International Economics- Theme 4 Flashcards
(115 cards)
1
Q
What are the characteristics of globalisation?
A
- increase in trade as a proportion of world GDP
- increased movements of financial capital + people between countries.
- increase international specialisation and division of labour
- growing importance of global transnational companies (TNCs)
- increase in foreign direct investment (FDI)
2
Q
Define Foreign direct investment.
A
investment made by a firm or individual in one country into business interests located in another country.
3
Q
How does a fall in transport costs contribute to globalisation?
A
In real terms price of transporting goods has decreased significantly, enabling goods to be imported and exported more cheaply.
4
Q
How does a decline in cost of communications contribute to globalisation?
A
In particular, cost of using internet has fallen greatly over the last 20 years and its availability has increased.
5
Q
How does lowering of trade barriers contribute to globalisation?
A
World trade Organization (WTO) has been responsible for negotiating reductions in tariffs and other barriers to trade in rounds of talks, the most recent of which is Doha Round.
6
Q
How does the collapse of communism and opening up of China to world trade contribute to globalisation?
A
Countries which were previously not open to FDI became more integrated into the world trading system.
7
Q
How does transnational companies contribute to globalisation?
A
They’ve taken advantage of reduction in trade barriers and development of internet to organise trade on global scale.
8
Q
How does a growth in number and size of trading blocs(regional trade agreements) contribute to globalisation?
A
Growth resulted in increased trade between member countries of these blocs.
9
Q
Impacts of globalisation and global companies on countries.
A
- free trade enables application of the law of comparative advantage, suggests that, when countries specialise in the goods in which they have comparative advantage, then world output and living standards will increase. Evidence that growth of world trade associated with increased growth in real GDP
- increased inequality within developed countries. Much manufacturing transferred to developing countries, demand for unskilled workers declined in developed countries, resulting in fall in their wages relative to those of skilled workers.
10
Q
Impacts of globalisation and global companies on governments.
A
If globalisation results in an increase in economic growth and, therefore, in incomes then governments should receive extra tax revenues. However, transfer pricing by global companies may result in lower tax revenue from corporation tax.
11
Q
Define transfer pricing.
A
When a global company manages its accounting of internal transactions within the company to show the highest profits in the country in which corporation tax is lowest.
12
Q
Impacts of globalisation and global companies on producers.
A
Benefits: lower production costs as a result of offshoring and also economies of scale.
13
Q
Impacts of globalisation and global companies on consumers.
A
Globalisation may mean a wider choice of goods. Further, prices may be lower, leading to increase in consumer surplus.
14
Q
Impacts of globalisation and global companies on workers.
A
Globalisation criticised on basis that it has promoted exploitation of workers, including use of child labour. Argued that globalisation has driven down wages as a share of GDP. Further, health and safety laws and regulations are usually less demanding in developing countries, might have detrimental effects on workforce.
15
Q
Impacts of globalisation and global companies on the environment.
A
Although industrialisation + increased consumer living standards might lead to more pollution through increased production and increased car use, consumers might show more concern towards the environment as their average incomes increase.
Some of the negative impacts on the environment could include deforestation, water scarcity and land degradation.
Increased trade leads to higher emissions from the movement of the goods.
16
Q
Define absolute advantage.
A
When a country can produce more of a product than another country.
17
Q
Define comparative advantage.
A
When a country can produce a product at a lower opportunity cost than another country, so has a relative advantage in producing that product.
18
Q
What are the assumptions underlying the theory of comparative advantage?
A
- no transport costs
- no trade barriers
- constant returns to scale I.e average cost of production is constant.
- perfect mobility of resources between different uses
- buyers/consumers have perfect knowledge.
19
Q
How are the terms of trade calculated?
A
Index of export prices/index of import prices. X 100
20
Q
What are the limitations of the principle of comparative advantage?
A
- transport costs might outweigh the benefits of comparative advantage
- trade barriers might distort comparative advantage
- increased specialisation and production might result in rising average costs caused by diseconomies of scale.
21
Q
What are the advantages of specialisation and trade?
A
- efficient resource allocation: specialisation and trade based on comparative advantage result in an efficient allocation of resources
- higher world output and, therefore, higher living standards
- lower prices and more choice for consumers
- incentive for domestic producers to become more efficient
- larger markets for firms, enabling them to benefit from economies of scale
22
Q
What are the disadvantages of specialisation and trade?
A
- law of comparative advantage based on unrealistic assumptions
- danger of over dependence on imports, especially those of strategic importance
- country’s goods and services may be uncompetitive, resulting in persistent trade deficit
- for developing economies, specialisation in production of primary products might prevent diversification into more productive manufacturing industries.
23
Q
How do changes in comparative advantage influence the pattern of trade?
A
There has been a recent growth in the exports of manufactured goods from developing countries to developed countries. This is because developing countries have gained an advantage in the production of manufactured goods, due to their lower labour costs, so production shifted abroad.
deindustrialisation of countries such as the UK has meant the manufacturing sector has declined. This means that production of manufactured goods has shifted to other countries.
24
Q
How does impact of emerging economies influence the pattern of trade?
A
collapse of communism has meant more countries, especially developing countries, are participating in world trade.
As economies emerge, they take up a larger proportion of exports, since many develop through export-led growth. They also import more, since rising incomes means that consumers demand more goods and services.
25
How does growth of trading blocs and bilateral trading agreements influence the pattern of trade?
With more trading blocs, trade has been created between members, but diverted from elsewhere. Trade creation occurs when a country consumes more imports from a low cost producer, and fewer from a high cost producer. Trade diversion occurs when trade shifts to a less efficient producer. They shift trade from one group to another.
26
Define trading blocs.
A group of countries that trade freely but protect themselves from imports from non-members.
27
How do changes in relative exchange rates influence the pattern of trade?
The exchange rate affects the relative prices of goods between countries, which is an important factor in determining whether consumers buy goods. A rise in the exchange rate of a country will decrease its exports and shift trade to another country.
28
Define terms of trade.
The average price of a country’s exports relative to the average price of its imports.
29
How does relative inflation rates influence a country’s terms of trade?
If Uk inflation rate higher than that of its trading partners then export prices will be rising relative to import prices, so causing rise in UK’s terms of trade.
30
How do changes in raw material prices influence a country’s terms of trade?
For developed country which imports most of its raw materials, a rise in imported raw material prices would cause a fall in its terms of trade
31
How do changes in exchange rates influence a country’s terms of trade?
If country’s exchange rate increases relative to those of other countries then its export prices would rise and its import prices would fall, so causing its terms of trade to increase
32
How do tariffs influence a country’s terms of trade?
If a country imposes a tariff on imported goods then this would result in a fall in the country’s terms of trade.
33
How does dependency on primary products influence a country’s terms of trade?
If a country is dependent on primary products then according to the prebisch-singer hypothesis it may find that its terms of trade decrease over time.
34
Describe the impact of changes in a county’s terms of trade on living standards.
Upward movement in terms of trade usually referred to as an ‘improvement’ because it implies that country has to export less to buy a given quantity of imports. This implies a higher standard of living for citizens of that country.
Fall in terms of trade referred to as a ‘deterioration’ because implies more must be exported to gain given quantity of exports, which, in turn, implies fall in living standards.
35
Describe the impact of changes in a country’s terms of trade on the balance of payments on current account.
Upward movement in country’s terms of trade would decrease competitiveness of its goods and services because its export prices would be rising relative to its import prices. Consequently, the country’s balance of payments on current account is likely to deteriorate. This could cause depreciation in its exchange rate.
36
Describe the impact of changes in a country’s terms of trade on the rate of inflation.
Fall in a country’s terms of trade may be associated with higher rate of inflation if the fall was caused by an increase in the price of imported raw materials.
37
Describe the impact of changes in a country’s terms of trade on developing countries.
Resource-rich developing countries sometimes suffer from the “resource curse”. This arises because ownership of minerals and fuels causes an appreciation in the exchange rates of the currencies of these countries and, in turn, an increase in terms of trade. This results in loss of competitiveness of their manufactured goods and services, leading to slower economic growth.
38
What are free trade areas?
Type of trading bloc where trade barriers are removed between member countries, but individual members can still impose tariffs and quotas on countries outside the area. For example the North Atlantic Free Trade Area (NAFTA)
39
What are customs unions?
Type of trading bloc with free trade between member states and a common external tariff on goods imported from outside the bloc. Examples include the European Union and the customs union of Russia, Belarus and Kazakhstan.
40
What are common markets?
Type of trading bloc that establishes free trade in goods and services, a common external tariff and allows free movement of capital and labour across borders. When the EU was established, it was a Common Market. EU citizens can work in any country in the EU.
41
What are monetary unions?
These are customs unions that adopt a common currency. The eurozone area of the EU is an example.
Monetary unions use the same interest rate. The Euro, for example, floats against the US Dollar and the Pound Sterling. Member nations are required to control their government finances, so budget deficits cannot exceed 3% of GDP. This is one of the four convergence criteria countries have to meet in order to join the Euro. The other three are:
- Gross National Debt has to be below 60% of GDP
- Inflation has to be below 1.5% of the three lowest inflation countries
- The average government bond yield has to be below 2% of the yield of the
countries with the lowest interest rates. This ensures there can be exchange rate stability.
42
Explain how trade diversion is a cost of regional trade agreements.
Trade may be diverted away from low-cost producers outside the bloc to high-cost producers within the bloc because of the existence of tariffs on goods from outside the bloc.
43
Explain how distortion of comparative advantage is a cost of regional trade agreements.
Existence of trade restrictions on goods from countries outside the agreement will distort comparative advantage and lead to less efficient allocation of resources, lowering global economic growth.
44
Explain how loss of independent monetary policy is a cost of regional trade agreements.
This would be relevant to countries in monetary unions which would be unable to control their own interest rates and exchange rates.
45
Explain how trade creation is a benefit of regional trade agreements.
Removal of trade barriers between member countries of the bloc will result in increased specialisation and trade between them
46
Explain how increase in FDI is a benefit of regional trade agreements.
Global companies may wish to invest inside a trading bloc to avoid trading restrictions.
47
Explain how elimination of transactions cost will further benefit monetary unions of regional trade agreements.
There would be no costs involved in changing currencies when goods are imported or exported.
48
Explain how price transparency will further benefit monetary unions of regional trade agreements.
Single currency means that consumers have the ability to compare prices more easily across national borders.
49
Explain how eliminations if currency fluctuations between member countries will further benefit monetary unions of regional trade agreements.
This eliminates uncertainty and might help to attract FDI
50
Describe the role of the World Trade Organisation (WTO) in trade liberalisation.
- to promote free trade among the 188 member countries through is-called ‘rounds of talks’
- to settle trade disputes between members.
51
What are the possible conflicts between regional trade agreements and the WTO?
Trading blocs might distort world trade or adversely affect those who do not belong to them. There could be inefficient allocation of resources as a result of policies such as the EU CAP.
Conflicts between blocs could lead to rise in protectionism. A common external tariff contradicts the WTO’s principles, since although there is free trade between members, protectionist barriers are imposed on those who are not members.
Some countries might argue that the WTO is too powerful, or that it ignores the problems of developing countries. This could be since developed countries do not trade completely freely with developing countries, which limits their ability to grow.
52
Explain why restriction on free trade is used to protect infant industries.
Without protection, infant industries might be unable to compete because they have yet to establish themselves and are too small to benefit from economies of scale.
53
Explain why restriction on free trade is used to protect geriatric industries.
These are industries that might demand protection so that they have time to restructure and rationalise production, which would enable them to become competitive once again. Typically, these occur in developed economies that are losing their comparative advantage.
54
Explain why restriction on free trade is used to ensure employment protection.
Cheap imports might threaten jobs in the domestic economy and workers might demand that the government takes action to limit imports.
55
Explain why restriction on free trade is used to prevent dumping.
‘Dumping’ refers to goods being exported to another country at below the average cost of production. It’s a form of predatory pricing and, if it can be proved, is illegal under the WTO rules
56
Define predatory pricing.
A deliberate strategy by a firm aimed at driving competitors out of the market by setting its prices below average variable costs.
57
Explain why restriction on free trade is used to correct a balance of payments deficit on current account.
Restrictions on imports might help to reduce the imbalance between the value of imports and the value of exports. However, under a system of floating exchange rates, it’s possible that this correction will happen automatically.
58
How do tariffs restrict trade?
Type of restriction on trade, they are taxes on imported goods.
Once tariff imposed, price paid by consumers rises so increasing consumer surplus, domestic output rises so increasing producer surplus, Imports fall.
59
How do quotas restrict trade?
Import quotas place a physical restriction on the amount of goods that can be imported. They have similar effects to those of tariffs , in that the price of imported goods will rise and domestic producers should gain more business. However, unlike tariffs, government doesn’t receive any revenue.
60
How do subsidies to domestic producers restrict trade?
Grants given to domestic producers by the government artificially lower their production costs, so enabling their goods to be more competitive. Subsidies therefore act as barrier to trade.
61
How do non-tariff barriers restrict trade?
These take variety of forms, including labelling, health and safety regulations, environmental standards and documentation in country of origin. In effect, such regulations increase costs of foreign producers and so act as a barrier to trade.
62
What are the impact of protectionist policies on consumers?
Higher prices and less choice.
63
What are the impact of protectionist policies on producers?
Less incentive for domestic producers to become more efficient.
64
What are the impact of protectionist policies on governments?
Government would receive tax revenue from tariffs but subsidies to domestic producers would incur a cost on taxpayers. Once such barriers are introduced, it might prove to be difficult to remove them because of the adverse effect on domestic producers.
65
What are the impact of protectionist policies on living standards?
Protectionism results in less efficient resource allocation because trade barriers distort comparative advantage and reduce specialisation, which will result in lower world output and therefore, lower living standards.
66
What are the impact of protectionist policies on equality?
Trade barriers imposed by developed countries on goods from developing economies could increase inequality between two sets of countries.
67
Define balance of payments.
A record of all financial transactions between one country and other countries. The main components of the BofP are the current account and the capital and financial account.
68
Define protectionism.
Protectionism is the act of guarding a country’s industries from foreign competition, by imposing restrictions on free trade.
69
What’s the current account composed of?
- trade balance
- the income balance ( now renamed primary income)
- current transfers (now renamed secondary income)
70
What is the trade balance?
The value of goods and services exported minus the value of goods and services imported. Can be separated into the trade in goods balance and the trade in services balance.
71
What is the income balanced (now renamed primary income)?
Income flows into the country from non-residents minus income flows out of the country from residents to non-residents. Income refers to compensation to employees and investment income, for example.
72
What are current transfers (now renamed secondary income)
Relates to items such as food aid and the UK’s contribution to the EU’s common agricultural policy.
73
What is the capital and financial account?
This compromises transactions associated with changes of ownership of the UK’s foreign financial assets and liabilities. A key factor influencing the financial account is FDI. Also included are portfolio investment in shares and bonds, changes in foreign exchange reserves and short term capital flows, often referred to as ‘hot money’ flows, associated with speculation. Balance on this account should exactly offset current account balance.
74
What are causes of current account deficits?
- relatively low productivity, meaning that country’s goods and services are not competitive internationally.
- relatively high inflation rate
- overvalued exchange rate
- dependence on highly priced imported raw materials
- relocation of manufacturing industries to low-wage countries
- protectionism by other countries.
75
What are the causes of the current account surpluses?
- relatively high productivity, meaning that country’s goods and services more internationally competitive
- relatively low inflation rate
- undervalued exchange rate
- abundance of minerals, fuels and agricultural produce which is high demand by other countries
- relocation of manufacturing industries from high-wage countries
- protectionist policies designed to reduce imports.
76
What are the main reasons for the UK’s current account deficit?
- high value of sterling 1996-2008
- continuous economic growth 1992-2008, uk has high MPI so rising real incomes led to significant increase in imports
- relatively low productivity of UK’s workers, resulting in higher average costs
- relocation of manufacturing to countries with lower labour costs.
77
How are supply-side policies designed to increase productivity and competition used to reduce a country’s imbalance on the current account?
These would help to improve competitiveness of country’s goods and services and so lead to increase in exports and decrease in imports. Examples include:
- education and training aimed at increasing productivity of work force
- tax breaks and investment allowances to stimulate purchase of capital equipment
- measures to promote small and medium sized businesses to promote competition
- privatisation, deregulation and contracting out of public services.
78
How are expenditure-reducing policies used to reduce a country’s imbalance on the current account.
These could include deflationary fiscal policy. If direct taxes were raised the. Disposable income would fall, causing a fall in consumption and, consequently, a fall in imports, so resulting in an improvement in the balance of trade.
79
How are expenditure-switching policies used to reduce a country’s imbalance on the current account?
- protectionist policies such as tariffs, quotas and subsidies to domestic producers.
- devaluation/depreciation of the country’s currency. Country with fixed exchange rate could devalue currency. However, under system of floating exchange rate, a depreciation of exchange rate of country’s currency could only be engineered by reducing interest rates or through QE, but these monetary tools wouldn’t be available to a government if the central bank were independent.
80
Significance of global trade imbalances.
International trade has meant countries have become interdependent. Therefore, economic conditions in one country affect another country, since the quantity they export or import will change. A surplus or deficit on the current account could indicate an unbalanced economy, and it could mean the country is too reliant on other economies for their own growth. It could be difficult to attract sufficient financial flows in order to finance a current account deficit. This could make it unsustainable in the long run
81
Define nominal exchange rate.
The number of units of the domestic currency that can purchase a unit of a given foreign currency.
82
Define real exchange rate.
Calculated to measure the movements of competitiveness of country’s currency vis-à-vis another country’s currency on the basis of the inflation differential between the countries. Ie its the nominal exchange rate adjusted to reflect the different inflation rates in the countries of the 2 currencies concerned.
83
Define effective exchange rates.
Estimated to measure the movements of a country’s currency value or average exchange rate in a basket of currencies of trading partner countries.
84
Define trade-weighted exchange rate.
The average exchange rate of a basket of currencies, weighted by the amount of trade with each country.
85
What is a floating exchange rate?
Under a system of floating exchange rates, market forces determine the value at which one currency exchanges for another.
86
What is a fixed exchange rate?
Under a system of fixed exchange rates, the value at which one currency exchanges for another is fixed by the central bank or the government against another currency or a basket of currencies.
87
What is a managed exchange rate?
Under a system of managed exchange rates, market forces determine the value at which one currency exchanges for another but intervention by the central bank influences the exchange rate of the currency.
88
What is a revaluation of a currency?
Occurs under a system of fixed exchange rates, When the government decides to increase the value of its currency against other currencies.
89
What is appreciation of a currency?
Occurs under a system of floating exchange rates when value of a currency increases against another currency as a result of the operation of market forces.
90
What is devaluation of a currency?
Occurs under system of fixed exchange rates when government decides to decrease value of its currency against other currencies.
91
What is depreciation of a currency?
Occurs under a system of floating exchange rates when value of a currency decreases against another currency as a result of the operation of market forces.
92
How do relative inflation rates influence the exchange rate?
If country’s inflation rate higher than that of its major competitors then, according to PPP analysis, it would be expected that the value of currency would fall. The PPP rate is the rate at which a particular product would be sold at the same price in the UK and abroad when expressed in a common currency.
93
How do relative interest rates influence exchange rate?
If the uk has higher interest rates than those of other countries, then foreigners with surplus balances are likely to place them in UK banks, so increasing the demand for sterling and causing the value of the pound to increase.
94
How does the state of the economy influence exchange rates?
If, for example, the UK economy is performing well, this will increase the confidence of speculators and foreign investors, who will buy sterling, so causing its value to rise.
95
How does the balance of payments on the current account influence exchange rate?
If persistent deficit on current account, then supply of currency would be high relative to demand for it and the value of the currency would be expected to fall. In practice, this factor not significant because flows of money associated with trade are small compared with ‘hit money’ flows and other transactions recorded in the financial account.
96
How does political stability influence the exchange rate?
In developing countries, instability may cause a loss of confidence in the country’s currency.
97
How does speculation influence exchange rates?
Exchange rate might be affected by speculation concerning a range of possible events, including factors such as the future state of the economy, a change in government or impending strikes. Eg if it’s expected that economy will recover from recession more quickly than originally thought, then speculators may buy sterling, so pushing up its value.
98
Government intervention in currency markets through foreign currency transactions.
To bring appreciation in exchange rate, central bank would buy its currency on foreign exchange market in exchange for foreign currency. Increase in demand for domestic currency would cause increase in its value against foreign currencies.
To bring depreciation, central bank would sell its own country’s currency on foreign exchange market in exchange for foreign currency. Increase in supply would cause fall in value of currency against foreign currencies.
99
Government intervention in currency markets through use of interest rates
Appreciation- central bank would raise interest rates, relative to other countries, makes it more attractive to invest funds in country because rate of return on investment higher. This increases demand for currency, causing an appreciation. This is known as hot money
Depreciation- central bank reduce interest rates, makes less attractive for citizens and foreign nationals to hold money in that country’s bank. Increase supply of currency on foreign exchange market and so reduce its value against other currencies.
100
What is the meaning of competitive devaluations/ depreciation?
Sometimes referred to as currency wars because devaluation/depreciation by one country results in other counties taking measures to devalue their currencies.
101
What are the effects of competitive devaluations/ depreciations?
- increase in rate of inflation because imports would become more expensive
- decline in world trade because of uncertainties associated with fluctuating exchange rates.
- countries could retaliate by imposing protectionist measures.
102
What is the impact of a change in exchange rate on the current account of the balance of payments?
depreciation/ devaluation makes country’s goods and services more competitive and so should lead to an improvement in its current account. For there to be improvement in current account, the Marshall-Lerner condition must be filled. Could be a time lag, initially current account deteriorates since demand for imports is price inelastic because of contracts or stocks of goods. Also, demand for exports may be inelastic because takes time for consumers to adjust to price changes. In longer term, demand for both imports and exports may become more elastic and, if Marshall-Lerner condition fulfilled, current account will improve.
103
What is the impact of a change in exchange rate on economic growth and employment/unemployment?
If increase in net exports following depreciation in value of a country’s currency against other currencies, then AD will increase, causing an increase in real output. In turn this should result in an increase in employment and a decrease in unemployment
104
What is the impact of a change in exchange rate on the rate of inflation?
Following depreciation, inflationary pressures could arise from:
- increase in AD resulting from rise in net exports
- imported inflation, rise in import prices, especially of raw materials and commodities, is likely to increase costs of production, causing leftwards shift in AS curve and therefore increase in rate of inflation.
105
What is the impact of a change in exchange rate on FDI flows?
Depreciation in exchange rate of country A’s currency against others would potentially make it more attractive for foreign companies to invest in that country because a unit of a foreign currency would buy more units of country A’s currency. However, if depreciation is indicative of a lack of confidence in the country’s then FDI inflows may not increase.
106
Describe relative unit labour cost as a measure of international competitiveness.
This refers to the measurement of labour costs in one country relative to those in another country. To make international comparisons, the figures are converted into a single currency and expressed as an index number.
107
Describe relative export prices as a measure of international competitiveness.
These might be affected by factors such as productivity (relative to other countries). This may be measured in terms of labour productivity, which is output per worker per hour worked.
108
How does the real exchange rate influence international competitiveness?
There will be depreciation in real exchange rate if the nominal exchange rate falls or if the prices of goods abroad rise relative to prices in the home country. Therefore a fall in the real exchange rate will cause an increase in the competitiveness of a country’s good. In contrast, the real exchange rate will increase if the nominal exchange rate rises or if the UK price level rises relative to the foreign price level. consequently an appreciation of the real exchange rate is associated with a fall in the countries competitiveness
109
Define real exchange rate.
The nominal exchange rate adjusted to reflect the different inflation rates of the currencies concerned.
Real exchange rate= (nominal exchange rate X domestic price level) / foreign price level.
110
How do wage costs influence international competitiveness?
Wage costs most important cost of production for many industries. If wages higher in UK than in China, its likely that prices of goods in UK will be higher than those of China. However, relationship between labour productivity and wages is crucial in influencing unit labour costs.
111
How do non-wage costs influence international competitiveness?
Include:
- national insurance contributions paid by employers
- health and safety regulations
- environmental regulations
- employment protection and anti-discrimination laws
- contributions into company pension schemes
These frequently much higher in developed countries than in developing countries and so have effect of reducing international competitiveness of goods and services from developed countries.
112
How does labour market flexibility influence international competitiveness?
If labour market is flexible, this will improve competitiveness as businesses will be able to move labour in response to changes in demand and prevent unnecessary wage rises (a lack of flexibility would mean higher wages had to be offered to get people to move jobs). This keeps costs and prices low. Moreover, flexible and efficient managers will be able to manage change within the company and adapt production when demand for products changes.
113
How does investment in infrastructure influence international competitiveness?
Investment in infrastructure improves productivity and ensures firms can deliver and produce their product reliably, cheaply and efficiently. Investment in research and development allows firms to develop new products, which increases competitiveness as other countries won’t have these products, and new technology, which reduces costs and increases efficiency
114
What are the benefits of being internationally competitive?
- surplus on country’s current account of the balance of payments
- export led growth
- low levels of unemployment
115
What are the problems of being internationally competitive?
Fall in international competitiveness likely to be reflected in a deterioration in the trade in goods balance of the balance of payments. In turn, this could result in an increase in unemployment, especially in industries in which exports are significant. A fall in exports could have a negative multiplier effect on GDP, so causing reduction in economic growth.
