Pattern of trade

Question 1

Difference between pattern of trade and level of trade

Answer 1

Level of trade: The total amount of trade in the world (e.g. possibly measured as a proportion of global GDP)
Pattern of trade: The types of goods and services traded, the regions that trade takes place between, the significance of different parts of the world to a country’s trade, etc.

Question 2

What factors affect the global pattern of trade?

Answer 2

Trade agreements
Trade blocs
Emerging economies
Comparative advantage
Exchange Rates

TATBEECER

Question 3

Explain how trade agreements affect the global pattern of trade

Answer 3

Many countries make bilateral trade agreements with other countries
A trade agreement between two countries is likely to encourage greater levels of trade between them
But, may lead to trade diversion rather than trade creation

Question 4

Explain how trade blocs affect the global pattern of trade

Answer 4

Trade blocs tend to increase trade levels within the bloc, but may reduce trade levels with countries outside the bloc
If trade blocs lead to an increase in trade it is referred to as trade creation
If trade blocs simply shift the trade from a country outside the bloc to a country inside the bloc (i.e. no new trade is created) it is referred to as trade diversion

Question 5

Explain how emerging economies affect the global pattern of trade

Answer 5

The industrialisation of emerging economies means that they are more able to produce higher value goods
compared to the low value commodities they had typically exported previously

Rapid growth in countries like China and India is adding extra consumers to global demand
For other countries this creates extra demand for many of their exports
(Also explains the continued rise in global commodity prices)

Question 6

Explain how comparative advantage affect the global pattern of trade

Answer 6

As countries develop and new comparative advantages are established, the pattern of countries’ trade with each other may change
e.g. The shift of manufacturing from developed to developing countries in recent decades

Question 7

Explain how exchange rates affect the global pattern of trade

Answer 7

Exchange rates change on a minute-by-minute basis around the world
Over time the appreciation or depreciation of a currency will affect the relative competitiveness of goods and services from different countries
Exchange rates can be manipulated by a government as part of their macroeconomic policy