International trade and Business growth Flashcards
What is international trade?
Occurs when a firm either buys goods or services from an overseas business sells a product to an overseas buyer
Logic behind foreign trade: International specialisation
- countries trade with each other because they want the benefits that can come from specialising in certain types of production
- years ago countries sought self-efficiency- but that can generate a low standard of living because it can be wasteful and inefficient
- the UK economy should specialise and focus on producing efficiently
Benefits of international trade for businesses and economies include:
- export revenues and jobs help to reduce poverty
- low prices for consumer as markets are more competitive
- technology is spread, raising productivity
- knowledge and skills cross borders
- EOS- causing lower unit costs and prices
Drawbacks of international trade:
- transport costs e.g emissions
- rising inequality- uneven gains from trade
- pressure on wages and working conditions
- rising from global (external) shocks
What are exports?
Goods and services produced by one country are sold to another country
What are imports?
Goods and services brought into one country from another
Importance of specialisation for international trade
Why are some countries better at producing certain goods or services than others?
1) Relative opportunity cost of production for a good or service is lower than in another country
2) Another country is relatively more productively efficient than another
International trade and specialisation
country chooses to specialise in x depends on: - commodities/ natural resources - growing markets - labour skills
Impact of specialisation
- sell “x” to another country- gains revenue- injection of capital in the economy
- good quality- lower cots per unit
Why is specialisation important?
- gains trade- greater choice
- leads to competitive advantage
- increase efficiency and productivity
Drawbacks of specialisation
- trade barriers- add a cost/ limit
- exchange rates
- cultural differences/ language barriers
- transport costs
What is FDI?
Investment from one country into another that involves establishing operations or acquiring tangible assets, including stakes in other businesses
What is inward FDI?
When foreign capital is invested in local resources
What is outward FDI?
also called “direct investment abroad”, is backed by the government against all associated risk
How FDI impacts MNCs? +
- benefit from cheaper labour- impact costs, therefore profitability
- benefit from resources/ expertise countries specialise in
- operating within new target market- widening target market and trade barriers
- reduces threat of competition
