
Countries specialising - e.g. Zambia + Chile = Copper mining, Bangladesh - Textiles

Question 6

Foreign Direct Investment - FDI

Answer 6

FDI = investment from one country to another 
Inward = foreign firm invest to open new stores in UK
Outward = UK business takes over firm in another country 

Reasons why businesses engage in FDI - 
Take advantage of lower labour costs
Operate closer to sources of raw material and other supplies rather than transport
Avoid protectionist measures
Support a strategy of market development

Question 7

Specialisation advantages and disadvantages

Answer 7

Advantages
+ Higher quality products - high customer satisfaction - increased brand loyalty
+ Economies of scale by producing same product on larger scale - improved profit margins

Disadvantages

• Dependence on one product line and revenue stream - lack of collateral or resilience in external shocks or decline in sales
• Knock on effect to rest of the company - higher unemployment in other industries - less purchasing power for consumers

Question 8

Advantages of FDI

Answer 8

+ Creates jobs resulting in higher household incomes
+ Higher government tax revenue to provide more subsidies and grants for businesses
+ Businesses can invest in infrastructure to lower transport costs
+ Businesses bring technology and innovation to the country to encourage research and development

Question 9

Issues of FDI

Answer 9

• High initial costs of moving and setting up
• Businesses may have their own workers or have capital intensive systems so new jobs won’t be created
• Tax revenue may be lower due to MNC having too much power