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…

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 expensive e.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 exports Employment. Growth in exports…

Costs and benefits of globalisation

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.

New Trade Theory

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…

What caused globalisation?

What caused globalisation?

Readers Question: Evaluate the significance of the factors which have contributed to globalisation. Globalisation is not a new phenomenon. The world economy has become increasingly interdependent for a long time. However, in recent decades the process of globalisation has accelerated; this is due to a variety of factors, but important ones include improved trade, increased labour and capital mobility and improved technology. Main reasons that have caused globalisation Improved transport, making global travel easier. For example, there has been a rapid growth in air-travel, enabling greater movement of people and goods…

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, increase stocks of gold and protects 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 involves Restrictions on imports…

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…