Trade

Question 1

The growth of world trade

Answer 1

The share of word trade by country and region

Rapid growth I’ve past 60 years

• growth in exports share of GDP
• export growth more volatile than GDP growth

Rapid growth of exports of the BRICs countries (Brazil,Russia,India,china and South Africa)

Question 2

Advantages of trade

Answer 2

The law of comparative advantage

Specialisation as the basis for trade

Absolute advantage

Comparative advantage

The guns from trade based on comparative advantage

Gains from trade also occur from :
Decreasing costs
Differences in demand 
Increased comp
Trade as an engine of growth

Question 3

Determinants of international specialisation

HO theory

Answer 3

Heckscher-ohlin theory of international trade.

• countries export goods that make intensive use of locally abundant factors
• and import goods that make intensive use of factors that are locally scarce

Problem
Most trade is between countries with similar factor endowments

Question 4

New trade theory

Answer 4

Increasing returns to scale

Agglomeration effects

• role of demand and transport costs
• the role of history

Question 5

Arguments for restricting trade

Answer 5

Strategic trade theory

• infant industry argument
• senile industry argument

To prevent establishment of a foreign based monopoly

Unfair competition
Dumping
Labour market and environmental regulations

To reduce reliance on goods with little dynamic potential

Question 6

Porter diamond : four determinants of why countries have competitive advantage

Answer 6

Available resources
Demand conditions in the home market
Strategy,structure and rivalry of firms
Related and supporting industries

Question 7

Comparative and absolute Advantage

Answer 7

Comparative is where a country can produce a good at a lower opportunity cost than another country

Absolute advantage is where a country can produce a good at a lower cost per unit than another country

Question 8

Other criticisms of trade

Answer 8

High mobility of capital, exporting of jobs, cross border supply chains

High levels of immigration,putting pressure on real wages

Highly uneven distribution of income within societies

White collar workers more likely to benefit from globalisation,blue collar more likely to lose

Mobility of labour

Question 9

Exchange rates

Answer 9

Rate at which one currency trades for another not he foreign exchange market

Question 10

Floating exchange rate

Answer 10

Set by the demand and supply for a currency at the equilibrium exchange rate

Up means appreciation down means depreciation

Question 11

Causes of depreciation

Answer 11

Fall in interest rate 
Change in inflation rate 
Rise in AD
Inward Investment less attractive 
Speculation against depreciation

Question 12

Concluding thoughts on trade

Answer 12

Is protectionism a solution
?
No cant last long

Underlying causes of the anti globalisation movement need to be addressed
Income inequality
Labour and social mobility
Healthcare and social protection

Challenges
Demographics: baby boomers are bowing out
Automation, will put further pressure on unskilled labour
Inequality can encourage nationalism
National debt