trade

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…

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…

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Costs and benefits of globalisation

Globalisation is a complex and controversial issue. This is a look at some of the main benefits and costs associated with the greater globalisation of the world economy. Definition of Globalisation – the process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated. Globalisation has involved:Greater free trade. Greater movement of labour. Increased capital flows. The growth of multi-national companies. Increased integration of global trade cycle. Increased communication and improved transport, effectively reducing barriers between countries.Benefits of globalisation 1. Free trade Free…

The impact of falling exchange rate

The impact of falling exchange rate

A look at the economic impact of a fall in the exchange rate (termed depreciation or devaluation in the exchange rate) 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, the exports of a country will be cheaper, and imports will become more…

Mercantilism theory and examples

Mercantilism theory and examples

Mercantilism is an economic theory and practise where the government seeks to regulate the economy and trade in order to promote domestic industry – often at the expense of other countries. Mercantilism is associated with policies which restrict imports and foster domestic industries. Mercantilism stands in contrast to the theory of free trade – which argues countries economic well-being can be best improved through the reduction of tariffs and fair free trade.Mercantilism involvesRestrictions on imports – tariff barriers, quotas…

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New Trade Theory

New trade theory (NTT) suggests that a critical factor in determining international patterns of trade are the very substantial economies of scale and network effects that can occur in key industries. These economies of scale and network effects can be so significant that they outweigh the more traditional theory of comparative advantage. In some industries, two countries may have no discernible differences in opportunity cost at a particular point in time. But, if one country specialises in a particular industry then it may gain economies of scale and…

The effect of a current account surplus

The effect of a current account surplus

Readers Question: how does a current account surplus affect domestic employment? A current account surplus means an economy is exporting a greater value of goods and services than it is importing. A country with a current account surplus will have a deficit on the financial/capital account. i.e. a country with a current account surplus will have surplus foreign exchange it can use to invest in other countries. There is no hard and fast rule about what will happen if a country has a current account surplus. It depends on the…

Importance of Current Account Deficit

Importance of Current Account Deficit

Readers Question What does the size of a current account deficit / surplus say about the state of the economy? A current account deficit means that the value of goods and services imported is greater than the value of exports. A current account deficit requires capital / financial flows to finance this deficit. Despite the double dip recession of 2012, the UK has experienced a widening of its current account deficit. In particular, the UK has a large deficit in the trade in goods. Some economists argue that a large…