International trade and global economy
International Trade
- International trade refers to the exchange of goods and services across international borders.
- Trade between different regions and countries has been at the heart of historical economic development.
- Countries trade globally for many reasons, including to obtain resources they do not have, to sell excess production, and to benefit from specialisation.
- Comparative advantage includes the ability of a country to produce goods and services at lower cost or more effectively than other countries.
- Exporting is the act of producing goods or services in your home country and selling them to other countries.
- Importing is when goods or services are brought into your country from elsewhere for sale.
Global Economy
- The global economy refers to the interconnected economy of all the world's countries, viewed as a single economic system.
- Globalisation has increased the interdependence of nations in the world economy.
- Financial markets, trade in goods and services, and capital flows are the main factors driving economic globalisation.
- The global economy is governed by organisations like the World Trade Organisation (WTO), the International Monetary Fund (IMF), and the World Bank.
- Developed countries like the USA, Germany, and Japan generally have diversified economies and strong global influence.
- Developing countries are economies that are industrialising and growing rapidly, such as India, China, and Brazil.
- Understanding the balance of trade (exports minus imports) and the balance of payments (financial flows from investments, transfers and other movements) is crucial in the global economy. They measure a country's economic health and its economic relations with the rest of the world.
Impact of International Trade on Global Economy
- International trade allows for expansion of markets, boosting economic growth and development.
- Trade can increase competition, leading to increased efficiency and innovation.
- Trade may lead to job creation in areas focused on exports but may also result in job losses if domestic industries cannot compete with foreign competition.
- Global trade can lead to income disparities both within and among countries. Some industries or workers may benefit more than others.
- Increased trade can lead to environmental degradation as industries may produce more pollution and waste.
- International trade can open up new channels for cultural exchange and can help to spread new ideas and innovations.