Week 15 Flashcards
What is trade?
Trade is the exchange of any goods or services.
What is the aim of international trade?
The aim of international trade is to increase production and to raise the standard of living of the people. International trade helps citizens of one nation to consume and enjoy the possession of goods produced in some other nations.
What are the key concepts of international trade?
Trade (%GDP) is the sum of exports and imports of goods and services measured as a share of gross domestic product.
Increase in trade is a basic indicator of country’s
participation in global economy and global supply
chains.
Increase in exports indicate higher specialisation in
specific goods and services whereas in increase in imports indicate dependency of certain good and services from foreign countries.
What is free trade?
trade without barriers.
what is protectionism?
Protectionism can be implemented through both direct and indirect trade barriers.
Tariffs (or duties), on imports or exports – a direct barrier. A tariff is a tax imposed by one country on the goods and services imported from another country –
Non-tariff barriers, such as voluntary export restraint or
import quotas – an indirect barrier.
What are Restrictions to international trade?
Tariffs : taxes placed on imported goods;
Exchange controls: limits to the amount of a currency that can be bought, which will limit the import of goods.
Quotas: physical limitations on the import of certain goods into a country, sometimes by mutual agreement (e.g. voluntary export restraints).
Subsidies: payments made to domestic producers to reduce their costs and therefore make them more competitive on world markets.
Qualitative controls: controls on the quality of goods rather than on quantity or price.
What are balance of payments?
Balance of payments is the credit and debit transactions between a country’s residents and other countries –
The balance of payments is the record of the value of all transactions between a country’s residents and the rest of the world.
The account surplus means that the country exports more than it imports
The account deficit means that the country imports more than it exports
Trade deficits have grown significantly in some countries, such as the US,
reflecting high costs of domestic production
What are key concepts of FDI?
Foreign direct investment refers to direct investment equity flows in an economy. It is the sum of equity capital, reinvestment of earnings, and other capital.
Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree
of influence on the management of an enterprise that is resident in another economy.
FDI outflow as % of GDP shows net outflows of investment from the reporting economy to the rest of the world and is divided by GDP.
What are types of FDI?
Greenfield Investment: Establishing a new
operation from scratch in a foreign country
(e.g., building a new factory).
Mergers and Acquisitions (M&A): Acquiring or
merging with an existing foreign company.
Joint Ventures: Partnering with a local
business to create a new entity, sharing
resources, risks, and profits.
What are Risks and Challenges of FDI?
Political Risk: Changes in government policy, political instability, or expropriation can impact investments.
Cultural Differences: Understanding and adapting to local customs, business practices, and consumer behavior can be challenging.
Regulatory Hurdles: Compliance with local laws and regulations, which can vary significantly from the home country.
Economic Factors: Exchange rate fluctuations, inflation, and economic stability in the host country can affect investment returns.
Reasons for FDI?
Market Seeking: Expanding into new markets to increase sales and revenues.
Resource Seeking: Acquiring resources that are scarce or expensive in the home country, such as raw materials, labour, or technology.
Efficiency Seeking: Optimizing production and operations by capitalizing on lower costs in the host country, including labour or operational efficiencies.
Technology Seeking: To investments made by companies in foreign countries with the primary aim of acquiring new technologies, innovations, or know-how that can enhance their competitive advantage.
What does FDI Indicate?
Countries globally monitor the levels of FDI and trade they attract as indicators of their economic performance.
A significant influx of inbound FDI is viewed as a sign of economic growth and can also suggest increased competition and substantial entry barriers.
On the other hand, a rise in FDI outflows indicates that a growing number of multinational enterprises are emerging from the home economy, which
is a positive sign for both the home and host economies.
However, it can also reflect a scarcity of market opportunities domestically, prompting businesses to seek new markets abroad.
