international trade Flashcards
international trade
the exchange (buying, selling, importing, exporting) of goods and services across international territories characteristic of an open economy
advantages of international trade
- obtain a variety of goods/services
- obtain essential raw materials/ energy sources
- companies do it to increase sales
- increases competition
- more employment
visible imports/exports
visible goods
invisible imports
purchasing of services from abroad
eg irish people going on foreign holiday
invisible exports
irish firms selling services overseas
eg foreign tourists holidaying in Ireland
balance of payments
a record of a countrys monetary transactions with the rest of the world for a period of time usually one year
- current account
- capital account
- financial account
BOP on current account
items of a recurring nature total exports - total imports includes: -goods -services -incomes -current transfers
current transfers
subsidies and monies receivable from and taxes paid to the EU
also includes interest paid on the foreign part of national debt
irelands net factor income
negative due to large FDI multinationals and large non national population
BOP on capital account
non recurring nature
record of a countrys receipts and payments for capital items ie buildings, tech
plus:
amounts received under EU regional development fund
amount of acquisitions and disposals of non produced, non financial assets
BOP on financial account
deals with transactions in foreign financial assets and liabilities
eg
direct investment
consequences in BOP deficit
leakage of income from economy
fall in external reserves
rise in foreign borrowing
loss of jobs
consequences in BOP surplus
injection of income into economy
rise in external reserves
fall in foreign borrowing
export led jobs
deficit is not a concern when
- surpluses precede/ follow
- deficit on current account but surplus on capital account
- occurs because of exceptional, one off payments
strategies to reduce BOP deficit
imports may be restricted (tariffs, quotas)
import substitution
encourage and stimulate exports
deflationary fiscal policy (increase taxes, decrease expenditure)
law of absolute advantage
a country has an absolute advantage in the production of a good if less resources are required to make a unit of that good than is in the case in other countries
each country should specialise in the production of that good and trade for its other requirements
law of comparative advantage
a country should specialise in the production of those goods/services in which it is relatively most efficient and trade for the remainder of its requirements
how does specialisation encourage international trade
- greater efficiency in allocation of scarce resources and reducing waste
- greater independence - good relations
- increased wealth and rising aggregate demand
- economies of scale for businesses
factors affecting competitiveness of irish firms in international trade
rate of inflation in Ireland
exchange rate of euro against others
government policies
labour costs
free trade
states that there are no barriers to the movement of goods and services between countries
disadvantages of free trade
protect against low wage competition
protect domestic employment
increase gov revenue (import duties/taxes)
protect indigenous firms
protectionism
efforts by a gov to restrict free trade, particularly imports, using: tariffs quota administrative barriers trade embargo export subsidy
tariff
tax on imports
form of regulation on foreign trade to safeguard domestic industry
quota
physical limit placed by a gov on the amount of a certain good allowed to enter a country
administrative barrier
obstacles including paperwork, bureaucracy and red tape that can be offputting to companies seeking to export in that market
trade embargo
complete ban on importing a good(s) from a country or a total ban on all trade to and from a country
terms of trade
refer to the ratio between the average price of exports and the average price of imports ie what a given volume of exports will buy imports/the amount of imports that can be bought per unit of exports
specialisation
where one country is more efficient than another in the production of a particular commodity, it should produce that commodity.
this will benefit the country itself and overall world output
assumptions under law of comparative advantage
- transport costs dont exist
- law of diminishing marginal returns does not apply
- complete mobility of FOP exists
- alternate employment is available
- equal distribution of benefits occurs
sources of comparative advantage in Ireland
climate
educated and skilled workforce
low rate of corp tax
raw materials eg peat
consequences of a decrease in another currency for Ireland
cheaper imports
FDI in ireland decrease
expensive exports
loss of employment
subsidies
payments from gov/eu to domestic producers to support and encourage the production of a particular good/ reduce the producers average costs
common market
member countries agree to trade freely with each other and impose common tariffs on countries that are outside the union
allows free movement of capital/labour within union
