International Trade

• Globalisation: A process by which the world's economies are becoming more closely integrated
• General Agreement on Tariffs and Trade (GATT): The precursor of the WTO, which organised a series of 'rounds' of tariff reductions
• World Trade Organisation (WTO): A multilateral body now responsible for overseeing the conduct of international trade
• Absolute advantage: A country's ability to produce a good using fewer resources than another country
• Comparative advantage: A country's ability to produce a good relatively more efficiently than another country
• Trading possibility curve: This shows the consumption possibilities under conditions of free trade
• Law of comparative advantage: A theory arguing that there may be gains from trade arising when countries specialise in the production of goods or services in which they have a comparative advantage
• Terms of trade: The ratio of export prices to import prices
• J-Curve effect: A situation following a devaluation, in which the current account deficit moves further into deficit before improving
• Marshall-Lerner condition: The condition that devaluation will have a positive effect on the current account only if the sum of the elasticities of demand for exports and imports is negative and numerically greater than 1
• Foreign Direct Investment (FDI): Investment undertaken in one country by companies based in other countries
• Geographical patterns of trade are the countries with whom a nation trades which includes focusing on intra-regional trade and scale of trade with regional trading blocs
• Commodity patterns of trade are the types of products that are traded internationally
• Benefits of trade:

  • Specialisation
  • Choice
  • Innovation
• Costs of trade:

  • Over dependence
  • Jobs
  • Risk
  • Distribution of income
  • Environment
  • Loss of sovereignty and culture