3.1.2

• Free trade


  The act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations
• Free trade


  World GDP can be increased since output increases when countries specialise
• Since WW2, global trade has increased significantly
• Trading blocslead to:

  • Lead to trade creation between members
  • Impose protectionist barriers on countries who are not members
• WTO

  • Promotes world trade through reducing trade barriers and policing existing agreements
  • Settles trade disputes
  • Organises trade negotiations
  • As of 2015, there are 161 member states in the WTO
• Developing countries have gained an advantage in the production of manufactured goodsbecause of?

  Their lower labour costs, production shifted abroad
• Deindustrialisation of countries such as the UK

  Manufacturing sector has declined, production of manufactured goods has shifted to other countries
• China and India's share of world tradeincreased or decreased?

  Has increased, the volume of manufactured goods they export has increased
• China's population is now ageingso...

  Their wage competitiveness has fallen
• Specialisation

  Countries can specialise in the production of certain goods and trade to get the goods and services they are unable to produce
• Comparative advantage

  A country can produce a good at a lower opportunity cost to another
• Absolute advantage

  A country can produce more of a good with the same factor inputs
• Advantages of specialisation and trade

  • Greater world output, so there is a gain in economic welfare
  • Lower average costs, since the market becomes more competitive
  • Increased supply of goods to choose from
  • Outward shift in the PPF curve
• Disadvantages of specialisation and trade

  • Less developed countries might use up their non-renewable resources too quickly
  • Countries could become over dependent on the export of one commodity
• Foreign direct investment (FDI)

  The flow of capital from one country to another, in order to gain a lasting interest in an enterprise in the foreign country
• FDI

  Can help create employment, encourage the innovation of technology and help promote long term sustainable growth
• What has the spread of globalisation caused?

  • more trade between nations and more transfers of capital including FDI
• The flow of capital and FDI across international borders has increased