Balance of Payments - Unit 2

Trade

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Content Contributors
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Carys Brown

Learning Objectives

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Composition of Trade
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International trade is extremely important in modern economies as it increases living standards as it allows Australia to gain more goods outside of their maximum output. Also, it means that we can import goods that have been more efficiently produced overseas. 

Australia is considered a 'small open economy,' referring to the size of our two-way trade with other countries. This ranking means that internation trade plays a large role in our economy, however, trade is not as large as other countries, such as China or the US. 


The composition of trade refers to the types of goods being imported and experted. In Australia, the composition of trade is comprised of natural resources. 

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Factors Impacting Trade
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Many aspects of globalisation affect trade:

  • New Trade Agreements: These agreements affect the quantity and security of trade globally. For instance, tarriffs. 

  • Foreign Investment: This includes transportation technology and the developement of global supply networks. If transportation process improve, trade witll increase. 

  • Industrialisation: Especially in East Asia, including China. The rapid rate of growth in these  countries require high levels of natural resources being imported, increasing international trade.

Aspects of international competativeness also impact Trade: 

  • Inflation Rates: When inflation rates increase within countries, it decreases their international competative as their products are more expensive. 

  • Wage costs: When countries have to compete with countries with lower wage costs, it decreases their international competativeness. 

  • Productivity Growth: The refers to the level of output that a country produces. 

  • Value of the Currency: Changes in the Australian dollar affect trade. Generally, a reduced value makes imports more expensive.

  • Developement of Production Capacity: If a countrie can produce more, they can make more income. 

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