International Trade - Business Studies Form 4
TRENDS IN INTERNATIONAL TRADE
I.e.-commerce (electronic commerce)
Involves use of internet when buying and selling goods and services.
a. Firms can easily transact through the internet
b. It is a fast way of transacting business
c. Cheap to transact business.
Involves the removal of trade barriers.
a. leads to increase in foreign and direct investment as most of the barriers have been removed.
b. Facilitates technological transfer between countries due to free movement of factors of production
c. Enables countries to experience positive economic growth due to increase in volume of trade
- May lead to dumping of goods leading to collapse of infant industries
- Results to harmful environmental effects due to over exploitation of available resources
- Cause erosion of cultural factors.
3 ELETRONIC BANKING (E- BANKING).
This means accessing banking facilities from anywhere worldwide through the internet.
4.EXPORT PROCESSING ZONES (EPZ).
These are areas set aside by the government to set up industries for producing goods meant for export.
5.REGIONAL ECONOMIC INTEGRATION.
Economic integration has rendered geographical natural boundaries irrelevant. Regions rather than countries have emerged as key economic areas.
6. MOBILE BANKING (M-BANKING).
This involves accessing banking facilities through mobile phones.
Click video to view goods being off-loaded at the Kenya Ports Authority inland port.
Click on the video to see movement of trucks at the border post.
Click on the play button to view goods being offloaded from a ship at the port.
Click on the play button to view Nairobi International Trade Fair with local and foreign stands.
Advantages of international trade
1. May enhance efficient utilization of resources due to specialization.
2. May lead to production of high quality goods and services due to competition.
3.Competition among the trading countries leads to fair prices.
4. Promotes exchange of ideas and transfer of technology.
5. Promotes international peace and understanding.
6. Countries earn foreign exchange to pay for imports and debts.
Disadvantages of international trade
1. May lead to suffering of the importing country when relations are strained .
2. May hinder growth of infant industries due to competition from established foreign industries.
3. May lead to importation of harmful goods and services.
4.May lead to dumping of substandard goods and services from other countries.
5.Transfer of undesirable socio cultural behaviours from other countries.
International trade may lead to dumping of goods and closure of some infant industries.
BALANCE OF TRADE
It refers to the net earnings on exports minus payments for imports.
Visible exports or imports
Refers to the physical or tangible goods such as machinery, oil, coffee and tea.
Invisible exports or imports
This refers to services, for example, labour.
Favourable balance of trade
This occurs when the value of exports exceeds the value of visible imports.
Unfavourable balance of trade
This occurs when the value of imports exceeds the value of visible exports.
INTERNATIONAL MONETARY FUND (I.M.F)
It was formed to perform the following roles;
1) To ensure that member countries maintain stable foreign exchange rates for their currencies.
2) Providing financial support to member countries with intention to alleviate poverty.
3) Relieving heavily indebted member countries of debt repayment so that they can use such funds to improve their citizens living standards.
4) Providing funds to some member countries to finance their balance of payment deficits.
5) Providing a forum for member countries to consult and cooperates on matters concerning trade among them.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT(I.B.R.D)(WORLD BANK)
It was formed to perform the following functions;
a)Giving loans to countries at considerably low interests to finance economic development
b)Providing grants to finance social amenities and basic infrastructure in member countries
c)Fighting against corruption and poor governance which may lead to misuse of public funds in member countries
d)Giving advice on economic challenges that member countries may be facing
. e) Providing technical assistance and personnel to help member countries run their economic programmes.
AFRICAN DEVELOPMENT BANK
It was formed to perform the following functions;
1)Advance loans to member countries at low interest
2) Providing technical assistance and personal to member countries to run their projects
3)Providing advice on economic and development issues of member countries
4)Mobilising funds to finance private and public investment initiatives in member countries
5)Assist in coordinating development policies and plans
Refers to the economic cooperation among countries mainly from the same region. It occurs where two or more countries enter into mutual agreement to cooperate with each other for their own economic benefits.
FORMS OF ECONOMIC INTEGRATION
a) FREE TRADE AREA This is where all trade barriers are removed among members countries but each member maintains its own barriers towards non members.
b) CUSTOMS UNION This form of integration does not allow countries and sharing of trade policies or other trade barriers among member countries but harmonizes trade policies of the member countries with those of the rest of the world.
c) COMMON MARKET This is an economic integration where in addition to eliminating trade barriers among member countries and sharing of trade policies. Free movement of labour and capital among member countries is allowed.
d) ECONOMIC UNION In this economic integration a part from removing all trade barriers among themselves, the member states harmonize and unify their monetary and fiscal policies. For instance European union.
East Africa Community Headquarters
IMPORTANCE OF ECONOMIC INTERGRATION
- Widen market for locally produced goods and services.
- Leads to expansion and establishment of industries and to cater for increased demand.
- Creation of new opportunities for trade.
- Production of high quality goods and services due to competition
- Promotes international peace and understanding.
Encourages joint research.
2. Factors of production are used in the suitable, economic and profitable manner.
3. Enhances international peace and understanding.
4.Creates more employment opportunities.
5. Promotes industrial growth and development in the region.
DISADVANTAGES OF FREE TRADE
a. Less developed economies suffer stiff competition from advanced countries.
b. Some commodities in the market may result to dumping of goods which adversely affect industries.
c. A country may stagnate in other sectors due to removal of tariffs.
d. A country may become dependent on others due to specialization.
e. The non tariff trade results into loss of government revenue.
REASONS FOR TRADE RESTRICTIONS
- To protect infant industries
- Raise revenue for the government
- To discourage dumping of goods
- Creates employment opportunities
- To protect strategic industries for national security
- To expand domestic market.
METHODS OF TRADE RESTRICTIONS
1. Tariffs refer to taxes charged on imports thus raising their prices
2. Import quotas; This is the specific quantity of goods to be imported.
3. Foreign exchange controls; This is where the Government restricts the foreign exchange needed for importation.
5. Embargo/Total ban; This is where the government prohibits importation of a particular good or service.
6. Legislation; the Government may enact laws, restricting certain trade practices in the country.
ADVANTAGES OF TRADE RESRICTIONS
a. Encourages growth of local or infant industries
b. Increases government revenue
c. Controls importation of harmful products
d. protects the social and cultural values of the country
e. Discourages overdependence on imports
DISADVANTAGES OF TRADE RESTRICTIONS
a. Reduces the variety of goods and services available to consumers
b. May lead to production of poor quality goods and services due to lack of competition
c. May result to development of monopolies due to lack of competition from possible rivals
d. Reduces the volume of international trade
e. May lead to misallocation of resources .Resources may be used for other means rather than their suitable ones.
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