trade, financial flows and foreign investment Flashcards
free trade
limited artificial barriers imposed by the government on the flow of goods and services
absolute advantage
when a country can produce more output with the same resources as another economy
comparative advantage
when a country has lower opportunity cost when producing a good, meaning it is a more efficient use of resources
advantages of free trade
allows for the specialisation of production - benefit from economies of scale
increased competition leads to lower prices
exchange of knowledge and ideas
more efficient allocation of resources
incentive to increase international competitiveness
overall higher world output
greater variety and purchasing power for consumers
advantages of free trade
allows for the specialisation of production - benefit from economies of scale
increased competition leads to lower prices
exchange of knowledge and ideas
more efficient allocation of resources
incentive to increase international competitiveness
overall higher world output
greater variety and purchasing power for consumers
disadvantages of free trade
infant industries struggle to compete
leads to structural unemployment in less efficient firms
more negative externalities
more dependence on imports due to the lack of diversification in economic base
may lead to dumping
WTO
monitors developments in World trade, acts as a mediator to solve disputes to ensure the stability of trade relations and encourages the reduction of trade barriers through organising trade negotiations and establishing trade agreements
IMF
aims to ensure global economic stability, as well as the stability of the international monetary system. they provide support and assistance to countries facing or potentially facing economic crises
World Bank
aims to boost the development of poorer countries by providing loans and grants to the governments of low and middle income countries, as well as influencing the macro and microeconomic policy. they provide foreign aid and loans, support for long term investment projects and dispute settlements in investment projects
UN
designed to maintain international peace and security, fight climate change, promote democracy, protect human rights and provide humanitarian aid
Organisation for Economic Cooperation and Development
makes policy recommendations to improve the economic performance of its member nations. It engages in research, consultation and coordination of economic issues to promote sustainable economic growth and development, maintain financial stability and contribute to global economic development
G20
created after the GFC to coordinate a global response to avert a depression. G20 members make up 85% of the world economy, 75% of global trade and around 66% of the global population. aim to coordinate fiscal stimulus around the world, improve supervision of global financial system, and discuss key issues in the global economy
g7
forum for coordinating global macroeconomic policy. the significance of G7 has declined recently due to the shift in the global balance of power towards emerging economies like china
trading bloc
occurs when a group of countries join together to a formal trade relationship excluding other countries. countries enter preferential trade agreements between themselves and establishing external tariffs on imports from the rest of the world
monetary union
members adopt a common currency and are run by a central bank, which implements one monetary policy
advantages of multilateral trade agreements
levels the playing field as all signatories treat each other equally
increases trade for every participant
standardised commerce regulations for all trade partners which saves companies legal costs
allows countries to negotiate trade deals with more than one country at once
makes emerging markets stronger to help developed economies over time - middle class population increases
disadvantages of multilateral trade agreements
complex, difficult and time consuming to negotiate
public often misunderstands them
some companies and regions suffer when trade borders disappear
gives competitive advantage to giant multinationals and small businesses cannot compete
advantages of bilateral trade agreements
opens markets to successful industries
increases trade between the two members
consumers benefit from lower costs
easier to negotiate than multilateral agreements
disadvantages of bilateral trade agreements
less successful companies go our of business
may trigger competing bilateral agreements
EU
a customs and monetary union (within the eurozone), a trading bloc, and multilateral FTA consisting of most of Europe. Through common trade and migration policies, the EU has increased efficiency in the allocation of resources. transactional costs are also reduced through the use of a common currency
APEC
an intergovernmental forum, comprised of 21 member economies, promoting free trade through the Asia-Pacific region. their aims include implementing common trade policies with member nations and developing mechanisms for closer trade and investment links in Asia- Pacific
NAFTA
a multilateral FTA consisting of Canada, Mexico and the US, mainly based on eliminating agricultural protection and tariffs. The benefits for the US and canada include the opportunity to increase international competitiveness by exploiting lower production costs in Mexico, and for Mexico, it gives firms greater access to export to larger markets
USMCA
in 2020, it replaced NAFTA
the new agreement focusses largely on automobile and agricultural exports, increases environmental and working regulation and incentivises more domestic production of automobiles
International trade commission found that the agreement would increase GDP by 0.35% and increase jobs by 176,000
ASEAN
regional governmental organisation made up of 10 south-east asian nations
promotes intergovernmental cooperation and facilitates economic, political, security, military, education and sociocultural integration amongst its members
represents 20% of Australia’s trade in g/s
