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6. International trade and globalisation

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  1. 6.1. Specialisation and free trade

    1. • definition of specialisation by country • the basis for specialisation by country in terms of the best resource allocation and/or low-cost production • advantages and disadvantages of specialisation

    2. • definition of free trade • advantages and disadvantages of free trade

  2. 6.2. Globalisation and trade restrictions

    1. • Definition of globalisation

    2. • causes of changes in globalisation: • changes in trade restrictions • changes in transport costs • changes in communication costs • movement of multinational companies (MNCs) • effects of changes in globalisation on: • international trade • competition • the environment • migration • income distribution • economic development

    3. • MNCs and their advantages and disadvantages to host countries and home countries

    4. • tariffs • import quotas • subsidies • embargoes

    5. • protect infant (sunrise) industries • protect declining (sunset) industries • protect strategic industries • avoid dumping • reduce a deficit on the current account of the balance of payments • raise tax revenue • restrict the import of demerit goods • promote environmental sustainability

    6. • impact of trade restrictions on the home country and its trading partners • advantages and disadvantages of restricting free trade

  3. 6.3. Foreign exchange rates

    1. • Definition of foreign exchange rate

    2. • trade in goods and services • speculation • government intervention in currency markets • payment of profit, interest and dividends between countries • workers’ remittances • investment in capital goods between countries

    3. • definitions of floating exchange rate, appreciation and depreciation • the demand for and supply of a currency • the determination of the equilibrium foreign exchange rate • causes of foreign exchange rate fluctuations • changes in demand for exports and imports • changes in the interest rate • speculation

    4. • effects of changes in foreign exchange rates on prices and demand for exports and imports

  4. 6.4. Current account of the balance of payments

    1. 6.4.1Structure of the current account of the balance of payments

      • components of the current account of the balance of payments: • trade in goods • trade in services • primary income • secondary income • calculation of deficits and surpluses on the current account of the balance of payments and its component sections

    2. 6.4.2Causes of current account deficit and surplus

      • reasons for current account deficits and surpluses

    3. 6.4.3Consequences of current account deficit and surplus

      • impact on GDP, employment, inflation and foreign exchange rate

    4. 6.4.4Policies to achieve balance of payments stability

      • the range of policies available to achieve balance of payments stability and their effectiveness