4.1.2 International trade and business growth

Question 1

international trade

Answer 1

the exchange of products (goods/services)

• between economic agents of a country (businesses, governments, consumers)
• benefits to all involved = powerful driver for sustained GDP growth employment & rising living standards

Question 2

UK’s imports and exports

Answer 2

Exports:
more than half of UKs exports go to nations in EU
Switzerland = biggest export maker outside EU

Imports:
EU is biggest source of imported goods/services
for UK, China is now ahead of USA as a supplier of products

Question 3

Uk’s top export commodities

Answer 3

14% mechanical machinery 
10% cars 
8% electrical machinery 
8% pharmaceuticals 
6% crude oil 
5% scientific/photographic 
5% aircraft 
3% refined oil

Question 4

exports

Answer 4

goods or services that a firm produces in its home market but sells in a foreign market

Question 5

imports

Answer 5

goods or services brought into 1 country from another

Question 6

6 benefits from international trade

Answer 6

1-export revenues and jobs = reduce poverty
2-lower consumer prices competitive markets
3-tech is spread = raise productivity
4-knowledge/skills cross borders = capabilities & resources
5-EOS = lower units costs and prices
6-better use of scarce resources

Question 7

6 potential drawbacks of international trade

Answer 7

1-transport costs e.g emissions from food miles
2-rising inequality, uneven gains from trade
3-pressure on wages and working conditions
4-risks from global (external) shocks
5-increased competition
6-barriers to entry

Question 8

specialisation and comparative advantage (why some countries and better at producing certain goods or services than others)

Answer 8

1. relative opportunity costs of production for a good/service = lower
2. relatively more productively efficient than another

-specialise = important potential gains from specialisation and trade
e.g. Zambia/Chile = copper mining
Bangladesh = textile
Vietnam= light manufacturing assembly
Angola = crude oil
Ivory Coast = cocoa

Question 9

4 impacts of specialisation

Answer 9

1 -economic output increase - global economy
2 -competitve adv = higher prices export high tech /knowledge manufactured goods/service
3-more capabilities = produce wider range goods
4-lower development stage = fewer capabilities = export a narrower range of products

-South Korea, Japan, Germany, US, UK = all highly diversified pattern of exports

Question 10

UK patterns of trade

Answer 10

Imports: cars, vehicle parts, aircrafts, gold

exports: cars, financial services, wholesale medicine, petrol

Question 11

production possibility frontiers

Answer 11

• curve
• illustrating varying amounts of two products
• produced = both depend on the same finite resources.

-demonstrates production of 1 commodity = increase only if the production of other commodity decreases.

Question 12

absolute advantage

Answer 12

country uses fewer resources than other country to produce goods/services

Question 13

comparative advantage

Answer 13

idea countries are better off producing what they are best at producing and trade what they have left over

Question 14

FDI

Answer 14

investment from one country into another

• companies not gov
• establish ops /acquiring tangible assets, including stakes in other businesses

-global flows of FDI peaked around $3 trillion just before financial crash in 2008

1. Inward
2. Outward

Question 15

inward FDI

3 factors propelling growth of inward FDI

Answer 15

foreign capital is invested in local resources 
3 factors 
1. tax breaks
2. low interest rates
3. grants 

e.g. overseas business = build a manufacturing factory in UK (foreign retail firm invests to open new stores in UK)

Question 16

outward FDI

Answer 16

direct investment abroad
local business invests in a foreign country
backed by government against all associated risk

e.g UK business expands -overseas mkt = open new production facility (UK bus complete takeover of a bus based in another country)

Question 17

benefits of engaging with FDI
5 for MNC
5 for host country

Answer 17

for MNC:
1- lower labour costs
2-less transportation operate closer
3-avoid protectionism
4-target returns on inv buying valuable assets
5-support strategy of MD (expand global brands)

for host country:
1-high paying new jobs = increased expertise (wages/conditions)
2-new technology = create new markets
3-increase exports
4-capital inflows = higher output and jobs
5-boost GDP

Question 18

7 strategies to attract FDI

Answer 18

1-attractive corporation tax
2-tax reliefs/other subsidies
3-trade and inv agreements
4-flexible labour markets & up skilling of workers
5-create of special economic zones (SEZ)
6-inv high quality critical infrastructure e.g ports
7-low labour cost - labour intense manufacture

Question 19

4 negative impacts of FDI

Answer 19

1. large companies exploit developing country working conditions
2. developing countries = compete by reducing env regulation = attract FDI
3. competition in domestic market = foreign firms
4. profit may be taken back to home country

Question 20

special economic zones

Answer 20

area in a country

• subject to different economic regulations
• economic regulations of SEZs tend to be conducive to & attract FDI

Question 21

balance of payments

Answer 21

record of all transactions between one country and the rest of the world

surplus = exports > imports 
deficit = exports < imports