Factors Affecting Global Trade

Question 1

What are the factors affecting global trade?

Answer 1

• resource endowment
• locational advantage
• historical factors (e.g. colonial ties)
• trade agreements
• changes in global market
• comparative advantage
• terms of trade
• investments

Question 2

What is resource endowment + how does it effect global trade?

Answer 2

• natural occurrence of resources in a country
• it impacts international trade patterns as countries endowed w a particular resource, control + dominate world trade of that resource
• affects global inequality bc countries endowed w a lower income export product are disadvantaged bc are prone to fluctuations

Question 3

What e.g.s show how resource endowment affects global trade?

Answer 3

• Uganda, endowed w low income export products, is disadvantaged bc 80% of its exports are made up of primary agri. products, so are prone to fluctuating prices
• this led to its overproduction of coffee between 1995-2000, = a 75% dec in its export prices, dec its ability to earn foreign currency + made it harder to attain higher value imports
• OPEC, an organisation of Middle Eastern countries endowed w oil resources, excel at controlling + dominating world trade by regulating oil prices
• this makes it a high value export product + so earns lots of foreign currency used to afford high value imports, widening inequality gap

Question 4

How does locational advantage affect global trade?

Answer 4

• countries located close to target markets have proven to be advantageous for exporting countries bc it dec. transport costs
• countries located along important trade routes are also advantaged
• landlocked countries that have conflict w neighbouring countries are disadvantaged

Question 5

What e.g.s show how locational advantage affects global trade?

Answer 5

• France, located close to target markets, benefits from tourist industry bc large pop.s from neighbouring countries influx into country bc can reach it quickly + cheaply, allowing it to earn a substantial income
• Singapore is strategically located on main trade route between Indian + Pacific Ocean
• South Sudan, a landlocked country w conflict, has resulted in having no access to transport links (e.g. ports), limiting their income from exports + restricting necessary imports of resources that aren’t attainable within country

Question 6

How do historical factors affect global trade?

Answer 6

• old colonial ties (e.g. commonwealth in UK), allows strong trade links w other countries, + so countries w/o historical international relations have been hindered on share of world trade, so economically dev. much slower

Question 7

How do trade agreements affect global trade?

Answer 7

• trade blocs (groups of countries sharing trade agreements between each other), are often set in place by HICs, allowing them to continue dominating production of manufactured goods
• achieved by HICs (e.g. EU) charging higher external tariffs on imports outside bloc, which protects HICs, but disadvantages NICs/LICs bc are subject to tariffs, so limits their eco. dev + makes it harder for them to compete in world market, widening inequality gap

Question 8

How has changes in the global market affected global trade?

Answer 8

• rapid growth + dev of manufacturing sectors in NICs, due to FDI from TNCs, has lead to emerging markets (e.g. Brazil, Russia, India + China) w an inc export value, resulting in HICs having less control on global economy
• e.g. 1990: HICs controlled 64% of global economy, which fell to 52% by 2009
• e.g. apparel industry has allowed Bangladesh to trade internationally, enabling rapid eco growth, dev tech., + inc employment opps
• however, Sub-Saharan African countries don’t benefit bc are still primary product dependent + vulnerable to trade inequalities, inc inequality gap

Question 9

What is comparative advantage + how does it affect global trade?

Answer 9

• idea that countries should specialise in producing specific goods + services they’re best supplied w, to help max. production + efficiency, leading to larger profits from trade
• as countries specialise, they gain a mutual dependence for exchanging goods + services, leading to dev. of global trade networks
• e.g. Saudi Arabia has a comparative advantage in oil, + so exports oil to Japan, whilst Japan has a comparative advantage in high-tech goods, so exports these to Saudi Arabia
• however, countries w a comparative advantage in higher value goods benefit more than those in lower value goods, inc inequality gap

Question 10

What are the terms of trade + how do they affect global trade?

Answer 10

• refers to price of a country’s exports compared to price of its imports
• countries relying on low-value exports, that need higher-value imports, need to export large quantities to afford a relatively small quantity of imports
• LICs, that are primary product dependent (have low-value exports), are disadvantaged by terms of trade, so risk being in a trade deficit, making it harder for gov. to invest in education, healthcare + infrastructure

Question 11

What e.g. shows how the terms of trade affects global trade?

Answer 11

• Zambia has a main export of copper, which was in high demand between 2000-2010, resulting in growth of Zambian economy by 7%
• however, by 2011, the demand for copper sig. dec, + so the price fell, which led to Zambia having to borrow money to finance its spending on infrastructure
• this was highly damaging for Zambia bc it couldn’t cope w the sudden dec. in income

Question 12

How do investments affect global trade?

Answer 12

• amount of money TNCs invest, depends on eco, social + political stability of country, + so more stable countries receive more FDI
• TNCs are more likely to invest in NICs, which alr have an established infrastructure + low labour costs, inc trade + growth
• e.g. politically unstable Sub-Saharan African countries, which are landlocked + have poor infrastructure, don’t attract FDI from TNCs, stagnating their dev.