What is globalisation? 

Globalisation is the expansion of world trade in goods and services which has resulted in increased interdependence between communities, regions and international economies.

What are the characteristics of globalisation?

1. High level of labour migration - due to greater interconnectedness, workers can seek better employment and living standards in other countries.
2. Increase in trade of goods and services - fewer trade barriers and an increase in interconnectedness means that goods and services can be easily bought and sold between different countries. 
3. Increase in technology transfers - this is where technology is moved between countries. This is due to an expanding global marketplace which helps to foster partnerships between nations and companies seeking innovation.
4. Spatial division of labour - companies can easily outsource some of their stages of production to areas with lower costs or greater expertise, maximising efficiency.

What factors contribute to globalisation?

1. Advancements in technology - better technology will facilitate faster, more efficient communication, information access and trade processes. 
2. Liberalisation of trade and investment - an increase in free trade, reductions in tariffs and fewer restrictions on FDI (Foreign Direct Investment) helps to encourage economic integration between nations. 
3. Improvements in transport infrastructure - better transport infrastructure will facilitate faster and more efficient movements of goods and labour, improving global interconnectedness. 
4. The expansion of multinational corporations (MNCs) - this is the increase in companies which have their headquarters in one country, and their major investments in another. As these corporations operate across borders, they help to integrate economies around the world.

What are the impacts of globalisation on workers?

Workers may benefit from higher wages as there might be increased demand for the worker's labour as a result of global demand. Moreover, globalisation is also likely to create jobs in some areas, as firms attempt to keep up with global demand. 

However, worker displacement may occur as some workers may be replaced with cheaper, higher-skilled labour from elsewhere. Workers may also be exploited, as in less economically developed countries (LEDCs) there is often less regulation and multinational corporations (MNCs) may be able to easily exploit workers. 

What are the impacts of globalisation on consumers?

Consumers are likely to have access to a greater range of goods and services as, due to globalisation, there are more firms to purchase goods and services from. Prices are also likely to be much more competitive due to there being more firms and hence the market being less concentrated. 

However, globalisation may lead to the homogenisation of goods and services over time, leading to a loss of diversity of goods and services. Dietary problems may also occur, especially in less economically developed countries where fast food is arguably cheaper than healthier alternatives. This can lead to health issues such as obesity.

What are the impacts of globalisation on producers?

Firms can expand their operations as there is a larger market to sell to. There are also increased resources available to firms as they can source resources from all over the world. Lower labour costs in other countries may also lead to higher profits if the firm moves some of its operations to these countries with lower wages.

However, there is the possibility that firms will be outcompeted by other firms on the international market. 

What are the impacts of globalisation on the government?

Countries with favourable tax systems (normally with low corporation tax rates) are likely to receive large amounts of Foreign Direct Investment (FDI). This is likely to increase tax revenues for the government. 

However, government officials may be bribed by multinational corporations (MNCs). This reduces the power of the government.

What are the impacts of globalisation on the environment?

Some countries use the proceeds of the economic growth created to reduce the environmental effects of globalisation. 

However, globalisation is likely to have mostly negative consequences for the environment, as there is likely to be more deforestation to meet the demand for resources, and increased demand for non-renewable resources.

What are the impacts of globalisation on economies?

Globalisation is likely to boost employment in economies where labour is cheap. Globalisation is also likely to lead to a better balance of payments in less economically developed countries (LEDCs) as they grow their export market.

However, some economies may experience structural unemployment if their industries are outcompeted by industries in other economies. There is also likely to be a brain drain from less economically developed countries (LEDCs) to more economically developed countries (MEDCs), depriving LEDCs of skilled labour. This is because workers normally receive higher wages and experience better living conditions in MEDCs.

What is absolute advantage and what is comparative advantage? 

Absolute advantage is where, when given all available resources, one economy can achieve a higher level of production compared to any other economy. This concept is linked to productive efficiency as it relates to producing at the lowest possible average cost. 

Comparative advantage is where, when given all available resources, one economy can produce at a lower opportunity cost compared to any other economy. This concept is linked to allocative efficiency as it maximises welfare.

What is an example of absolute and comparative advantage?

Country B has an absolute advantage in the production of both strawberries and bananas, however, Country A has a comparative advantage in the production of bananas. This is because Country A has a lower opportunity cost than Country B when producing bananas. 

This is because the opportunity cost of Country A producing 1 banana is 1.25 strawberries (16:20 = 1:1.25). Whereas the opportunity cost of Country B producing 1 banana is 3 strawberries (20:60 = 1:3). 

If Country A were to split its resources equally, it would produce 8 bananas and 10 strawberries. If Country B were to split its resources equally, it would produce 10 bananas and 30 strawberries. This would result in a total of 18 bananas and 40 strawberries. If Country A were to specialise in producing bananas (i.e. the good where it has a comparative advantage), Country A would produce 16 bananas and 0 strawberries. If Country B were to focus more on producing strawberries, it could produce (for example) 3 bananas and 51 strawberries. This would result in a total of 19 bananas and 51 strawberries, which is greater than the 18 bananas and 40 strawberries, hence, when countries specialise in the goods where they have a comparative advantage, global output increases.

Thus, Country A should specialise in producing bananas as it has a lower opportunity cost than Country B. Country B should specialise in the production of strawberries. The two countries then trade to get as many strawberries or bananas as they require. 

As demonstrated above, if the PPF of the two countries has the same gradient, trade will not be worthwhile. This is because neither country has a comparative advantage as they have the same opportunity cost. 

What are the assumptions and limitations of the theory of comparative advantage?

1. Trade barriers are likely to exist and will distort prices. Trade barriers hinder the efficient allocation of resources, hence impacting the validity of comparative advantage.
2. Transport costs are ignored. These costs are likely to alter comparative advantage dynamics.
3. Comparative advantage assumes that the factors of production are perfectly mobile. It assumes that the factors of production can swiftly and easily move to producing a different good or service, this is unlikely to be the case in reality where the factors of production are likely to face constraints. 
4. The comparative advantage model is oversimplified. Countries don't just produce two goods or services, hence the model is not an accurate depiction of reality.

What are the advantages of specialisation and trade?

1. Greater efficiency. When economies specialise in producing the goods and services where they have a comparative advantage, they become more efficient and productive, leading to increased output levels with the same or fewer resources.
2. Increased consumer choices. Consumers have access to a broader range of goods and services than what they originally had access to domestically. 
3. Increased global output. By countries specialising in the goods and services where they have a comparative advantage, global output levels increase.
4. Larger markets to sell to. Firms can sell on the international market which is likely to be much larger than their domestic market.

What are the disadvantages of specialisation and trade?

1. Structural unemployment. Some domestic industries are likely to be outcompeted by international competitors, potentially leading to job losses if the industry is no longer economically viable.
2. Income inequality. The benefits of trade are unlikely to be evenly distributed, this is because some individuals or regions may benefit from trade significantly, whilst others may suffer significantly from trade.
3. Dependency and vulnerability. Countries may become over-reliant on overseas demand for their goods and services. Moreover, countries that rely heavily on imports may be vulnerable to supply chain disruptions and changes in global trade policies.
4. Negative environmental consequences. Shipping goods and services around the world is likely to be very polluting and harmful to the environment. Moreover, production processes in some industries might be less regulated in other countries, also leading to pollution and other environmental issues.

What factors influence the pattern of trade between countries? 

1. Comparative advantage. Changes in comparative advantage are likely to lead to a country changing its production focus and seeking new trade partners, hence realigning a country's import-export dynamics.
2. Emerging economies. Emerging economies often need to import lots of resources to produce goods and services, and are also likely to export lots of goods and services in order to create economic growth.
3. Trading blocs and bilateral trading agreements. These increase the amount of trade between the countries involved. However, this is likely to reduce trade with countries that are not part of the trading bloc or agreement.
4. Exchange rate. The exchange rate determines the relative price of imports and exports and will hence have an impact on a country's import-export dynamics. A weaker currency will, ceteris paribus, lead to more exports and fewer imports. A stronger currency will, ceteris paribus, lead to more imports and fewer exports.

What is meant by terms of trade?

Terms of trade is the relative price of exports in terms of imports. It’s also known as the ratio of export to import prices.

The terms of trade are said to improve or become more favourable when export prices rise relative to import prices. The terms of trade worsen when import prices rise relative to export prices.

How is a country’s terms of trade calculated? 

(Index of export prices/index of import prices) x 100.

This is where the index of export prices is the average price received by a country for its exports, and the index of import prices is the average price paid by a country for its imports.

What factors influence a country’s terms of trade?

1. Changes in productivity. Changes in productivity levels are likely to impact the costs of production of a business. This will affect export and import prices. Higher productivity levels in a country will likely lead to more competitive export prices and, ceteris paribus, better terms of trade.
2. Relative inflation rates. Inflation rates in countries are likely to have an influence on the terms of trade. If a country has low domestic inflation compared to its trading partners, this is likely to lead to an improvement in its terms of trade as its exports are likely to be relatively cheaper than other countries. 
3. Changes in trade policies and tariffs. If barriers to trade are imposed such as tariffs, they are likely to influence export and import prices, hence impacting a country's terms of trade.

What are the impacts of changes in a country’s terms of trade?

1. Income distribution. Improved terms of trade may benefit sectors which are heavily involved in exporting, which may boost incomes in these sectors. The opposite also applies, when the terms of trade worsen, it could adversely affect these sectors which are heavily involved in exporting.
2. Economic growth. If the terms of trade improve, a country may receive a higher value for its exports relative to its imports. This export revenue can be used to fund investment and economic growth.
3. Inflation and purchasing power. An improvement in the terms of trade may lead to lower import costs, helping to reduce inflationary pressures and improve the purchasing power of consumers.

What are the types of trading blocs?

A trading bloc is a group of countries that join together to reduce trade barriers among themselves and hence enhance economic cooperation. Most trade agreements are bilateral agreements which take place between two countries, but there are also multilateral agreements between three or more countries. There are different forms of trading blocs:

1. Free trade areas (FTA). In a free trade area, member countries trade freely with each other by eliminating and reducing barriers to trade. This promotes trading within the area. Countries in a free trade area can maintain independent external trade policies with countries that are not part of the free trade area. 
2. Customs unions. This is a form of regional trade agreement where member countries do not impose tariffs upon each other, but agree to impose a common external tariff on imports from non-member countries. 
3. Common markets. This is a form of regional agreement where member countries eliminate internal barriers to trade and also allow the free movement of factors of production among themselves. Common markets also normally have a common external trade policy with non-member countries.
4. Monetary unions. This is a form of regional agreement where member countries adopt a common currency and unified monetary policy. As of 2023, the Eurozone serves as a good case study as it has had success in simplifying cross-border transactions between member states, however, some countries have struggled as they haven't had direct control over their monetary policy such as Greece during the Eurozone debt crisis.

What are the benefits of regional trade agreements?

1. Infant industry protection. Countries in a regional trade agreement may impose a common external tariff on a good or service to protect their infant industries.
2. Increased specialisation. Free trade between countries in a regional trade agreement makes it easier to find out which country has a comparative advantage in the production of a good or service. This makes it easier for countries to specialise, leading to increased exports and, ceteris paribus, economic growth.
3. A rise in employment opportunities. The potential for free movement of labour between countries in a regional trade agreement means that workers can easily fill job vacancies in companies within other countries in the regional trade agreement.
4. Larger markets. Regional trade agreements create a larger, more unified market. This larger market provides businesses with access to a large customer base, giving the business room to expand and exploit economies of scale. 

What are the costs of regional trade agreements?

1. Trading blocs can distort world trade, and inefficient producers within a bloc are protected from more efficient ones outside the bloc (known as trade diversion).
2. Reduction in competition if firms are driven out of the market. This can lead to oligopolies. 
3. Loss of resources as wealthier countries attract capital and labour. This can lead to regional inequalities. 
4. Retaliation against the creation of a trading bloc may lead to the creation of other trading blocs which can cause disputes. 
5. Creating and maintaining trade blocs/bilateral agreements can bring very little if lots of government resources are used up in this process.
6. Economic efficiency would be maximised if there weren't any barriers to trade such as trading blocs.

What is trade creation and diversion?

Trade creation is where a country substitutes its domestically produced high-cost goods and services with lower-cost imports following a trade agreement.

Trade diversion is where consumption shifts from more efficient external producers which are outside a trade agreement to a less efficient producer within the trade agreement, leading to a loss in economic welfare.

What is the role of the World Trade Organisation (WTO)?

The World Trade Organisation (WTO) aims to facilitate international trade by persuading countries to reduce trade barriers and by providing a platform for member countries to address trade-related issues. 

The WTO was established in 1995 and replaced the General Agreement on Tariffs and Trade (GATT).

The WTO conducts trade negotiations in rounds. During these rounds, member countries negotiate agreements regarding trade rules.

What are possible issues with the WTO? 

It has been argued that the WTO takes too long to settle disputes, and the WTO's dispute settlement mechanism is too slow and cumbersome, leading to delays in resolving trade disputes.

Concerns have also been raised regarding the marginalisation of developing countries in WTO negotiations, as some have suggested that there could be an inbuilt bias favouring developed nations. 

It has also been argued that the WTO's mandate to promote free trade can conflict with other policy objectives such as environmental protection and the rights of workers.

What are the reasons for restrictions on free trade?

1. To protect jobs. If foreign producers can outcompete domestic producers then domestic industries may collapse resulting in job losses and political instability.
2. To help the balance of payments. Trade barriers may reduce imports which can help the current account. However, this may lead to retaliation which could lead to a fall in exports and thus could be counter-productive.
3. Infant industry argument. It is argued that when an industry is first being developed in a country, it needs to be economically protected as it is not going to be able to compete with long-established industries with large economies of scale. Thus restrictions on free trade may be imposed to support these infant industries.
4. Protection against dumping. Dumping occurs when a country has excess goods that it needs to get rid of. Thus they "dump" the goods on the international market at very low prices, meaning other producers fail to compete with these lower prices. 

What are the types of restrictions on trade? 

1. Tariffs. Tariffs are taxes that are imposed on imported goods. Tariffs lead to imported goods becoming more expensive, leading to consumers purchasing more domestic goods. The effects of a tariff can be shown with a diagram.

Before the tariff is applied, Q1-Q is the number of imports at the international price P on global markets. After the tariff is applied, the international supply curve shifts upwards to the international + tariff supply curve. The quantity of imports is now Q3-Q2 at price P1. This generates tax revenue for the government of area 3 (blue shaded area). There is a deadweight welfare loss of area 2+4 (red-shaded areas). There is a consumer surplus loss of area 1+2+3+4 and a producer surplus gain of area 1 (green shaded area). 

2. Quotas. A quota is a restriction on the quantity of certain goods imported into a country. This leads to consumers purchasing from domestic producers if the quota has already been used up.
3. Subsidies to domestic producers. Subsidies to domestic producers will reduce the costs of production for domestic producers. This should allow them to become more price competitive on international markets.
4. Non-tariff barriers. These may include barriers such as import licenses and technical regulations. 

What are the impacts of protectionist policies on consumers?

Consumers may face higher prices for imported goods due to tariffs. This may potentially lead to decreased standards of living for the consumer, as they are forced to spend more for goods that could have been cheaper if imported freely. Trade barriers may also limit the choice of goods available to the consumer. 

What are the impacts of protectionist policies on producers?

Domestic producers are likely to benefit from protectionist measures. This is because protectionist measures are likely to ease competition pressures. This is likely to lead to increased profits for domestic producers. However, protectionist policies may lead to domestic producers becoming inefficient. Moreover, if domestic producers import their raw materials from abroad, these may now be more expensive if tariffs are imposed on imports. As a result, this may lead to a rise in the costs of production for these producers, leading to a fall in profitability.

What are the impacts of protectionist policies on the government?

Due to the government revenue which is likely to be raised from the imposition of tariffs, governments are likely to benefit from an improved fiscal position. However, imposing tariffs is likely to have a significant administrative cost for the government.

What are the impacts of protectionist policies on living standards?

Protectionism often reduces the choice of goods and services available and can also lead to an increase in the price of goods and services available leading to a fall in living standards.

What are the impacts of protectionist policies on equality?

Whilst protectionist policies are likely to protect jobs in certain industries, and hence incomes and thus help maintain income equality, protectionist policies may also lead to higher prices for imported goods, which is likely to disproportionately affect lower-income households.

What are the components of the balance of payments?

The balance of payments is divided into three accounts. 

1. Current account. The current account records all the financial transactions concerning a country's trade in goods, services, income and transfers.
2. Financial account. The financial account is concerned with changes in the ownership of financial assets and liabilities. There are 4 main categories: FDI, portfolio investment, other investment and reserve assets.
3. Capital account. The capital account records transactions related to non-produced, non-financial assets between a country and the rest of the world.

What are the causes of a current account deficit?

1. Weak competitiveness. This could be due to low productivity levels, leading to high average costs, meaning firms are not that price competitive on international markets. This could also be due to firms producing poor quality goods and services, meaning the country is not that non-price competitive, resulting in less demand for exports, and more demand for imports which are of greater quality. This may lead to a current account deficit.
2. High domestic inflation. If domestic inflation is higher relative to international rivals, this may make the country's exports less price competitive and may make imports from foreign countries with low inflation more price competitive, causing exports to fall and imports to rise. This may lead to a current account deficit.
3. Economic growth. If a country wants to produce more goods and services to grow, the country may have to purchase factor inputs from abroad, leading to a rise in imports. Higher national income also draws in more imports. This increase in imports may result in a current account deficit.
4. A rise in the exchange rate. This makes imports relatively cheaper and exports relatively more expensive, meaning that imports are likely to rise and exports are likely to fall. This is likely to result in a current account deficit.

What are the causes of a current account surplus? 

1. Low economic growth. Low economic growth is symbolic of a low national income, meaning that consumers do not have that much money to spend on imports, resulting in a fall in spending on imports, potentially leading to a current account surplus.
2. Low domestic inflation. Low domestic inflation makes the country's exports more price competitive compared to foreign rivals. This may help to boost exports, potentially leading to a current account surplus.
3. Protectionist measures. Protectionist measures may mean that a country can limit its imports potentially leading to a current account surplus.

How can a country's imbalance on the current account be reduced? 

If a country has a current account deficit, a country can try to reduce aggregate demand in the economy using contractionary monetary policy or contractionary fiscal policy. This can help to reduce the demand for imports, helping to reduce the size of the current account deficit.

If a country has a current account deficit, supply-side measures can also be used to counteract issues such as poor productivity or low-quality products through investment in education and infrastructure. This will help to improve the competitiveness of exports which is likely to boost exports and help to reduce the size of a current account deficit.

If a country has a current account deficit, expenditure-switching policies can also be employed to encourage domestic consumers to switch their expenditure from imports to domestic products, for example by reducing VAT or by imposing tariffs. This will help to reduce imports and reduce the size of the current account deficit.

What is the significance of global trade imbalances?

Countries running large current account deficits may choose to employ protectionist policies to reduce the size of the deficit. This may lead to retaliation and potential trade wars. Deficit countries may also run up large external debts.

Countries with a current account surplus save more than they spend which is likely to depress global aggregate demand.

What is the exchange rate? 

The exchange rate is the value of one currency in terms of another.

What is a floating exchange rate?

A floating exchange rate is where the value of a currency depends on the interaction of the market forces of supply and demand, without intervention from government authorities.

What is a fixed exchange rate? 

A fixed exchange rate is where the value of a currency is set and maintained by government authorities or a central bank at a certain value in relation to another currency or a basket of currencies.

What is a managed exchange rate?

A managed exchange rate is where the value of a currency is allowed to fluctuate in response to market forces, but a government authority or central bank may intervene and affect the value of the currency to meet certain macroeconomic objectives.

What is appreciation/depreciation and what is revaluation/devaluation of a currency?

An appreciation of a currency is a market-driven increase in the value of a currency relative to other currencies. Depreciation of a currency is where there is a market-driven fall in the value of a currency relative to other currencies.

A revaluation is a deliberate action taken by a government or central bank to increase the value of its currency relative to other currencies. A devaluation is a deliberate action taken by a government or central bank to decrease the value of its currency relative to other currencies.

What factors affect floating exchange rates?

The value of currencies with a floating exchange rate is determined by the interaction of supply and demand. Thus changes in supply and demand will affect the value of the currency.

What are the factors affecting demand for a currency?

1. Level of demand for the exports of a country. In order to purchase the exports of a country, economic agents require the currency of that country in order to purchase the exports, so a high demand for the exports of a country will hence lead to a high demand for the currency.
2. Level of FDI into the country. In order to invest in a country and purchase the factors of production, economic agents require the currency of that country. Hence, high amounts of FDI will lead to high demand for the currency.
3. Interest rate changes. For example, in the UK, higher interest rates incentivise economic agents from abroad to invest in UK bank accounts in pounds, hence leading to an increase in demand for pounds.
4. Level of speculation on the currency. If investors believe the value of a currency will rise in the future, they will purchase the currency in the hope that they can sell the currency for a greater value than they bought it at if the currency appreciates in value, hence increasing the demand for the currency.

What are the factors affecting the supply of a currency?

1. Level of demand for imports from other countries. If economic agents demand lots of imports, they will sell their domestic currency for foreign currency to purchase these imports, leading to an increase in the supply of domestic currency.
2. Level of investment into other countries. When investment is high into other countries, economic agents will sell their domestic currency for foreign currency in order to purchase the factors of production in other countries, leading to an increase in the supply of domestic currency.
3. Interest rates in foreign banks. High interest rates in foreign banks are likely to incentivise economic agents to save in these foreign banks. In order to do so, economic agents will have to exchange their domestic currency for foreign currency, hence leading to an increase in the supply of domestic currency.
4. Level of speculation on foreign currency. If economic agents believe that the value of a foreign currency will rise in the future, they will exchange their domestic currency for this foreign currency, leading to an increase in the supply of domestic currency.

What are the main methods that governments can use to influence the value of their currencies?

1. Foreign exchange intervention. Governments can directly buy and sell their currency using gold and foreign currency reserves to influence the value of their currency.
2. Interest rates. Central banks can adjust interest rates which will influence the supply of money, attracting or repelling "hot money". Higher interest rates attract foreign investors seeking higher returns, leading to an inflow of hot money, strengthening the currency.
3. Capital controls. Governments can restrict capital flows. For example, governments can place limits on currency transactions.

What is competitive devaluation/depreciation and what are its consequences? 

This is where countries will intentionally drive down the value of their currencies to gain trade advantages. This is because the value of their currencies will be relatively cheaper, making exports more price-competitive, and boosting exporting industries. 

However, this can exacerbate global trade imbalances and may lead to greater inflation as imports become more expensive.

What is the impact of changes in the exchange rate on the current account?

The Marshall-Lerner condition states that a currency devaluation will be effective and have a positive impact on the current account if the sum of the price elasticities of demand for its exports and imports is greater than one.

The J-curve states that, in the short run, once a currency devaluation has taken place, the current account will worsen before it improves. This is because it takes time for economic agents to realise that imports are relatively more expensive and exports are relatively cheaper. Demand is inelastic in the short run. As exports rise and imports fall, over time, the current account will improve. Thus, in the long run, the current account will improve as demand becomes more elastic. The J-curve is shown below.

What is the likely impact of changes in the exchange rate on economic growth and unemployment?

A weaker currency is likely to boost exports and lead to a fall in imports, resulting in a boost in aggregate demand. This will lead to a rise in real output and an increase in derived demand for labour, hence likely leading to economic growth and a fall in unemployment.

What is the likely impact of changes in the exchange rate on the rate of inflation?

A weaker currency will make imports more expensive which will increase the rate of inflation. Moreover, as exports rise and imports fall, aggregate demand will increase, likely leading to a further rise in the rate of inflation if there is a small negative output gap and the economy is near full employment of resources.

What is the likely impact of changes in the exchange rate on Foreign Direct Investment (FDI)?

A weaker currency will likely lead to an increase in FDI into the country as it has become cheaper to invest in. However, continuous falls in the value of the currency may discourage FDI as continuous falls in the value of the currency may infer that there are difficulties present within the economy.

What are common measures of international competitiveness?

1. Relative unit labour costs. As labour costs take up a significant proportion of an industry's costs, relative unit labour costs will dictate how price competitive a country can be on the international markets.
2. Relative export prices. Relative export prices compare the price of a country's exports to the export prices of its competitors. This indicates whether a country is producing cheaper exports than its rivals.

What factors influence international competitiveness? 

1. Productivity. Higher productivity levels mean that a country will be able to produce goods at a lower average cost, reducing costs and improving international competitiveness.
2. Level of innovation. If innovation rates are high in a country, this will lead to more high-quality goods being produced in the country, making the country more non-price competitive.
3. Access to finance and interest rates. If there is easy access to finance with low interest rates, firms can easily and cheaply invest, allowing them to produce at a lower cost, and produce goods of higher quality, improving how internationally competitive the country is.
4. Infrastructure. Efficient infrastructure networks lead to a fall in transport costs for firms and enhanced connectivity, improving competitiveness.
5. Exchange rates. A weak currency will make exports relatively cheap, meaning that exports are more price competitive, improving competitiveness.

What are the advantages of being internationally competitive? 

1. A competitive economy attracts lots of FDI. This will likely lead to an increase in employment, national income and output. 
2. As a result of higher exports, there will likely be a boost in aggregate demand as injections into the circular flow of national income have increased, leading to, ceteris paribus, increases in real output. 
3. Becoming more internationally competitive will help to reduce a country's deficit on the current account.

What are the problems of being internationally uncompetitive? 

1. Reduced export revenues will mean that firms in export industries may shut down, potentially leading to a rise in the unemployment rate and lower incomes.
2. Countries may experience trade deficits as they import more than they export, which may exacerbate trade imbalances.
3. Income inequality may worsen as exporting industries fall into decline.