Changing patterns of exports and imports NOTES

Changing patterns of exports and imports

International trade	Internal trade
·         Exchange of goods and services between countries ·         Enables firms to reach a wider market, take greater advantage of economies of scale, source their products from a wider area and earn higher profits	·         Trade within a country ·         Has to arrange and pay for transport ·         May have to wait for the payment of goods.

Problems with international Trade

·         Products travelling greater distances

·         Differences in languages

·         Differences in culture may have to be taken into account in what type of product are exported and the method of marketing adopted

·         Trade restrictions

·         Foreign governments may place tariffs on imports

·         Increase in competitiveness may either make the firm more efficient or result in them struggling to survive.

·         Dealing with foreign currencies

Tariff: A tax on imports

The pattern of International Trade

 Factors which influence the choice of trading partners of a country:

·        Countries will seek to buy from countries which produce good quality products at low prices

·        They will sell to countries which have a high and stable demand for the products it is producing

·        They will trade mainly with countries close to them in tastes, development and geography or with whom they share historical links.

·        Trades will take place between developed countries.

Changes in exports and imports

Factors that influence the value of a country’s exports and imports:

·        The country’s inflation rate:

o   High inflation rate: Domestic households and firms are likely to buy a significant number of imports.

The firms are likely to experience some difficulty in exporting

o   Fall in inflation : Increases the country’s international competitiveness and would be likely to increase exports and reduce.

·        The country’s exchange rate: A fall in the country’s exchange rate will lower export prices and raise import prices. This will increase the value of its exports and lower the amount spent on imports.

·        Productivity: The more productive a country’s workers are, the lower the labour costs per unit and cheaper its products. It is likely to lead a greater number of households and firms buying more of the country’s products – so exports should rise and imports fall.

·        Quality: A fall in quality of exports relative to the other country’s exports would have an adverse effect on the country’s balance of trade in goods and services.

·        Marketing: The amount of goods imported or exported is affected by the efficiency of the marketing undertaken by foreign firms.

·        Domestic GDP: If household incomes rise, more imports maybe bought. If this occurs, exports will fall.

·        Foreign GDP: If incomes abroad rise, foreigners will buy more products. This may enable the country to export more.

·        Trade restrictions: A relaxation in trade restrictions abroad may increase exports.

The causes of a current account deficit

·        Cyclical Deficit is a deficit arising from a fall in incomes abroad or a rise in incomes at home.

·        A high exchange rate can also call a current account deficit. This is because it will raise export prices and lower import prices

·        Structural problems include a problem with the products manufactured by the firms in the country, costs incurred to produce them, prices at which they are sold and strategies adopted for marketing them

The consequences of a current account deficit

·        Country living beyond its means: Country is consuming more than what it is producing.

·        Significance of a current account deficit depends on its size, duration and cause.
A small deficit that lasts for only a short time is unlikely to cause any problem.

·        A deficit will put downward pressure on the exchange rate. Then exports will become cheaper and imports will become more expensive.

·        A deficit due to a lack of international competitiveness is more serious as it will not be self-correcting.

Population Growth NOTES

Causes of population growth

Natural increase – Birth rate exceeds death rate

Birth rate is influenced by

·         The average age of the population

·         The number of women in the population

·         Women’s fertility rate

Fertility rate is affected by

·         Age at which women marry

·         Number of women pursuing higher education

·         Labour force participation rate of women

·         Socio-economic status of women

·         Availability of family planning services

·         Availability of government support for families

·         Cost of bringing up children

·         Provision of benefits for the sick and the elderly by the government.

Birth rate INCREASES by

·         Young, average-aged population in which women marry young

·         Infant mortality is high

·         Girl education is poor

·         Women are non-working

·         Cheaper to bring up children

·         Lack or disapproval of family planning

·         Government’s cash incentives

Birth rate DECREASES by

·         More expensive to raise children

·         Legal requirement to send children to school for a number of years

·         Well paid jobs are open to women

·         Government not providing state pensions

The death rate is affected by

·         Nutrition

·         Housing conditions

·         Medical care

·         Lifestyles

·         Working conditions

·         Involvement or non-involvement in military action

Death rate DECREASES by

·         Healthy diets

·         Good housing facilities

·         Access to high quality medical care

·         No smoking

·         Less alcohol consumption

·         Not sexually promiscuous

·         Exercise regularly

·         Enjoy good working conditions

·         Their country is at peace with other countries

Net immigration occurs when more people come into the country to live than people who leave it to live elsewhere (emigrants)

The rate and pattern of migration is influenced by

·         Relative living standards at home and abroad

·         Persecution of particular groups

·         Extent of control on movement of people

·         Most migrants tend to be single people of working age

Population structure

·         The sex distribution of population indicates the number of males and females in the country

·         The age distribution is the division of people into different age groups

·         Population pyramid shows a more detailed breakdown of the different age groups

·         The age structure influences the dependency ratio

Number in the dependent age groups  x 100
       Number in the labour force

·         The dependant age groups are those below the school leaving age and those above the retirement age

Optimum Population

·         This term refers to the number of people which when combined with other resources of land, capital with existing technical knowledge, gives the maximum output of goods and services per head of the population

·         A country is said to be overpopulated if there is an excess of labour, relative to land, capital and technical knowledge

·         In such a case, the government might seek to move towards its optimum population either by introducing measures to reduce population size or seeking to in increase investment

·         A country is said to be under populated if it does not have enough of human resources to make the best use of its resources. In this case, government will encourage immigration.

Malthusian theory of population

·         Made by : Thomas Malthusian

·         Theory states: population pressures would tend to prevent the rise of living standards

Population grows at a geometric rate – 1,2,4,8,16

Food production grows at an arithmetic rate – 1,2,3,4,5

·         Results : population doubling every 25 every years

·         There are two checks to keep population within its means of subsistence:

­  Positive check: Factors which cause a rise in the death rate – epidemics, famine, infanticide and wars

­ Preventive check : Contraception, moral restraint which means delaying marriage

·         What has made food production rise more rapidly than population?

­ Improvements in technology, including fertilizers and combine harvesters

·         Malthusian’s theory overlooks that people are producers as well as conumers.

Inequality and Poverty NOTES

Income and Wealth Inequality

Income

Wealth

What  influences income? -          Skills -          Qualifications -          Full time/Part time -          State benefits Why is income unevenly distributed between households? -          Uneven holdings of wealth -          Differences in the composition of households -          Differences in the ability to learn

Wealth is a stock of assets which have a financial value. Such as shares and government bonds, give rise to income. Why is wealth unevenly distributed between households? -          Assets inherited -          Their savings -          Entrepreneurial skills Inheritance is a major reason for some people being wealthy. The more a person can save, the wealthier they become. Thus Wealth creates wealth.

Influence of government on the distribution of income and wealth

Why would the government decide to influence the distribution of income and wealth?

• -          - If a situation arises where a very uneven distribution may be socially divisive.
• -          - To make sure that everyone has access to a certain standard of living

Ways of influencing the distribution :

·         Taxation : Progressive taxes make the distribution of income and wealth more homogenous

·         Provision of cash benefits(unemployment) :  helps maintain a reasonable standard of living

·         Provision of free state education and health care : ensures that everyone has access to these essential services and it may also offer the people an opportunity to improve their living standards

·         Using labour and macroeconomic policies

·         Minimum wage legislation

·         Regional Policy

·         Measures to reduce unemployment

The Nature and Causes of Poverty

§  Absolute poverty: occurs when people do not have access to basic food, clothing and shelter

§  Relative poverty: occurs when people are poor relative to other people in the country. They are unable to participate fully in the normal activities of the society they live in

§  Causes of poverty :

-          Being unemployed

-          Being low paid

-          Falling ill

-          Growing old

Possible Government Policy Measures to reduce Poverty

Ø  Improving the quantity and quality of education : Can increase job prospects and earning potential of the poor and their children

Ø  Increasing aggregate demand : It increases employment. Since demand of products is more, there will be more demand of workers to supply the products

Ø  Introducing or raising national minimum wage : To tackle the problems of people facing low living standards due to low wages

Ø  Encouraging more MNCs to set up in the country : Creates more employment opportunities

Ø  Providing benefits or more generous state benefits : The elderly, sick and disabled may not be able to earn and may not have any savings to support them. Giving them benefits that help them eschew absolute poverty

Measures to Raise Living Standards

Ø  Improving education and training will enhance their knowledge

Ø  Reducing unemployment

Ø  Improving health care

Ø  Increasing and improving the house stock

Ø  Improving the working conditions

Ø  Reducing pollution

Different stages of development NOTES

Economic Development

·         Wider than economic growth

·         Involves improved living standards, reducing poverty, expanding the range of economic/ social choices and increasing freedom/self-esteem.

·         As economy develops, population increases.

The different stages of development

·         Developed economies have high incomes, high living standards, a high proportion of workers employed in the tertiary sector, high levels of productivity and high levels of investment.

·         Developing economies tend to have lower incomes, lower living standards.

·         United Nations divides countries into three levels :
- High human development
- Medium human development
- Low human development

·         World Bank divides countries into :
- High income
- Middle income
- Low income

Measures of development

·         Common method used is Real GDP per head. It measures important aspects – like material living standards but does not measure all aspects of development.

·         A wider measure used is Human Development Index (HDI) which involves life expectancy, educational attainment and real GDP per head.

·         The following is how countries are classified in HDI :
- Over 0.8 – high development
- 0.5 – 0.79 – medium development
- Below 0.5 – Low development

·         Costa Rica, Vietnam and Zaire are ranked higher in terms of HDI than real GDP per head.

·         Kuwait, Pakistan and Saudi Arabia are ranked higher in terms of real GDP per head than HDI

Characteristics of DEVELOPING Economies

Ø  Low incomes per head : On an average, generally people in developing countries are poorer than people in developed countries

Ø  Low levels of saving due to low income : Saving of a country where average income is low, is likely to be low

Ø  Low life expectancy and high infant mortality rate : The expectation to live upto a certain age is different in each country. For example in Japan it is 83 years but in Zimbabwe it is 37 years

Ø  High rates of population growth : In developing countries, the birth rates exceeds death rates and there is a high dependency ratio.

Ø  Low levels of education and health care : Results in low levels of productivity

Ø  Low levels of capital goods and poor infrastructure : Reduce productivity

Ø  Poor housing and sanitation : A significant number of people may not have access to clean water for drinking and washing

Ø  Relatively high number of workers, employed in the primary sector : Underemployment can be high which may lower productivity

Ø  Concentration on a narrow range of exports : Developing countries can be subject to the underdevelopment trap or vicious circle of poverty.

LOW INCOME

                           

                                                                 

LOW SAVING

LOW PRODUCTIVITY

LOW INVESTMENT

 

The Vicious Circle

Differences between developing countries

·         No two developing countries are the same and a developing country may not have all the characteristics expected

·        Some such as Brazil, may lack resources to meet basic human needs. However its real GDP per head is rising and the country is slowly moving from low skilled to higher skilled manufacturing. Its financial sector is also growing

Why governments seek to achieve development

-          Higher Real GDP

-          Higher Living Standards for their citizens

-          Expansion of range of economic and social choices

·        Higher Real GDP : With this, country’s population should be able to enjoy more goods and services. When the income is distributed evenly and poverty is reduced,  all the people will have access to higher living standards which will help achieve development.

·        Higher living standards : A reduction in poverty will bring benefits to both the poor and the wider society.
Benefits to the poor :

-         Access to basic necessities

-         Improves mental and physical health

-         Raises expectations

Benefits to the wider society :

-          People become more productive  which will lower the country’s average costs

-          Makes the country more internationally competitive

-          Reduces pollution as people have more access to sanitation and environmentally friendly forms of heating.

·        Expansion of range of economic and social choices : Includes increasing access to education, health care and participation in the political process. This improves the quality of people’s lives and enhances the future economic performance.
Economic development can create a virtuous circle.

HIGH INCOME

                           

                                                    

HIGH SAVING

HIGH PRODUCTIVITY

HIGH INVESTMENT THE VIRTUOUS CIRCLE