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General Notes

Edexcel A Level Economics

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1: International Economics: Basic Notes
GLOBALISATION (1)
Characteristics of Globalisation
• Flows of goods and services
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• Globalisation is characterised by increasing foreign ownership of companies, increases in trade in both goods and services, deindustrialisation in developed countries and increasing global media presence
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UK abolished all restrictions on capital movements in 1979- encouraged both inward and outward
investment
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Many countries have become engaged in tax competition between each other in a
bid to win lucrative foreign investment projects
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5 in recent years
Producing one less good reduces trade a lot as lots of components are not moved through supply
chains
Firms tend to produce and source locally in recessions to protect jobs due to problems of finance
Global recessions stall the globalisation process, though it tends to recover quickly when growth
returns
Income elasticity of trade is greater than one so periods of global economic growth tend to generate
globalisation

Growth Strategies of
Transnational and
Multinational Corporations

End of the Cold War
International Financial
Markets

MNCs are organisations which own or control the production of goods and services in multiple
countries
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The spread of technological knowledge and economies of scale has resulted in lower costs of
production
Led to the opening up of formerly closed economies in communist countries and a subsequent
increase in global labour supply
Growth of international financial markets clearly breeds greater interdependency
BUT ALSO greater contagion

WHILST ALL THESE FACTORS CAN HAVE THEIR OWN INDIVIDUAL IMPACTS, EVERYTHING HAS TO WORK TOGETHER
Impact of
Globalisation and
Global Companies
On…

Individual Countries

Positive

Negative

• Supply of lots of new goods and services that
previously wouldn’t have been available
• Promoted information exchange, led to a greater
understanding of other cultures
• This process of labour migration also helps reduce
geographical inequality
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• Easier for countries to attract short-term and longterm investment
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• Poor Countries- inequality
• Meagre share of the global income of the poorest
people has dropped from 2
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4% in last decade
• TNCs able to play one poor country off against
another because of the mobility of their capital to
reduce wages
• TNCs capable of causing the rules of trade to be
bent in their favour
• Wipes out entire economic systems and in doing so
wipes out the accompanying culture
• Homogenisation of cultures in the globalised world
• The greater mobility of capital means that countries
have sought to encourage inward investment by
offering the lowest corporation tax
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General Notes

Governments

Producers and
Consumers

Workers

Edexcel A Level Economics
• Allowed democracy to triumph over autocracy
• No two countries that both have a McDonalds had
fought a war against each other since each got its
McDonalds

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Food price inflation
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Gains
in
efficiency
should
bring
about
an
(known as agflation) has placed millions of the
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improvement in economic growth and higher per
world's poorest people at great risk
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The OECD Growth Project found
that a 10 percentage-point increase in trade exposure
for a country was associated with a 4% rise in income
per capita over time
• Globalisation has been both export and import
deepening, and has increased jobs overall in
manufacturing sectors
• Outsourcing and imports are only two among many
reasons for worker dislocation: technological
change, business cycle, de-unionisation
• Increased opportunities to look for work elsewhere
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Country A has an absolute advantage because it
can produce more of both goods
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Because Country B gives up fewer oranges to make more smartphones, it has a comparative advantage in smartphones (similarly Country A
for oranges)
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Country B’s PPF is shown in red
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The opportunity cost of producing an orange in Country A is 0
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Country B should specialise in producing smartphones
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Problems with Comparative Advantage and Specialisation
• Ignores transport cost, shipping, flights- it might be easier to produce a good in one country and keep it rather than trade and induce
transport cost
• Ignores the external costs of production- carbon footprint
• Ignores gains from economies of scale and increasing marginal returns and losses from diseconomies of scale and diminishing marginal
returns
• In the USA, one city produces all the carpets in America- gave this city an edge and allowed it to prosper from there, concentrated in terms
of one industry- INTERNAL AND EXTERNAL economies of scale
• Assumes factors of production can easily be switched from producing one good to producing another (which they cannot) - knowledge,
machinery and also a desire to actually produce the good
• Assumes perfect knowledge (which does not exist) and assumes homogenous products, quality makes them different, not just choices
based on quantity
• Reduces self-sufficiency, inertia, primary product dependency, fluctuations in market price, fluctatiations in demand
• Comparative Advantage is an ideal rather than a reality
• Deficit on the trade in goods and services balance could arise if a country’s goods and services are uncompetitive
• Danger of dumping by foreign firms, i
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selling at below average cost
• Increased unemployment resulting from the above
• Increased economic integration might result in increased exposure to external shocks
• Unbalanced development – international specialisation based on free trade means that only those industries in which the country has a
comparative advantage will be developed while others remain undeveloped; in other words there will be a sectoral imbalance which may
restrict the overall rate of economic growth
• Global monopolies as global (transnational) companies become larger
• Developing and emerging economies may face particular problems; for example, infant industries may be unable to compete and go out of
business; the monopsony power of global companies may mean that low prices are paid for commodities from developing countries
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PATTERNS OF TRADE (3)
Factors influencing the pattern of trade between countries and changes in trade flows between countries
• G7 share of world trade in manufacturing has fallen significantly over the past century
• Trade flows with emerging economies have increased significantly
• Trade within trading blocs, such as the EU, has also significantly increased, but at the expense of trade with more traditional trading
parters- between UK and the Commonwealth countries- trade diversion
• Growing importance of trade blocs and the growth of emerging economies
Factors

Further Explanation

Comparative
Advantage

• As economies grow and get richer, typically their comparative advantage changes
• Comparative Advantage is not a static process but dynamic: determined by factor endowments, levels of technology,
institutions and infrastructure
• Moving from primary sector, to secondary and then tertiary
• Over the last 100 years, UK has built a comparative advantage in the financial justice because of economies of
concentration - hard for us to lose this advantage in the short run
• Growth in specialist labour, education schemes, developed labour markets
• Infrastructure, communications, fast and secure internet
• Suppliers that complement the good being produced

Emerging
Economies

• Combined total for imports and exports of Chinese foods hits $3
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the global supply
chain - each country specialises in particular stages of a good’s production
• BUT: is this really benefiting all countries involved or just already dominant countries
• Impossible to have comparative advantage across whole supply chain
• Implies that more trade happens, suggests its a two way relationship when in reality just BIG ones

General Notes

Edexcel A Level Economics

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• If a currency fall in value, then we would expect to see an increase in the price of imports, domestic price of exports should remain
unchanged, though the foreign currency price should fall
• Since July 2007, the value of the Sterling has fallen approximately 20%- import prices have risen by 15%
• THEREFORE: fall in exchange rate should reduce the terms of trade BUT - in the UK’s experience the terms of trade has remained the
same - BECAUSE: export prices have risen by 15%
• Why Have UK Export Prices Risen?
• Demand for UK exports is relatively inelastic- weaker pound has encouraged exporters to put up their profit margins and increase their
prices
• Supply is inelastic
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Depreciation in the
exchange rate would automatically lead to higher sterling price- reflecting the same foreign currency price
Final Summary of Advantages and Disadvantages of Specialisation and Trade in a Global Context
Advantages

Disadvantages

• Stimulates innovation in products and processes - positive
externality- higher social welfare
• Imports can help to satisfy excess demand from consumers- acting
as a safety valve from inflation for the economy- imports are
positively related to economic growth, so in times of excess UK
demand, increased demand for imports help stop the CPI rising
by preventing domestic firms from increasing prices
• Free trade provides greater choice for consumers and competition
helps keep prices down by forcing firms to be more productively
efficient - increased overseas competition can reduce monopoly
power and force the incumbents to produce and sell at a price
closer to MATC
• Improvement in economic welfare if countries specialise in the
products in which they have a comparative advantage - skills and
specific factor endowments- lower internal opportunity cost
• Exports represent an injection of demand into the circular flow of
income - AD is made up of C+I+G+X, increasing X shifts AD to
the right which stimulates real output growth

• Piracy of intellectual property rights is a potential danger of trade
and can reduce the profitability of domestic firms- particularly
true of the pharmaceutical industry
• Import prices, although significant because the UK imports
roughly a 1/3 of all the goods it consumes are only one of many
influences on inflation
• Large overseas firms can out compete domestic firms and lead to
higher concentration ratios in an industry
• Can create anti competitive behaviour that may fall foul of the
2002 Enterprise Act
• Whole range of factors that disturb and reduce the effectiveness
of the specialisation of the production within countries
• Protectionism and Economic Insecurity
• More significant factors determining growth and X tends to
change relatively slowly- export led growth requires trade deals
that increase imports a withdrawal
• Globalisation of markets can have implications for stability within
markets as we have seen in recent financial crises

General Notes

Edexcel A Level Economics

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For example, the EU has 500 million
people to sell to
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• Enhanced competition Since firms operate in a more competitive
market, become more efficient and is a better allocation of
resources
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• But trade may have been diverted away from the least costly
producers to more expensive producers
• Trade diversion occurs when trade shifts to a less efficient
producer
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UK trades mainly with EU,
at expense of former trade links in Commonwealth
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• Benefits not spread evenly across all members

Conditions Necessary for a Successful Monetary Union
• You have to be better off in it than out of it, should be able to never want to live - this is fundamental, during good times and bad times
• Flexibility in markets so adjustments take place in prices not outputs
• Mechanisms needed to ameliorate the effects of asymmetric stocks

General Notes

Edexcel A Level Economics

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Euro, e
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Member nations required to control gov
finances, so budget deficits cannot exceed 3% of GDP
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The other three are:
• Gross National Debt has to be below 6% of GDP
• Inflation has to be below 1
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Ensures can be exchange
rate stability
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Member countries have to respond similarly to external
shocks or policy changes
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Could be through the
geographical/occupational mobility of labour, and wage and price flexibility in labour markets
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• Benefits:
• Removal of exchange rate risk
• Removal of convergence fees
• Increase total trade
• Increase the benefits of comparative advantage
• Increase FDI and increase GDP growth and employment
• Costs:
• Cannot be fine tuned for the economic situation in each individual country
• May not match required for PPP
• No power to effectively manage their monetary policy: creates other imbalances
• Financial system in the EU has enormous economies of scale - more perfectly competitive industry, can reach M
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S
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• Activities of the ECB
• Ensuring that EU prices are stable, that is below 2% but also close to 2% to avoid the danger of deflation
• Managing EU interest rates and money supply
• Providing liquidity to the system when needed
• When a European country joins the euro-area its central bank cedes much of its power to the ECB
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The main objective of monetary policy is to achieve short term price stability as this is
seen as the way to provide an economic framework for supply side growth
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• Monetary Policy in Europe
• The ECB meets on a monthly basis to determine two things:
• The level of interest rates across the euro area  - the 19 countries that share the euro
• The quantity of money in circulation
• The primary purpose of the ECB is to control euro-area inflation so that the value of the euro remains constant and strong
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If an EU country joins the euro area, its central bank cedes most of its power to the ECB
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Europe’s view can be summarised as:
• Fiscal policy is less useful than monetary policy to help stabilise the macro-economy
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• Fiscal policy is less useful than supply-side policy to help create long-term growth
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This means that while inflation cannot
rise above 2%, there is no figure which it is must not fall below
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In the UK, the target is 2% +/- 1, so that an inflation rate of less than 1% triggers a
monetary stimulus
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• Even before the financial crisis, the one-size-fits-all approach had been running into difficulty
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• The poor macro-economic performance of the Euro area
• In recent years growth rates in the EU have lagged behind those of the USA and the UK
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In
other words, the underlying problems of Europe are more to do with poor supply-side performance than ineffective demand-side policy
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The ECB itself recognises that growth problems are more down to national governments failing to come to terms with globalisation, that
with ineffective monetary policy
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However, the financial crisis of 2008-09 has forced the ECB to reduce interest rates to a historically low level, at
1
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• Critics argue that, unless the economy is flexible, a fiscal or monetary stimulus to help the financial crisis may simply drive up prices
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• The Stability Pact was established to provides a constraint against a fiscal stimulus, although the depth of the financial crisis has caused
debt levels to rise well above those set down in the pact
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Role of WTO in Trade Liberalisation
• WTO = forum for governments to negotiate trade agreements, settle trade disputes and operates system of complex trade rules
• Only international organisation dealing with the global rules of trade between nations
• Main function is to ensure that trade flows as smoothly, predictably and freely as possible
• Superseded GATT and came into being in 1995, has 163 member countries, last round of negotiations was the Doha round
• 8 successful rounds, each round reducing trade barriers
• But: since the 1994 round, not a single global trading deal has been made
• Aim is a more prosperous, peaceful and accountable economic world
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Producers and exporters know that
foreign markets will remain open to them
• Methods of the WTO are:
• Freer trade, gradually through negotiation - based on multilateral trading system, WTO’s agreements,
negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments
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Voting is only employed as a fall back mechanism or in special cases- democratic but long
• Most favoured nation: treating other people equally- under the WTO agreements, countries cannot normally
discriminate between their trading partners
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If decisions of its Dispute Settlement Body are not complied with,
it may authorise ‘retaliatory measures’ on the part of the complaining member, but no other enforcement
action is available
• Possible conflicts between regional trade agreements and the WTO:
• Trading blocs might distort world trade/adversely affect those who do not belong to them
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• Conflicts between blocs lead to a rise in protectionism
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• Some countries might argue that the WTO is too powerful, or that it ignores the problems of developing countries
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• Setting up a customs union or a free trade area could be seen to violate the WTO’s principle of having all trading partners treated equally
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However, they can complement the trading system and the WTO strives to ensure
that non-members can trade freely and easily with the members of a trade bloc
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To protect ageing and inefficient
domestic industries from foreign
competition

Steel Industry in England, nationalised in 1967, privatised in 1988, shutting steel plants- big
problem for local steel communities, lost jobs faster than they could be replaced, unemployed and
helpless in incredibly concentrated areas, massive areas of deprivation and structural
unemployment
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Protectionism usually short term until industry develops, at which point industry can trade freely
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To help
industry survive, it receives support
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Could lead to retaliation, so exports might decrease
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Tariffs result in higher prices for consumers and a loss in consumer surplus
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Original quantity of imports is Q2 – Q1, and the new quantity of imports is Q4 –
Q3
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The 2 blue triangles
show area of deadweight loss of welfare, as a result of tariff
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Sets a physical limit on a specific good imported in a set
amount of time
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• Subsidies to domestic producers makes domestic goods relatively cheap compared to imports
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• However, it depends how subsidy is spent
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The subsidy might encourage a surplus to be produced, which could be wasteful
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To whom?

Costs of the tariff

Country
Imposing the
Tariff

• Free trade benefits everyone in the aggregate- in total
will work out as less jobs
• Less real demand in the economy
• Hurt the consumer more than it will help the
unemployed - overall will do nothing
• Products will probably just be made in another low cost
country- so will only hurt the consumer
• Administrative costs
• Reduce real incomes

• Preservation of domestic employment- often for
inefficient firms
• Gain political influence and support from unions and
industries for important political reforms
• Retain cultural ethical and environmental standards
• Increased tax revenue

• Higher costs to firms
• Reduction in profits
• Possible trade war
• Lower real incomes also

• Could make them more competitive and productively
efficient
• Can target other markets more intensely where there is
no domestic competition
• Trade War- do it back to them

Country With
the Tariff
Imposed on
Them

Benefits of the tariff

• Workers directly affected by free trade are more politically visible than people lost in the wider economy
• Game theory in international relations, political gains

General Notes

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Quota or Tariff
QUOTA- expensive, tariff can always import more, no matter the price

Generating Revenue

TARIFF- set amount of money you can get from quota, limited supply, tariff is designed to collect
revenue

Limiting Corruption

TARIFF- quota could be fake or bribed for

Limiting Smuggling

TARIFF- quota may be significantly below demand, people could just pay the price

IF TARIFFS ARE TO BE SUCCESSFUL IN REDUCING THE QUANTITY OF IMPORTS:
PES needs to be ELASTIC to reduce imports
PED needs to be ELASTIC to reduce imports
Non Tariff Barriers
Bureaucratic Red Tape

Explanation
Collection or sequence of forms and procedures required to gain bureaucratic approval for
something, especially when oppressively complex and time consuming

Product Standards

Established by research and consensus
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Prevents industries from competing in a competitive market
and is a loss of consumer welfare
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By not competing in a competitive market, firms have little
or no incentive to lower their COP
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• Tariffs are regressive and are most damaging to those on low and fixed incomes, could increase income and wealth inequality
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• Is a risk of retaliation from other countries, so countries might become hostile
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BALANCE OF PAYMENTS (7)
• Components of the balance of payments
• BOP is a record of all financial transactions made between consumers, firms and gov from one country with other countries
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Exports are g/s sold to foreign countries, and are positive in BOP
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• Imports are g/s from foreign countries, and are negative on BOP
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BOP is made up of:
• The current account:
• Includes all economic transactions between countries
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Income transfers
are from net earnings on foreign investment as well as net cash transfers
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Current transfers are transfers that
have no return, such as aid and grants
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have trad been negative for UK, due to
these contributions and because of overseas aid
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Financial account involves investment
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g
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• Causes of deficits and surpluses on the current account
• A current account surplus means is a net inflow of money into circular flow of income
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General Notes

Edexcel A Level Economics

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This means UK spends more on imports from foreign countries, than earn from exports to
foreign countries
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• Appreciation of currency: a stronger currency means imports cheaper/exports relatively more expensive, which means current account
deficit worsen
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Could increase demand for imports- esp true of a country such as
UK, where consumers have a high propensity to import
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Could cause current account deficit to improve, or increase current account surplus
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Goods that UK previously made domestically have to be imported,
which worsens deficit
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• By definition, where is a current account surplus, is a capital and financial account deficit
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• Measures to reduce a country’s imbalance on the current account
• If deficit on current account, income tax could be increased
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However, might also impact domestic growth, since consumers also spend less on domestic goods
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• Fiscal policy could be effective in short term-not so much in long term
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• If taxes imposed on trading partners, is risk of retaliation- could reduce demand for exports, too
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• If ‘green taxes’ implemented, e
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carbon taxes, or if min prices on pollution permits, drops competitiveness of domestic firms- reduce
exports from domestic
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Causes exports to become cheaper, but could be
inflationary for domestic economy
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However, hard to control supply of money in reality
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• Supply-side policies could help increase productivity with increased spending on education and training, could result in country becoming
more internationally competitive- lead to a rise in exports
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In long
term, can be an effective policy
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• domestic economy made more competitive through deregulation/privatisation, force firms to lower ACs
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• If govs provide subsidies to some industries to encourage production, could be retaliation from foreign countries that see this as an unfair
protectionist policy
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Assets represent overseas holdings by UK
residents
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• Significance of global trade imbalances
• International trade meant countries become interdependent
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A surplus/deficit on current account could indicate an unbalanced economy, and could mean
country too reliant on other economies for own growth
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Could make it unsustainable in long run
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If export markets, such as EU, become weak, UK economic
performance be affected
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• Could become difficult to finance deficit in long run
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If lose confidence in US economy, would stop buying US debt
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Would be damaging to US consumers who have a lot of debt, since repayments increase, and have less disposable income as a
result
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• Since 2006, deficit with China narrowed and China’s surplus also fell
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However, gov now aims to grow economy using domestic spending, rather
than exports
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A stronger Yuan causes lower growth, lower inflation and reduces current account surplus
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• Floating:
• Value of exchange rate in a floating system is determined by the forces of supply and demand the market
equilibrium price is at P1
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• The demand for a currency is equal to exports plus capital inflows
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• Fixed:
• A fixed exchange rate has a value determined by the government compared to other currencies
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In diagram, supply been increased (S1 to S2) by selling currency so
more is on market (Q1 to Q3)
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• Managed:
• Managed exchange rate systems combine characteristics of fixed and floating exchange rate systems
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This is when exchange rate floats on market, but central bank of country buys and sells currencies to try and
influence their exchange rate
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Indian rupee fluctuates on the market, but the central bank intervenes when it falls outside a set range
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• Appreciation: when value of a currency increases
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• Devaluation: This is when the value of a currency is officially lowered in a fixed exchange rate system
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• Factors influencing floating exchange rates
• Inflation Lower inflation rate means exports are relatively more competitive increases demand for the currency
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• Speculation If speculators think currency will appreciate in future, demand increase in present, since believe a profit can be made by
selling currency in future can cause an increase in the value of the currency
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• Government finances gov with a high level of debt is at risk of defaulting, could cause currency to depreciate
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• Balance of payments When value of imports exceeds exports, is a current account deficit
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General Notes

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, China has previously kept the
Yuan undervalued by buying US dollar assets to make their exports seem relatively cheaper
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This increases demand for the currency, causing an appreciation
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• Quantitative easing:
• Used by banks to help to stimulate economy when standard monetary policy no longer effective inflationary effects since it increases
money supply, and it can reduce value of currency
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• Foreign currency transactions
• Bank of England uses this to manage UK’s gold and foreign currency reserves, as well as managing MPC’s pool of foreign currency
reserves
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China kept large reserves of the US Dollar
by purchasing government bonds, in order to undervalue the Yuan
• Competitive devaluation/depreciation and its consequences
• A devalued currency makes exports cheaper and imports more expensive may increase economic growth
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• When firms know value of currency is lower relative to another currency, it allows for them to plan investment, because know will not be
affected by harsh fluctuations in exchange rate
...

• can be costly and difficult for gov to hold large reserves of foreign currencies in order to maintain a devalued currency
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Inelastic exports will not increase significantly if price falls
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• Impact of changes in exchange rates:
• Current account of BOP (reference to Marshall-Lerner condition and J curve effect)
• A reduction in ER causes exports to become cheaper, which increases exports
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This means UK current account deficit would improve
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• J-curve effect occurs when currency is devalued
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Eventually, value of exports decreases leads to a reduction in the trade deficit
...
Could be due to trade contracts and price
inelasticity of demand for imports in short run, whilst consumers search for alternatives
...
g
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• Economic growth and employment/unemployment
• ER affects AD because affect price of exports/imports
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Households likely to switch from buying domestically produced goods to imports
...
A lower domestic inflation rate, compared to other countries, might mean consumers still purchase domestic goods
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The has a high marginal propensity to import, so households still likely to
import goods, even if pound appreciates
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Jobs might be created as a
result
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• Rate of inflation
• A depreciation in ER is likely to be inflationary due to increase in price of imported raw materials
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Moreover, since AD will be increasing due to higher level of exports, could be upward pressure on
average price level
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• A depreciation in currency means the country’s wages/production costs fallen relative to other countries
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• The effects of exchange rates on imports and exports can be remembered using the acronym SPICED: Strong Pound Imports Cheap
Exports Dear

General Notes

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• Countries can compete with price and non-price competitiveness
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g
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• Relative unit labour costs
• Unit labour cost is how much labour costs per unit of output
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E
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, countries such as China, India and Bangladesh have lower labour costs than countries such as UK/US, means a lot of
production requiring manufacturing, such as textiles, clothes and technology, moved abroad
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Quality important: German cars
famous for quality, so consumers willing to pay more for them
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• Relative export prices
• Is ratio of one country’s export prices relative to another country, and expressed as index
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• Factors influencing international competiveness
• Ability to attract FDI from MNCs
• If country can attract more FDI, increases productive capacity
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• Ability to produce or attract entrepreneurs
• Entrepreneurs help develop new ideas/ innovation
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• Ability to attract (skilled) labour from abroad
• This might fill a skills gap in, for example, IT or biotechnology, and improves the quality of the labour force
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The UK’s ability to attract FDI depends on:
• skills and flexibility of labour force, which could lower unit labour costs, UK acts as a gateway to Europe, especially with free trade within
the EU
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5% of world trade and is the world’s largest trading bloc, relatively low tax rate, Stability in the economy and financial
system
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China’s large pop=wages low, but rise of middle class/consumer spending
pushing wages up
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If price of
imports increases as result of a devaluation, then cost of raw materials would increase, would be particularly damaging to small firms
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• Quantity/quality of skills possessed by a nation’s worker
• Refers to skills of human capital
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More skilled the workforce, more
productive it is
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• Flexibility of labour
• Part time/ temp contracts help limit a firm’s costs, which lowers unit labour costs
...

• Economic stability
• If inflation low/stables, firms able to plan investment/spending, because know future prices
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, UK gov could try and reform banking sector so it is more resilient to shocks
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g
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A low income tax might attract more
skilled labour too
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• Regulation
• Excessive regulation (red tape) make it hard for firms to invest, and could raise average COP
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Should help to encourage
investment and innovation, so domestic firms can become more internationally competitive
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• Rate of innovation
• Calculated by proportion of GDP invested in new capital
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Could increase quality of g/s produced
...

• Interest rates
• Can be considered whether UK’s low IR helped international competitiveness of UK
...

However, can be seen as a deterrent for foreign investors, since get a low return on investment
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J
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inflation, which make UK goods more expensive than elsewhere
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However, means UK has a capital account surplus
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UK gets a lot of investment in
London property market
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Competitiveness is limited by ER in other countries
...

• Significance of international competitiveness:
• Benefits of being internationally competitive
• Vital in light of global economy
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SMEs tend to focus on supply-side policies for long run growth, rather than MNCs which profit driven
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• As of 2015, UK 9th most competitive country in world
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Despite being small country,
Switzerland is most competitive since is a tax haven- encourages lot of inward financial flows
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As a result, able to demand higher prices for g/s
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, only 32% of McDonald’s sales generated in America, whilst
40% from Europe and 23% from Asia, Africa and Middle East
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• Problems of being internationally competitive
• Economic importance of education and health spending considered help improve skills/productivity of human capital make country more
internationally competitive, but effectiveness of spending is questionable
...

• A lower tax rate might mean gov receives fewer tax receipts, limit public spending- depends on how important public services are to each
country, however
...
Also, supernormal
profits of large firms might be eroded away, which could limit amount of investment in R&D
...
However, could benefit recipient country

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