Friday 6th September 2024

4 1 6 Restrictions
. . on Free Trade

Reasons for restrictions :

ThartIndustryArgume being
·

established within a
country
-

These industries have to build a

reputation and customer base to compete in the int. market
up
Governments will protect these able to do
industries until
they are so

-Tends to be infective as
firms grow to be ineficient
·
Job Protection :
allowing
-Gor be hat imports
worried will mean domestic producers lise out to int
firms
may
,

a
Potentially resulting in job losses
Result & be politically unpopular
-

in economic
negative consequences
·
Protection from potential Dumping :
-

Dumping When a country/company with excess goods sells these to other areas at low prices
o
This harms domestic producers in such countries

Gov may intervene to

.

protect domantic producers who cannot compete

 Friday 20 September 2024

4. 1 7 Balance
.

Payments
of

Components of
the Balance o
Payments
·
The BoP is a record of all financial transactions made between consumers
firms & gov and
,
.

the rest the world

op .

It states how much sport on imports and what the value of exports
is is

Exports are Gas sid to countries , and are positive in the Bop
preign
This is because
they inflow op money
·
are an

Bop
they negative the
i
Imports are G& S bought from foreign countries and are on
,
·
This is because they are an only
low of money
·
The Bop has to man sections !
-
The Current Account :
is
This includes all economic transfers between countries.

The main transactions

is
are the trade in
goods & services income and
current wansfers
,

Income trangers are from the net well as net cash

earnings on preign investment as
·

hangers & dividends

including salaries
-

·
Current
wampers wanspers that have return &
grants.
are no such as and
,

It includes the the UK makes the EU

payments for being a member
-

of
The
Capital &Financial Accounts :
-

is
Capital transfers involve transfers of the ownership
of liked assets e
g
.
.

buildings land machinery

, ,
-
The financial account involves hansactions related to investment e FDI portunit investment
g
.

,
.

They also involvehausacious related to

is
stabilisation
savings and
currency
te (t)
Money powing into
country recorded the relevant account as credent and
·
is in a
money
Howing out as a debit (t
The Ch is considered the most important part the Bop
·

of
-Goods are also referred to as visable exportsimports
-Services are also referred to as invisable exportsimports
Net income consists
hangers by citizens and corporations
-

income
of
scredits are received as remittances
from Ut citizens abroad
in the UK back to heir
Debits by poreigners working
·
are sent
coming
-Current the level between countries
transfers typically payments
are at government
Li
 Causes of Depicts & surpluses on the CA
·
It is called the Bop as the current account should balance with the
capital & financial
account and equal zero
-

If the
positive , then the capital
OA is financial
account balance is negative land vise versal

In reality it never balances & the difference is called 'net error & missions
,
perfectly

If here is a CA
depict , there must be a
surplus in the
capital & pinancial account

The (CA depitt has to be into

spending on imports financed from money lowing
excess
-

the the (FA

country from sale
of assels surplus
·
The Uh has net CA definit meaning that the UK spends
a more on
imports from
foreign countries than they earn from exports 10 foreign countries

If there Ch there
surplus , depict in the capital t financial accounts
must be
·
is a a

from exports (CA surplus) is phancing purchase of assel (FA

-

The excess income the

deficit) in the countries

·

A CA surplus there net in into the circular How of

means is a pow of money income

The UK has a with services but

surplus a
depict with goods
-

Causes of CA Deficits
Law Productivity
·

definit
I finput PCOS Nint prices &domestic Nexports & imports CA
productivity (output
-
=

pu
=
prices
. . .
=

Appreciation ofCurrency
·

Tral. Fint. prices & N dom. prices reports & imports CA

deficit
o currency
- =
=

High Inflation
Ninflation Ndomestic prices & Nint prices Timpote & texports CA
deficit
-
= = :
.

·
Economic Grah
-

Ne growth ,
= ↑income =
Idemand Timports
= = CA deficit
·
Deindustrialisation
-
Ideindestrialization = ↓
manufacturing sector :
timparted goods = CA deficit
·

Non-price factors : Quality & Design

↓
Quality G &S Nint demand & Ndom demand Nexports & imports CA
op depict
=
-

. .
= =
 Measures to Reduce Imbalances on
CA
0
The
Gow has several options
,
available to them in tackle
order to a Ch
depiit
Do
nothing & leave it to market
forces to self-correct
the depirit
-

E/R mechanism
Use
policies (involves deranation
expenditure withing protectionism or a of currency under
fixed
-

-
Use
expenditure reducing policies (measures to reduce AD e
g
. .

dylationary fiscal policy)

-

Use
supply-side policies laims to increase the &
quality quantity of GRS has
raising potential outputt
·
The choice combination op policies generates both costa benefits
of any policy or
any
-

Policy : Leave it Market Forces

·
to

Bengit :
A
floating EUR
is
acts as a
sey-correcting mechanism
is Over time high imports will lead to the EUR
,
a
depreciation in

This an t
will cause exports they're ↓
weaper and a imports thug
·

in as now in as cost more

has he Ch depiit
improving
-

Cost :

May be external
i
which prevent
factors currency depreciation
for sey-correction to happen & many domatic
i
Can bake a
longhime industries
may go
out

of business in
the interim
(temporary state)
The the
longer to self-correct , the
is
lakes
it more
firms will delay investment in
economy

Policy : Expenditure Switching

·

Benefits :
Opensuccessed the
buying habits op
is
in
changing consumers
, switching consumption on imports
to
domestically produced has
·
This therefore helps deficit
, , improve a

Losts :
Protectionist lead
by rading partners
i
to retaliation
policies often
fails the level
May & quiras which will decrease
of exports
·
consist reverse
of
This the
may offset any improvements
caused
by policy
-
 Policy Expenditure Reducing
·
:
-

Benefit !
is
Deflationary fiscal policy invariably reduces
discretionary income (income after neces & Sendinga
·
This leads to call in demand for imported goodsa
the deficit
a
improves
-
lost :

Deflationary output to
is
fiscal policy also
dampens domestic demand which can cause fall
When output falls GDP
growth slowsa unemployment may
·

increase
,

Policy : Supply-side
·

Benept :
quating of products &
Cop
Improves We lowers
-

This helps boost

exports has the
reduce
depict
·
and

Cost:
These be benefits may not be hima
tend to
long-term
is
policies so seen for some

Gor
Usually involves the opportunity cost
is
permop subsidies which carries an
Spending in

Significance of Global Trade Imbalances

·
International trade has meant countries have become interdependent
-

As a result
,
economic conditions in one country can
affect another country
by Ch surplus When another is
o
one
country is
running a
running a
depirit
·
A the C could indicate
surplus or depict on an unbalanced
economy ,
and could mean that
country
is to reliant on other economies for
their own
growth

·
Persistent Depicts can be problematic as it means that prance from abroad in
the
form of
loans or FDI) is
required in order to
pund continued
imports
This that
may mean country gradually selling
a is its assets

Owing money to a
preign entity creates vulnerabilities
-

-
The 2008 Economic Crisis demonstrated the
e
g. impact of past changing conditions in which
.

creditions insisted on
being repaid quickly which can cause problems in the debtors economy
-

It can even be difficult to attract supicient financial nows to prance the deficit
This could make a reliance the
long run
is
unsustainable in

L
·
Persistent surpluses can be problematic as it means that the lowes
op
the allocation
of a

nation's opposed to domastic demand

resources is on
meeting foreign demand as

This can limit

availability op goods/services in the local
economy which can
possibly decrease
the standard households
of living for some

It the prese market if there

can also create
instability loating EUR mechanism in
-

in is a

operation
-
Exports > Imports (resulting in a
surplus leads to higher demand for
the countries
currency
and has an the EUR buyers need the
appreciation in as
preign exporting currency
to their h/S
buy
 Friday 27M September 2024
The J-Curve & Marshall-Lerner Condition

Marshall-Lerner Condition
The MLC that to improve a
country's trade
·
states for a
currency devaluation
balance , the hum
of the price clasticities of demand (PED) for imports and
exports must be
greater Man I (elastic

The J-curve
·
The J-Curve illustrates how a
currency depreciation may initially worsen a
country's CA

balance before eventually leading to an

improvement

Understanding the J-Curve

Short-term Industicity :
·

In the SR demand
, for
M & X rends to be
price inelastic
This means that concerners and habits when
do not
firms immediately adjust
their
buying
-

prices change
Potentially to
-
due existing contracts,limited awareness op cheaper alternatives ,
or a

reluctance to switch suppliers

·

Worsening Trade Balance :

-Consequently , aper a
depreciation ,
the volume
of exports and imports may not
change significantly in the short term
,
but the value
of exports (in domestic
currency) will
decrease because the
price of exports have fallen
-

Meanwhile , the value of imports will increase because their price in domestic
currency
has

risen

This results trade hade surplus

dynamic in
larger depict or smaller represented by
-

a a
,

the initial downward slope of the T-curve

Long-Term Adjustment :
·

-Over time , the

as consumers and
firms become aware
of price changes and find suitable
alternatives demand becomes more elastic
,

-Foreign consumers will

purchase more
of
the
now-cheaper exports ,
and domestic consumers

will
shiff to
domestically produced goods as
imports become more
expensive
L
 Balance :
·

Improving Trade
This demand leads to
shiff in
eventually export volumes and decrease
-

an increase in a

in
import volumes
If the MLC holds the revenue will the decrease import
export outweigh
-

increase in in
,

the CA
expenditure , ultimately improving
balance

This improvement the the Tecurve

by
-
is represented upward curve
of

Example :
the UK
Imagine
·

experiences a
currency depreciation .

In the short-term :
·

-UK the
consumers continue buying roughly same amount
op imports ,
even
though they are now

pound sterling
more in
expensive

Foreign don't
immediately
their
purchases of US exports, despite
them
-

consumers increase

being cheaper
This leads CA definit for the UK
to
larger
-
a

However the
long-term :
·
in
,

UK hind domestic sutitutes for

consumers some imports reduce consumption
-

or as prices
to volume
rise
, leading a decrease in import
Foreign increasingly UK they become relatively cheaper,
-

with to
consumers
products as

leading to an increase in export volume

If these demand large enoughelastic the UK's CA

depict
·

changes in are
,
will
eventually
Shrink , the 5-cave
demonstrating effect

(t)

(t)
 Sunday 29m September 2024

4. 1 1 . Globalisation

Characteristics Globalisation
of
·

Growing Interdependence :
-Globalisation signifies deepening interconnectedness between countries
a
, postering a

reliance on each other for various aspects such as trade investment and cultural
, ,

-change
·
Rapid Rate of Change :
This interdependence doesn't it's at swipt pace , leading
to
just exist evolving a
-

rapid hansformations in economies

,
societies ,
and cultures worldwide
·

Geographic Dispension of Activities :

The
-

Organisation of Economic Co-operation and Development (OECD) highlights a

characteristic
key !

The spread of industrial activities borders,

and service across
geographical
is

distribution and
including research ,
sourcing production
, ,
more
·
Cross-Border Networking of Companies :

Companies are
key players globalization engaging
in
,
in
joint ventures
, sharing , assess

intricatenetworksMatransendnational
boundsa

·andtiming
-Globalization the world's economies local and national howards
pushing regional
-
is
-

, ,

a unified international market

·
free Movement factors : (not obstructed hindered)
o or

This marked
by towards the
integration is a more
unimpeded flow of goods ,
services
,
-

labour capital ,
technology ,
,
and intellectual
property
Increased Foreign Ownership :
·

A the
significant characteristic is
rising ownership of companies by entilies located in
-

foreign countries
·
Cross-border Labour &
Technology Movement :
-Globalization pecilitates a weer movement of labou & tech. across int. borders

Free Trade :
·

A G&S baries
fundamental aspect is the
persuit of free trade in breaking down
-

and
fostering int.
exchange )
 Easy Capital Flows :
·

Globalization the ease

-

is characterised
by
with which Capital (France) can move

across national boundaries

Factors Contributing to Globalization

Containerization the
Shipping Industry:
o
in

This innovation the

has verbutionised
shipping industry enalding goods to be hansported in
-

Standardised that can be

containers
easily transpered between transport vehicles
This has led to
significant EoS Cheaper &Efficient shipping his
pecilitating
is
a dramatic
, ,

increase the volume Trade

in
of int .

·
Advancements in Communication Tech :
The internet advancements tech have it easier
, along with in communication .
made for
businesses to connect with each other and with customers around the world

>
This increased
connectivity has facilitated the
growth of global supply chains , allowing businesses
to the
components& products
most costepicent locations
source
from , regardless of geographical
distance
·
Increased Influence of the WTO :
-
The role of he lito in
promoting free hade and
reducing barriers to int Commerce has
been significant
The organisations exports in facilitating trade
3
trade and
negotiating new
agreements
liberalization have created a more
favourable environment for global trade,
countries to the production of GRS where they have
encouraging specialise in a

comparative advantage (produce at the lowest

opportunity coult
·

Growth Transnational Corporations :

of
-

The rise large corporations has also been a major driver of globalisation
multinational
of
These companies often operate in multiple countries
sourcing inputs (foP) manufacturing
·
, ,

te
products and
selling consumers on a
global scale
is
Their expansion into new markets has facilitated the
pow op goods , services and Capital ,

across borders
,
further integrating national economies into a
globalised system
·
The End of the Cold War :

The collapse the Gold War

he Soviet Union and theend
of
1990 had a
significant
-

of in

impact on
globalization
LD
 :
This event led to the
opening up of many former communist countries to the global
the GO
economy expending global
,
labour force and
creating new markets for
·
Deregulation of Financial Markets :
The 1990s ,
deregulation of financial markets in the particularly in developed countries , also
-

played rile in accelerating globalization

a

enabling businesses
"This allowed to
for easier movement of capital across borders ,
access
handing from a wider range of sources and invest in markets more
new
easily
This inhurn led to an expansion
of globe
·

, ,
financial services

Impacts of
Globalisation & Global Companies
Impacts on Consumers
·
:

Increased Choices & Lower Prices :

~
Globalisation exposes consumers to wider and services from around the
a
array of goods
world

This expanded Moice coupled

*

,
with companies
taking advantage of comparative advantage and

lower
production cotts in different countries
,
often hanslates into lower prices for commoners
-

Potential for Price Increases :

However the sources
acknowledge that globalization
:
also can sometimes lead to due to
,
vising prices
increased
global demand driven by rising incomes
-

Concerns about Loss Culture

of
:

-
A notable the local
concern
stemming from globalization is
potential erosion
of cultures
The
influss of foreign goods , services , and ideas lead to
homogenisation (making
·
can a

things uniform or similar

of cultures , which some consumers view as
negative
·

Impacts on Workers :

-
Mixed
Impacts on
Employment :
"There are both
positive and
negative impacts of globalization on
employment
·
While some individuals &
regions have
gained jobs due to increased
global trade
,
others have
the
experienced significant job losses particularly in , manufacturing
sectors
of developed countries .

This shiff in countries with lower labour costs has resulted in structural
manufacturing howards
·

certain
unemployment in regions

La
 Wage
-

Fluctuations'.
is The also
impact an wages is missed

Int low-skilled workers in developed countries while

for
·
can
.

comp ,
surpress wages ,

their counterparts
potentially increasing wages for developing countries
in.
·

Conversely , high-skilled workers in developed countries might experience wage

growth
due to increased demand their
expertise potentially exacerbating
for ,
income
inequality
Role TNCs :
of
-

TNCs with their be

global significant employers often providing training
-
reach can
,
, ,

and
creating job opportunities
new

However there is
potential for exploitation particularly in sweatshops with poor
·

, ,

low those the best

working conditions and wages although jobs may be ,

those
available option in
specific contexts
·
Impacts on Producers (firms) :
& Reduced Rish :
-Global
Sourcing Selling ,
-Globalization
presents firms with opportunities to source
products from more countries and

their sales international markets

expand into new

This diversification reduce risk by lessening dependence single market

·
can on a

Profitability Through Comparative Advantage'

-

Firms leverage the comparative advantage offered by different

-
can countries ,
such as

lower labour cocls in

developing nations to enhance profitability ,
is
Additionally , access to larger global markets can contribute to increased profits
Challenges fr Non-Competitive Firms :
-

-
There by firms hot to marketplace
are also
challenges faced struggle compete on a global
Those unable to to international risk market share and
losing
·

adapt competition
potentially going out op business

Impacts Governments :
·

on

-
Tak Rer & Potential for
.

Corruption :
Governments can
generated by TNC operating
-
ran revenue
potentially benefit from increased
within their borders both and income tacces
from corporate tacces
, paid by employers
is Globalisation present challenges as TNCs bribery & lobbying (directly
may resort
can also to

influencinggov. officials) to influence you policies in their favour .

L
 -

Policy Changes :
Governments lace the
complexlask of implementing policies that manimise benefits of
-

glibalization while
miligating its negative impacts
This includes
addressing issues such structural unemployment ensuringfour labour
·

as
,

practices and
navigating the intence of TNCs
,

Impacts Environment :
·
on

Increased Demand for Raw Materials & Emissions :

is
The growth in global production driven by increased trade often leads large in demand
to a
, ,

for new materials

-
Increased transportation and
production activities contribute to higher emissions,

climate
exacerbating concerns about
change
-

Potentialpor Global Collaboration :

is
Globalisation can
wither international collaboration on environmental isones

It facilitates the
·

sharing of knowledge tech and bestpractices to address

global concerns
, ,
·

Imports on Economic Growth :

-
Investment Tech Tranger and Trade :
,
.

Globalisation
particularly through the of TNCs ,
-

,
activities can stimulate economic growth in individual

countries
is
TNC investments to
inject capital into economies
, often leading a
multiplier effect , where initial investment

sparks further economic activity

Presence of TNC can also lead to
transfer the
technology
-
and adoption of world-class
management
techniques benepting ,
local industries

Increased trade fantilated by globalization allows countries to

exploit
their
comparative
, ,

advantage, leading to higher output and economic

growth
-Political Instability & Shifting Advantages
The
by TNCs
3
power weilded can sometimes contribute to
political instability particularly if
,

they support unpopular or undemocratic regimes

that serve their interests.

Additionally time their

>
-

,
as comparative advantages ship over
, companies might relocate

operations leading,
to structural
unemployment and
hindering economic growth in countries

What once
benefitted
 Thursday zua October 2024
418 . .
Exchange Rates

Exchange Rate
Systems :
Floating E/R System :
·

The currency's value is determined solely market forces i The supply and deseand
by
-

.
e
.

for the currency in the foreign exchange markt

-In Mis system the when there is excess demand and depreciates
currency appreciates
,

when there is excess

supply
this system
Most countries the UK , operate under
-

inc .

,
·
Fixed E/R System :
The gov pegs its currency to another the USD
currency , such or
gold , at a
fixed rate
-

.
as

The central bank intervenes to maintain the fixed rate

Revaluation the central bank the
occurs when increases
currency's value against its
-

when it decreases the value

peg while
devaluation occurs
,
the
Historically gold standard widely used pied ER system but
country
-
was a no
, ,

currently uses it

Managed EUR
System
·

This
system combines elements
of both fixed and
floating systems
-

The EUR the to

fluconate
- central bank sets
target
a and allows
herring between a

that
predetermined range around
target
The central bank intervenes
of
the EUR moves outside that
range
Brazil Switzerland and this
Japan system
-

use
, ,

Distinction Between Revaluation & Appreciation

Appreciation :
·

the due to market forces

-
An increase in value
of a
currency in a
floating EUR system
·
Revaluation :
An increase the value the
of currency fixed EUR system , decided upon by
-
in a in a
gov.
 Distinction Between Devaluation & Depreciation
·

Depreciation :
- A decrease the EUR market
in value
of a
currency in a
floating system due to
loces
·
Revaluation :
A decrease the value fixed EXR system , decided upon
in
of a
currency in a
by
-

te
you

. FactorsInucing Plating
free
An increase ER relative to other countries attractsforeign investment
increasing
-
in
,

demand for the and it to

currency cousing appreciate
to
-Conversy ,
Lower IR can lead
depreciation
·

Inpation
High inflation relative to other countries makes countings exports less competitive and
-

its imports more attractive , leading to depreciation as there is less demand for the

· hereeat
FDI into
country increases demand for its and causes
appreciation
-

currency
a

outward FoI the

-

Conversely , by domestic firms increases the

supply of currency in the

wrex market , leading to depreciation

·
CA Balance
-
I trade surplus (exports imports) increases dammed for the currency and leads
to
appreciation
Conversely trade
deficit(imports exports) leads to depreciation
-

a
,
·

Speculation
-Short-term
currency trading based on
expectations of future EUR movements can
signifi-
cantly impact EUR
·
QE
This
monetary policy involves
increasing the money supply which lead to depreciation
-

can
,

the
as more
of urrency is available
 Sor Intervention
.

Governments
in
Currency Markets
intervene through !
·
can

-
IR
-Central baniks manipulateI to influence the value their
can
of currency
-

Foreign Curreng Transactions

Central their the prese market
banks can
buy or sell
=
to
currency in influence its value
e .

.
g
To depreciate their
currency , they can sell it in
exchange for foreigncurrencies ,
increasing
the
supply and lowering its value

Competitive Devaluation / Depreciation and its Consequences

·
Competitive devaluation/depreciation is a deliberate
policy to lower a
currency's valueto best

exports and the CH balance

improve
Consequences
·

include :
-
Retaliation

Trading partners their the initial advantage

a
currencies
may devalue in
response ,
negating
to
and
potentially leading a
currency war
Inflation
-

a
Devaluation can increase the price of imports leading no cost-purch inflation
,
-
Limited Effectiveness
in
In some case devaluation may not improve the C balance particularly if demand
, ,
for

Exports ad imports is inelastic (the Marshall-Lerner condition]

Impacts of Changes in EUR

·
Ch
Devaluation makes imports more
exports cheaper and
expensive
-

However the the PED's X&M

impacts depend on
, g
-

The Marshall-Lerner Condition States that combined elasticities must be >1

for it
to
imprise
the CA
The T-cerve illustrates that the CH before improving
may
worsen
initially after devaluation as

businesses & Consumers

adjust to new
prices
LD
·
Econ Grow .

(X-M)
A weaker EUR boost econ
growth by increasing not exports exports become more
-

can as
,

competitive and imports become more

expensive
·

Employment
-

Increased demand
for exports due to a weaker EIR can increase
production & create
jobs
Conversely appreciation lead to houses export-oriented
can
job in industries
-

Inflation
- A weaker EIR can increase inflation as imported goods become more
expensive , leading
to cost-
puch inflation
·
FRI
-
A weaker E/R can attract FDE as it becomes
cheaper or foreign hims to invest
in the
country
However continued depreciation signal instability investment
can economic
discouraging
-

, ,
 Friday 4 October 2024

4 1 9 International
. .

Competitiveness

Measures of International Competitiveness

·
Relative Unit Labour Corte

wages/real output
-
This measure is calculated total
as

It the labour
cost associated will each unit
provides understanding of of output
-
an

A lower than those

country is deemed more
competitive when its relative unit labour costs are
-

hading partners , signifying lover production costs and potentially more competitive pricing
of its in

te int. market
Relative Export Prices
·

This measure
compares a
country's export prices to those
of its main
hading partners
-

A have become
rise in relative
export prices suggest that
country's products a more
expensive
compared to its competitors potentially indicating a decline in competitiveness
,

-Conversely , falling relative export prices signal increasing competitiveness

can

Factors Eupracing T .
Competitiveness

Several factors contribute to a country's international competitiveness:

• Exchange Rates: Fluctuations in exchange rates directly impact the price of
a country's exports and the cost of its imports. A stronger currency can make
exports more expensive, potentially hindering competitiveness. However, the
overall impact depends on the price elasticity of demand for the goods and the
strategic responses of businesses.
• Productivity: Higher productivity levels, particularly in labour, generally
translate to lower production costs and increased competitiveness. Conversely,
stagnant or declining productivity, especially compared to competing nations, can
negatively impact a country's ability to compete internationally.
• Regulation: While regulations are essential for various reasons, high levels
of regulation can increase production costs and slow down business
responsiveness to market changes. This can make a country's businesses less
 adaptable and competitive in the global market. However, deregulation might not
always improve competitiveness and could have negative consequences.
• Investment: Investments in areas like infrastructure and research and
development are crucial for enhancing productivity, developing innovative
products, and adopting new technologies. These factors can signi cantly
contribute to a country's competitiveness by reducing costs, increasing ef ciency,
and providing a competitive edge in the global market.
• Taxation: High levels of taxation can discourage investment, potentially
hindering innovation and long-term economic growth. This can indirectly affect a
country's international competitiveness by limiting its ability to adapt to global
market demands and develop new technologies.
• In ation: Countries with lower in ation rates tend to be more competitive as
their goods and services experience slower price increases compared to those in
countries with higher in ation. This price advantage can make their products more
attractive in the global marketplace.
• Economic Stability: A stable and predictable economic environment is
essential for attracting long-term investments, fostering innovation, and supporting
business growth. Conversely, instability can deter investment and limit a country's
ability to compete effectively in the international arena.
• Flexibility: Flexibility, both in the labour market and in management
practices, is vital for competitiveness. A exible labour market allows businesses
to adjust their workforce based on market demands, potentially preventing
unnecessary wage in ation and keeping costs down. Similarly, adaptable
managers can help businesses navigate changes in demand, ensuring they
remain competitive in a dynamic global market.
• Domestic Competition and Demand: A healthy level of domestic
competition forces businesses to innovate, improve product quality, and offer
competitive prices. This internal competition prepares businesses to compete
effectively in the international market.
• Factors of Production: The quality and availability of factors of production,
such as natural resources, skilled labour, and capital, directly in uence a country's
production capacity and the quality of goods and services it can produce. Access
fl
fl
fl
fl
fl
 to high-quality factors of production can provide a competitive advantage in the
global market.
• Openness to Trade: Embracing free trade policies and minimizing trade
barriers can enhance a country's competitiveness by facilitating access to larger
markets, fostering specialization, and encouraging ef ciency. Conversely,
protectionist policies, while sometimes necessary, can have negative
consequences for competitiveness.
Signi cance of International Competitiveness
Bene ts of Being Internationally Competitive
• Current Account Surpluses: Competitive countries often export more than
they import, leading to a current account surplus. This positive balance provides
opportunities for overseas investment and strengthens the country's nancial
position.
• Foreign Direct Investment: Countries with competitive economies are
attractive destinations for foreign direct investment. This in ux of capital can fuel
economic growth, create jobs, and facilitate the transfer of knowledge, skills, and
technology.
• Employment and Wage Growth: Increased international demand for a
country's products can stimulate production, leading to higher employment rates.
The increased demand for labour can also result in wage growth, improving living
standards.
• Economic Growth: International competitiveness can drive economic
growth through a combination of factors, including increased exports, foreign
investment, and improvements in productivity and innovation.
• Improved Living Standards: The positive economic impacts of international
competitiveness, such as increased income, employment, and access to a wider
variety of goods and services, can contribute to an overall improvement in living
standards.
Problems of Being Internationally Uncompetitive
While the sources don't explicitly list the problems of being internationally
uncompetitive, it can be inferred that they are the inverse of the bene ts
mentioned. For example, a lack of competitiveness could lead to:
fi
fi
fi
• Current account de cits
• Reduced foreign investment
• Higher unemployment
• Slower economic growth
• Lower living standards

fi
 8 Marker

Assess how rates (8)

exchange influence a
country's competitiveness
A depreciation in a country's
urrency could
improve country's competitiveness through
a

The decrease in the price of their exports As the other currencies

currency depricrates .

become stronger in terms of it that

country's exports become relatively cheaper.
,
meaning
As the demand for their
a remelt
, exports grows resulting in the country becoming
,

competitive. However this heat

more
, depends the
on
dasticity of demand of
price country's
the
exports If it is melastic ,
.
a reduction in
price will not result in
any measurable improvement
the demand not improve
in
of exports meaning competitiveness
,
did .

An depreciation
country's currency could also reduction in
country's
in a cause a a

competitiveness As the value of their currency decreases

. in terms oss imports
of ,
become
relatively
to demand domestic to demand
more
expensive , causing consumers more
goods , leading or domestone

goods to increase .
Due to the a
potential demand surplus these producers may increase the price
,

of
their
goods , leading to fall in international demand for these goods this reducing competitiveness
a .

Although this due to the time the

, effect may be
delayed lag from when country's currency depreciates
and when the This that the demand
commers realise increase in prices. means surplus of domestic goods
that
would also be
delayed meaning an increase in
price and decrease in
competitivenes may take longer
to settle into place than expected.
 12 Marker

Evaluate the measures which could be persued by individual

firms and
by
the government to
improve competitiveness' (12)

One measure an individual firm could use would be

through investing in research

and development (R&D) Investing . in R& D could help

firms to reduce their costs of
it could lead to within the
Si production as new innovations
Price S2
production process such as efficient machinery or
more

= laster technology which

improves the firms productivity. As much

IT
,
the firm to produce more (S, t S2).
costs may
pall allowing,
1) This the price the firms
Q,
results in a
fall in
for goods
Q2 Quantity (P, P2) them to undernut their competition and
, allowing
Mus Man competitive the demanded for their increase CONTRI
making more as
quantity goods

However Mus be the

,
result
may not case
depending on whether R&D is
epective in

LRAS CRAs with innovations. Investment R& D could

Price ,
coming up
new in

:
to be it not result
sunk cost
may actually
a as
prove
to the business. As such it becomes
any changes
in
,
an
opportunity
lost for the firm as it's capital that could have
gone into
production
,
(LRAS -LRAS2)
Ye TFF Quantity
meaning a fall in
supply potential ,
and Krus
(P, -P2) which would lead to the
galle quartily demanded
,

price rises a in

goods 10pall (Q -Q) making them less competitive

their the
for . in
long .
run

One measure that the government could use would be through investing in education
the
training of nature workforce The
and current and .
government could
put more money
into
things such higher education as or
training programmes in order to
improve the shills of
the workforce lanned better
If individuals
.
are
, they could develop better shills which

could han be translated to the workforce. This could buster these skills
production as
have the potential to be lfall
productive coming costs
more
, of production , leading to prices falling
and mergre boosted
competitiveness.
the
Although ,
investment by government into this is a
long
term measure and would now see

Li
 lakes months te
epects It
immediate . and
years for workforce to see the benefits of
improvements within
things such as education as firms would have to want until
idents finion their beare
education
joining while even
implementing such schemes

wouldwke time , has having impact short

the
a
longs no on competitiveness in term.
15 Marker

'Following the Brest vote the value

of
the pounch
1
fell drastically .
How
might has expect
The the UK ? (15)
international
competitiveness of

A depreciation in the could improve international competitiveness through its

pound
both (ML and exports (X). As the value the
effect on imports of pound falls this means that
,

the value of the pound is worth less in terms of other currencies. This would make
imports relatively
cheaper as it is
essentially costing individuals or
firms more
to
buy the same
quantity of goods meaning ,

that proportion of the world economy

a lower demands international exports .

Conversely ,
other countries

currencies would now be worth more in terms of the pound meaning that less is required to
, money
buy the same
quantity of
UK
exports .
As such due to
,
the relative
cheapness of UK exports , demand

for such rises Mus resulting in a higher proportion op the world

economy demanding U
exports
.
Both a decrease in the world
economy impothing internations ,
and an increase
importing domestic goods
demonstrates an increase in international
completiveness .

However this ,
result is
highly dependent on whether the Marshall-Lerner condition applies .
My
this condition applies , a depreciation may not have the same
positive elect on international

competitiveness This . is because bot the

price
eactivities
of
demand for X & M musta um to !

price elastic for it to

the desired both X & this
ie
. .
be have
effect .

If M are inelastic
,
would

mean that both a

fall and rise in their relative and respective , prices wouldn't have an
,

espect on the
mange in their levels that international competitiveness not improve
meaning
.
,
may

A depreciation in the pound could also lead to a reduction in international

competitiveness through adjustments by firms who act as

Price the
producers As a result of a call in the valueof
.
pound,

=
this
imported good now become relatively more expensivee Due to ,
who import raw materials to produce goods within the UW
firms
pace higher costs. In response these firms mayby to offset
I
D now
,
Q2Q , These costs to buyers in order to maintain the same lacks
Quantity of
their
proptability meaning ,
that
they raise
prices proportional
to Mat
of
their increased cost

(P . P2) This results in

. a contraction in demand for these goods as now UK exports
,

last more to purchase decrease the demanded UK exports

resulting in an in
quantity of
LD
IQ -Q2) and has reduced
,
competitiveness internationally .

Although ,
this
may
be less of a
problem for
the UK in
comparison to other economies , especially
have
developing ones
,
as
the I does not a
large manufacturing sector . The UK is
mainly
a service-based
economy
and
largely exports such services over exporting goods . As producers
the
who
rely on raw materials do not make up a large amount op UK
economy a ,
rise

in
price op ran materials would
only epect a small
percentage of the UK's exports , has
having a
proportionally small expect on international competitiveness.
 Pre-Reading
4 .
2 1
.
Absolute & Relative
Poverly
Distinction Between Absolute & Relative Poverty
·
Absolute Poverty
When people unable to apord necessities to maintain life
are
supicient
-

·
Relative Poverly
-
When income
fells below an average income threshold for the economy
is At the button of the income scale

Measures of Absolute & Relative Poverty

·
Absolute Poverty
The World Bank dephes absolute
living less than US$1 90 a
poverty day
-

as
anyone on .

·
Relative Poverty
-In Britain , those with of less then
60 %
relative
poverty is classed as an income of median

household income after deducting household costs

Causes of Changes in Absolute Poverty and Relative

Poverly
·
Abschutz Poverty :
-

Economic growth tends to be correlated with absolute

poverty
is
The more
developed the people in absolute
a
country , power poverty
In developed
is
countries , the reads to intervene to
attempt to the necessities
you provide
Absolute lands to fall GDP
poverty as increases
-

is
Assuming he state provides support to those who are make to benept from a
growing economy
Relative
Poverty :
·

Poverly lack health

-
is caused
by unemployment ,
a
of shills , problems and income
dependency
In the U relative has been due to
poverty growing
-

is
Growing inequality in
wage growth
De-industrialisation
Groth in underemployment,
is
zero-hour contracts, part-time and
temporary jobs
is
Decline of Trade Unions
-
Fall in relative value of state bengits & rise in taxation
a Rise in
long term& structural unemployment
-However, trade liberalization can increase potential market size and
output in
the
economy
: This can lead to an increase demand for a lobour and a rise
in
wage
·

Thus creating
,
additional income which
pulls households
out
of
relative
poverty
 Pre-Reading
43 Measures
of Development
. .
1

Dimensions of the UDI

The UDI that
developed by the UN is composite indes
·

, ,
a measures economic

development based on three equally weighted dimensions :

-Health :
This dimension birth
by life expectancy
is
is measured at
is
A higher life expectancy suggests better healthcare nutrition and overall
, ,

well-being in a
country
-
Education :
This dimension
by combination
is
measured
is a
of :

The
years of schooling of adults aged 25 and older
·
mean

This indicates the have

average No
& years adults spect in formal
-

education
The pre-school child
expected years of schorting
·

for a

This reflects the anticipated duration based

of a child's education on
-

current enrollment rates and educational

policies
-
Income :

-
This dimension is measured by Real Gross National Income (R GNI)
.

per
at (PPP)
capita purchasing power parity
GNI
percapita reflects the average income of a country's residents while PPP
·

adjusts(or differences in the cost of living across countries ensuring more ,

a

accurate comparison

Combining of Dimensions:
-Each of the three indicators calculated
is
given equal weighting, and a mean is

h HDI between I
produce a Score O and

The closer the score 1 the the level

of development
to
higher
"
is
, ie
.
.

standard
of living
 UBI
Advantages and Limitations
of using

Advantages :
It broader perspective than single indicators
provides
·
a

the UDI offers

-

By combining health education and income

, , ,
a more
comprehen-
sire assessment development level compared to indicators that
of a
country's
GPP
focus on a
single aspect ,
such as per capita
This broader that
-

perspective recognises development encompasses improvements across

various facets of human well-being

·
If incorporates key metrics for households
-
The HDI cocusses on health , education and income as crucial determinants
,

of people's living standards

These factors
directly impact the quality of life experienced by individuals and

communities
·
It pecilitates global comparison
The HDI is
widely used internationally allowing meaning ed comparisons of development
-

levels between countries

This standardisation enables the assessment time and the
of progress over

identification of disparities in development across different regions

It establishes policy
goals for governments
·

The HDF tool to

can be a valuable
for governments identify areas
requiring
-

attention
For UDE low due to
country's score
relatively inadequate
a
instance
, if a is

education lends
policymakers
, target
can investments and reforms
to address
Mis specific challenge
It enhances citizens' their
understanding of quality of life
·

The UDI sore provides benchmark for citizens a to understand how their

country's development level compares to others

This awareness can that
piter public discource and advocacy for policies promote
human
well-being
La
 Limitations
It doesn't account
inequality
·

for
The UDI GNI distribution within
uses per capita neglecting income
-

mean
,

a
country
-Consequently ,
it may not
accurately represent the living standards of all
citizens in countries with high
, especially income
inequality
·
It doesn't measure absolute or relative
poverty
While the HDI the
assesses overall development it doesn't directly
-

measure
,

extent within
of poverty
a
country
-

Separate indicators such as the Multidimensional

Poverty Index (MPI) ,
are
,

·necessary t
understandhe prevalence
of
poverty
and depita a

The data required UDI calculations to

can be
difficult gather particularly
-

for ,
in

developing countries

This the HDI

oten results in time
lag meaning score
may
not
reflect the
-

a
,

current
reality
Other Measures
of Development

Composite Indicators' :
Similar to UDI
composite indicators combine multiple factors to provide broader
·
a
,

assessment
of development
·

Inequality-adjusted Human Development Index (INDI

The INDI addresses a
lley limitation
of the HDE by incorporating inequality
into the measurement
UDI uses the INDI
-While
average income
, adjusts for disparities in health educative
,

and income the Atkinson Inden

using
This
adjustment reflects the potential human development lost to inequality
-

-
for instance a with a
, high HDI score might have
country a lower THAI score

between
if significant inequality wists revealing ,
a
disparity average development and
the
well-being of all citizens
LD
·
Multidimensional Poverty Index (MPI)
-

Unlike the HDI which cocusses on overall development the MPI specifically measures
, ,

poverty based on deprivations across ten indicators within three dimensions :

is Health-child mortality & nutrition
- Education Years schooling & school attendance
-

of
Living Standards Access to electricity samination
working
↓
sape drinking water
-

, , ,

Wel housing quality

,
and assets
,

·
Gemeine Progress Indicator (GPE)
The UPI assesses economic
sustainability by considering 26 indicators across
economic
,
environmental
,
and social
categories
the
-
th aims to
caphere long-term of economic activity ,
including environment
costs

al
degradation andsocial factors like crime and commuting time
The GPI ster shows
negative growth for developed countries reflecting their environ ,
-

the
mental impact
prompting debate about
,
sustainability of current development models

Single Indicators :
These be
indicators
specific aspects of development and readily calculated
·

focus on can
·
Some examples include:
the
-

Proportion of male
population engaged in
agriculture
Energy consumption per person
-

Proportion of the population with access to clean water

-

Internet and mobile phone access

of girls completing primary education
-

No .
 25 Marker Re-Draft
A the the Euro would that
depreciation in
pound against mean

the pound has decreased in value in comparison to the Euro .

One likely impact would be an increase in the relative cost

of imports for
UL
both consumers and
producers ,
while exports become relatively cheaper for
those
1

who operate the Euro As such demand for imports fall while demand for
using
.

exports rise. This leads to an increase in not trade

·
Ph
(X-M) within the As (X-M) is a component
economy .

of demand CAD)
aggregate ,
an increase in such would

lead to an increase in AD
causing a
rightward chipt
the
42
illustrated
by movement AD.
>
-
AD2 .

Following
7 - - T RGDP
AD Real GDP
from a rise in would be a rise in

from -Y2 , highlighting a

growing economy for
investors. As such , investors see

the UK and he
investment opportunities within
begin to pour investment into

the accelerator affect. Due

economy , demonstrating to investment
being a

Mrter component of AD
,
it ships again from AD2-AD3 as investment
Real GDP
increases
, leading to another increase in
from 42-Ys.

However there,
important downfalls to growth that may be overlooked
are

such as it's impact on inflation and the environment. Real GDP is a

measure
of output so as Real GDP increases , output increases and therefore employment
levels With that the have
increase .
,
more
people in
economy
incomes to
spend resulting in an increase

the demand the

in
for goods & services .
This leads to demand-pull inflation as shown in

the (P , P2 P3)
diagram above the general price level
>

pulling in
economy
-

,
up meaning
have
an increase in the
average prices of goods & services .
Moreover investment
,
into the
economy can

the environment. An investment can lead to

major implications increase in increase
on an in

processes which
the of puels and therefore
manufacturing can
rely on use increase

pollution levels .