Globalisation, International Trade And Protectionism Flashcards
Terms of Trade
Measures the price index of exports divided by the price index of imports. It is expressed as a % so in the base year it will be 100
Equation for Terms or Trade
(X/M)x100
What does improving terms of trade mean?
Means that for every unit of exports sold it can buy more units of imported goods (SPICED)
Beneficial effect on domestic cost-push inflation
However, improving terms of trade may mean that countries may suffer in terms of falling export volumes
What does worsening terms of trade mean?
That for every unit of exports sold it can buy fewer units of imported goods
Damaging effect on domestic cost-push inflation
However, worsening terms of trade may mean that countries may gain in terms of rising exports volumes (your imports are cheaper) and improvement in balance of payments
What impact may an improvement on Terms of Trade have on the country?
Improve standard of living in a country
What impact may a worsening Terms of Trade have on the country?
May reduce living standards
What is International competitiveness?
Measures the relative cost and value of a countries exports
What factors determine international competitiveness?
- Short-run factors (low inflation and weaker exchange rate)
- Long-run factors (better education, healthcare, levels of corruption and macroeconomic environment that determine the productivity and quality of goods
What does the Marshall Lerner Condition state?
That a currency devaluation will only lead to an improvement in the balance of payments if the sum of demand elasticity for imports and exports is greater than one
If the QD for your exports and imports does not respond to the change in the exchange rate then…
…the current account of the BofP will not improve
If your exchange rate is too weak (WPIDEC)
This doesn’t necessarily mean this will improve BofP - worse off
What does the J-curve suggest?
That a trade deficit can actually worsen after currency depreciation, but get better in the long-term
The J-Curve effect what is the elasticity in the short-term?
Demand is often inelastic
The J-curve effect what is the elasticity in the long-term?
Demand becomes more elastic so the trade deficit improves overtime
What’s does the Laffer curve show?
Relationship between the tax rate and the tax revenue
The structure of the economy?
The balance between the primary, secondary and tertiary sectors within the economy
What are developing countries more reliant on?
E.g. Mozambique
Reliant on primary industries such as farming and mining than other economies
What are emerging economies more reliant on?
E.g. India
Feature a higher % of firms engaged in manufacturing (Secondary) industries than other economies
What are developed economies mainly rely upon?
E.g. UK
Dominated by their tertiary sectors and specialise more for more in service than a developing or emerging economy
Sustainable development
Is about people, better lives now and a healthy planet for future generations.
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
What is protectionism?
Occurs when countires opt to impose restrictions on imports of goods and services from abroad
What does protectionism aim to protect?
“Protect” domestic firms from foreign competition
What are tariffs?
A tax or duty that raises the price of imported products. This causes a contraction in domestic demand and an expansion in domestic supply
What are Quotas?
These are quantitative (volume) limits on the level of importa allowed into a country. E.g. maximum of 1m cars
