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Summary Economics - International specialisation and Trade
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Economics (0455)International specialization and trade
Globalization can mean different things. This is because it is a
wide term used to describe economic, social, technological,
cultural, and political changes that are increasing
interdependence and interaction between people, firms, and
entire economies across the globe.
We look at the following aspects of globalization:
The increasing reliance of economies on each other through
international trade
• opportunities for firms to buy and sell products in other
countries,
• increasing opportunities for labour and capital to move
anywhere.
• The growth of global financial markets
impact of all these changes is having on the amounts and
allocation of scarce resources, the balance of international
payments, economic growth and living standards in different
countries.
Rapid globalization is the result of increasing wealth, the
development of new technologies, and faster and cheaper
communication methods.
International specialization.
• Globalization is about worldwide specialization through
expansion of the division of labour
• Obviously, people specialize in certain skills or
occupations, specialization allows people to become more
productive. It enables them to produce goods and services
that they can do to the best of their abilities.
• This has allowed whole economies to produce more
goods and services more efficiently, but it also has its
downside as the job becomes repetitive and boring.
, • Economies specialize in the production of goods and
services that they are best able to produce because they
have the natural resources or the human resources to do
it. Specialization allows them to produce greater volumes
of goods and services more efficiently than other
countries, so they can make that good in bulk.
Comparative advantage.
• Benefits of international specialization and trade is
explained by comparative advantage.
• A region or country that can produce a good or service at
a lower average cost per unit than any other region or
country has an absolute advantage.
So, let's say for example, China and Taiwan are producing
wheat. China. produces more wheat at a lower cost than
in Taiwan. China has the absolute advantage.
• Let's say, for example, Japan is producing cars and
television. Germany is producing the same thing. Japan,
however, produces more cars and television - they have
an absolute advantage in both goods. However,
Germany's opportunity cost is lower. Then Japan. This
means Germany produces cause relatively better than
Japan. It has a comparative advantage.
International trade patterns.
• All countries need to trade internationally to survive as no
country is self-sufficient.
• The sale of exports earns the country revenues. Which
then can be used to buy imports.
• International trade therefore involves the movement and
exchange of physical goods, such as materials,
component, parts, equipment, and finished products, as
well as services, ideas, money, and labor across
international borders.
• International trade is growing rapidly as more economies
develop.
• Structural change in the global economy.
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