trade

Is globalisation irreversible?

Is globalisation irreversible?

Globalisation refers to the increased integration of the world economy. The process of globalisation involves increased trade, greater mobility of labour and capital and the increased interdependence of national economies.There are many aspects of globalisation that are irreversible. Improvement in transport and communication. Air travel has made it easier for people to travel around the world. This is likely to continue to grow over the coming decades. Potential new technology has included air travel which involves entering into space altitudes…

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Balance of payments and Terms of Trade

How can a change in the terms of trade affect the balance of payments ? How can a change in the balance of trade affect the terms of payments ? The terms of trade is the index of export prices divided by index of import prices (*100)The current account balance of payments is primarily composed of this balance of trade (but also includes investment incomes and transfers) How terms of trade affects the balance of trade (current account) An improvement in the terms…

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Benefits and costs of tariffs

Readers Question: what are the benefits and costs of a tariff on consumers, producers, employment levels and the government? The effect of tariffs on consumersTariffs increase the cost of imports, leading to higher prices (P1 to P2) for consumers and a decline in consumer surplus. For example, UK consumers have lost out from EU wide tariffs on agricultural products. Many agricultural goods are more expensive because of the high tariffs placed to protect EU farmers. It is hard to think of any…

Criticisms of WTO

Criticisms of WTO

The World Trade Organisation (WTO) is committed to improving free trade amongst its member countries. However, its role has been controversial –  creating polarised views. These are some of the criticisms of the WTOFree Trade benefits developed countries more than developing countries. It is argued, developing countries need some trade protection to be able to develop new industries; this is important to be able to diversify the economy. It is known as the infant industry argument. Many developed economies used a degree of tariff protection in their development…

Devaluation and Depreciation Definition

Devaluation and Depreciation Definition

Definition of devaluation and depreciationA devaluation occurs when a country makes a conscious decision to lower its exchange rate in a fixed or semi-fixed exchange rate. A depreciation is when there is a fall in the value of a currency in a floating exchange rate.In general, everyday use, devaluation and depreciation are often used interchangeably. They both have the same effect. – A fall in the value of the currency which makes imports more expensive, and exports more competitive.In…

The importance of international trade

The importance of international trade

International trade between different countries is an important factor in raising living standards, providing employment and enabling consumers to enjoy a greater variety of goods. International trade has occurred since the earliest civilisations began trading, but in recent years international trade has become increasingly important with a larger share of GDP devoted to exports and imports.World Bank stats show how world exports as a % of GDP have increased from 12% in 1960 to around 30% in 2015. With an increased…

The impact of a falling exchange rate

The impact of a falling exchange rate

A look at the economic impact of a fall in the exchange rate (termed depreciation or devaluation)  Readers Question: When exchange rate goes down, what positive thing can happen? A fall in the exchange rate is known as a depreciation in the exchange rate (or devaluation in a fixed exchange rate system). It means the currency is worth less compared to other countries.When there is a depreciation, and the exchange rate goes down,Exports will be cheaper Imports will become more expensivee.g. a depreciation of the dollar makes US exports…

Importance of exports to the economy

Importance of exports to the economy

Exports play an important role in the UK economy, influencing the level of economic growth, employment and the balance of payments. In the post-war period, lower transport costs, globalisation, economies of scale and reduced tariff barriers have all helped exports become a bigger share of national income. In 2011, exports of goods and services accounted for 19% of GDP (up from 14% in 1990). Imports accounted for 24% of GDP – indicating that we have a current account deficit.Importance of exportsEmployment. Growth in exports…