International Trade & Payments Flashcards
Trade ratio
Measures a countries international trade as a proportion of their GDP (High for small rich countries)
Inter-industrial trade
Imports/Exports different goods
Intra-industry trade
Imports/Exports similar goods
Benefits of international trade
- Specialisation
- Competition
- Economies of scale
- Lower prices, greater consumer choice
Reasons for protection
- Protect employment
- Aid infant industries
- Prevent unfair competition
- Protect BoP
- Raise revenue
- Maintain security
Protection reduces economic welfare of the country imposing it by:
- encouraging inefficiency
- misallocating resources
- raising the cost of living
Tariff
Financial imposition on imports
NTB
Any other means of limiting the flow of imports
Quotas
Restrictions on the quantity of imports
If tariff’s are to raise revenue
Goods with inelastic demand are to be chosen
The current a/c in the BoP is composed of
- visible trade - trade in goods.
2. invisible trade - trade in services, transfers, interest payments, profits and dividends
A deficit on the current a/c must balance with
a surplus on the capital & financial a/c’s
The capital a/c in the BoP shows
transfers of certain types of capital & financing of the acquisition of non-financial assets such as land & copyright
The financial a/c in the BoP is concerned with
transactions in external assets & liabilities such as investment abroad, moving of liquid capital etc.
Approached to correcting a current a/c deficit
- expenditure switching (designed to change relative price of imports) - depreciation of exchange rate or import controls
- expenditure reducing (designed to reduce the level of AD) - fiscal/monetary policy
