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ECONOMICS THEME 4 - TOPIC 4.1 INTERNATIONAL ECONOMICS - Coggle Diagram

- - - - can also be defined as the increasing integration of the worlds local, regional and national economies into a single international market
  - - - improvements in IT and communication
        
        trade liberalisation
        
        international and financial markets
        
        TNC's
  - - - consumers have wider choice + potentially lower prices
    - - some have gained, some have lost
      - things such as sweatshops
      - but more jobs from TNC's
    - - firms can source and sell in more countries
        
        cheaper work
        
        larger markets
    - - higher taxes from TNC's
        
        can maximise gains
    - - bad for environment (more raw materials + more emissions)
    - - increases investment in countries
        
        brings new tech and culture
        
        tax TNC's
- - - - Absolute advantage exists when a country can produce a good more cheaply in absolute terms than another country
      - Assumptions + Limitations of the theory
        
        Assumes there are no transport costs
        
        Assumes costs are constant and no EoS
        
        Goods are assumed to homogenous which is unlikely in real life
        
        Assumes factors of production are perfectly mobile, perfect knowledge and no protectionsim measures
  - - - Comparative advantage shows how it can increase global economic growth
        
        Benefit from EoS
        
        Benefit from new factors of production available worldwide
        
        Consumers have greater choice
        
        More competition = More innovation
      - Cons
        
        Can lead to overdependance
        
        Can cause structural unemployment as jobs are lost to foreign firms who are more efficient
        
        Environment will suffer
        
        Loss of culture
- - - - e.g there has been a recent growth of exports from developing to developed countries due to low labour costs giving them an advantage
    - - Emerging economies will shift the trade pattern as they begin to import and export more
    - - These increase trade between certain countries and therefore decrease it to those left out
    - - The exchange rate affects the price of goods between countries so can influence rates of trade
- - - - it is unfavourable if they decrease when export prices fall or import prices rise
  - - - In the long run, improvements in productivity will influence ToT
        
        In the long run, changing incomes will also influence ToT due to its impact on D
        
        In general, anything which affects the price of a countries imports or exports
  - - - If PED is elastic, a favourable movement would worsen the current account
        
        An improvement in ToT is likely to lead to a fall in GDP as if export prices rise, exports will fall and if imports prices fall, imports will rise
        
        However, if improvement occurs due to an increase in D for exports or deterioration occurs due to an improvement in international competitiveness, it'll be beneficial
- - - - They sign an agreement to reduce or eliminate protectionist barriers
    - - These are where tariff and other trade barriers are reduced on some, but not all goods
    - - These occur when 2 or more countries in a region agree to reduce or eliminate trade barriers on all goods between members. Each member is able to impose its own barriers on goods outside the bloc
    - - A customs union involves the removal of tariff barriers between members and the acceptance of common external tariffs against non-members
    - - First step towards full economic integration and members trade freely in all economic resources so barriers to trade in goods, capital and labour are removed. They impose common external tariffs outside the market and share common policies
    - - Two or more countries with a single currency, with an exchange rate monitored + controlled by one central bank e.g EU
  - - - Free trade encourages specialisation, this increases output according to comparative advantage
        
        Larger customer market available
        
        Firms are protected from cheaper imports
        
        Competition increases innovation
        
        More trade equals more jobs and consumers have more choice
    - - May be reduced competition as inefficient firms are driven out of the business and the market becomes oligopolistic
        
        loss of resources and increased inequality as richer countries experience faster rates of growth
        
        retaliation
        
        lessen national sovereignty
  - - - trade creation is created by joining a trade union and the diagram is the opposite of a tariff diagram as tariffs are removed
        
        trading blocs are more likely to lead to trade diversion
  - - - However, for any agreement to take place all countries must agree to it
        
        Possible conflicts with the WTO
        
        Regional trade agreements contradict WTO as a common external tariff introduces protectionism (Same with customs unions and free trade areas)
        
        Some countries argue the WTO is too powerful
- - - - Job protection
        
        protection from dumping (where a country with surplus goods sell them at a low price and harm domestic producers on those economies)
        
        protection from unfair competition (e.g countries with really low labour costs)
        
        Terms of Trade
        
        Danger of over specialisation
  - - - these are taxes placed on imported goods, making them more expensive to buy and increasing demand for domestic goods
    - - these are limits placed on the level of imports allowed into a country
    - - these are payments to domestic producers which allows them to lower their costs
    - - embargo (total ban on imported goods)
        
        import licensing (countries/firms need a license to import and gov can restrict no. of licenses
        
        legal and technical standards (some products can't be sold in the country)
        
        voluntary export restraint agreement
  - - - higher prices and less choice
    - - domestic producers benefit due to less threats from abroad
        
        however, the inability to import can increase costs of production
        
        foreign producers lose out on customers abroad
    - - little difference to employment
    - - in the SR, governments benefit from tariff revenues
    - - The imposition of import controls results in deadweight welfare loss
        
        trade wars
    - - has a regressive effect on the distribution as the lower incomes, who can't afford prices increasing are most effected
- - - - split into...
        
        trade in goods
        
        trade in services
        
        income + current transfers
    - - Capital - unimportant as it records transfers of immigrants and emigrants taking money abroad or back to UK
        
        Financial - split into 3 main parts...
        
        FDI (flow of money to purchase part of a foreign firm)
        
        Portfolio investments (same as FDI but purchasing less than 10% of the firm)
        
        Other investments
  - - - high levels of consumer demand that domestic suppliers can't cover
        
        strong exchange rate which makes imports cheaper leading to over expenditure
        
        a high level of relative inflation will decrease exports as they're more expensive
    - - As a country loses it's comparative advantage people will buy elsewhere
    - - Lack of capital investment (older and out of date tech reduces productivity)
        
        Deindustrialisation
        
        If a country has large amounts of natural resources (e.g saudi arabia has oil) they'll tend to have a surplus
        
        corruption
  - - - Monetary or fiscal can be used to reduce AD which reduces imports
        
        however, it's only short term and limits the economies output
    - - range of measures to improve productivity and efficiency (competition policy, improving labour or infrastructure)
        
        focus on where the country has a real comparative advantage
    - - Tariffs or quotas will reduce imports but can cause trade wars and incur consequences from WTO
        
        Control inflation but this will lead to fall in demand for domestic goods
        
        Depreciate the pound to make exports cheaper but this won't always work (marshall lerner curve) and this isn't feasible for countries with floating ER
- - - - the purchasing power of a currency in terms of what it can buy of other currencies
  - - - So factors that influence demand for the £ (e.g british goods demand, investment into UK, british banks)
        
        Also factors influencing supply of £ (e.g british firms investing abroad, british people holidaying, holding money in foreign banks)
        
        so overall, level exports + imports, level of investment, holidaying and speculation (e.g fear the fall in the pound so they buy other currency)
  - - - the Marshall-Lerner condition states that PED of imports + exports must be elastic if currency devaluation is to work
      - the J-curve shows how the current account will worsen before it improves
    - - A weaker ER will increase exports and decrease imports, leading to an increase in AD which would increase employment and economic growth
- - - - Relative export prices - The price of UK exports compared to the exports of UK's main trading partners