trade

Capital Flows – Benefits and Disdavantages

Capital Flows – Benefits and Disdavantages

Readers Question: According to my syllabus I need to be able to evaluate the role and the benefits and disadvantages of capital inflows from MNC’s in an EU context. Could you give me a hand? Capital inflows from Multi-National Companies (MNCs) refer to inward investment from MNC into European economies. Capital flows can also involve the purchase of assets, such as property, assets and government bonds. The effect of these capital inflows involves increased levels of Investment. MNCs inject investment into the economy. This causes several benefits for the economy. 1. Increased Aggregate…

effect tariffs

Effect of US steel tariffs

What would be the impact of the US placing a tariff on the import of steel and aluminium into the US A tariff on imports of foreign steel would raise the price of imported steel and encourage US firms and consumers to buy domestically produced steel instead. At the moment, American producers find it cheaper to import steel from Canada, China and Europe so the feeling is US steel producers are losing out. Some commentators argue cheap imports and the US trade deficit is a factor behind the decline of…

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…

effect-of-tariffs

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 consumers Tariffs 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 WTO Free 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 depreciation A 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…