4.1.2 International Trade and Business Risk

Question 1

Specialisation

Answer 1

When a business/country focuses on producing a particular good/service.

Question 2

Benefits and drawbacks of specialisation

Answer 2

+ Improves efficiency - workers become highly skilled.
+ Reduces cost per unit
- Overdependence on a single product
- Cost of training

Question 3

Drawbacks of international trade

Answer 3

• Transport costs.
• Negative external impacts from production and consumption.
• Rising inequality - uneven gains from trade.
• Structural unemployment.
• Pressure on wages and working conditions.

Question 4

Foreign direct investment

Answer 4

When a business with a head office in one country, sets up factories, offices etc in another country

Question 5

Types of FDI

Answer 5

Inward - Foreign capital invested in local resources.
Outward - Direct investment abroad.

Question 6

Benefits of engaging with FDI

Answer 6

+ Take advantage of lower labour costs in other countries.
+ Operate closer to sources of raw materials.
+ Avoid protectionist measures.
+ Support a strategy of market development.

Question 7

Benefits of FDI to the host country

Answer 7

+ Job creation - higher paying.
+ Technology, knowledge and skills transfer.
+ Increases exports
+ Can boost GDP (external EOS)
+ Lower prices for consumers as market is more competitive.

Question 8

Drawbacks of FDI to the host country

Answer 8

• More competition for domestic firms.
• Profits sent to home country.
• Could exploit workers.
• Negative external impacts from production and consumption.