Unit 2 Macro: Can Exports Drive a Recovery?

UK exports

UK overseas trade is in the news today with the release of a batch of figures showing a record level of UK exports – see BBC news – UK trade deficit cut by higher exports.

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Exports represent an injection of demand into the circular flow of income and spending, and if a sufficiently large rise in the volume of goods and services sold overseas can be sustained, this will help maintain aggregate demand at a time when private sector consumption is likely to remain very weak. There might also be positive multiplier effects from a more vibrant export sector and possible accelerator effects if increased demand provides an incentive for export businesses to increase their planned capital spending.

Trade

Evan Davis has written extensively about the ever changing landscape of competitive advantage in the world economy and the need for the British economy to rebalance and shift resources in industries where value added is high and where the income elasticity of demand going forward is likely to be strongly positive. For those who missed the original series, there are some tremendous resources available through a special section of the Open University web site.

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Keynes Prize: The Economics of Cities (1)

In this first extract of the winning essay in the 2011 Keynes Prize for Economics, Ross van der Watt asks “How important are Cities to Economic Growth?”

Cities are the building blocks of so much of human culture and innovation. Through people being brought together in dense urban conditions ideas are able to exchange freely from person to person and this exchange occasionally creates miracles of human creativity. Our cities are the centre point of our economic growth, concentrating the best of a country’s minds in close proximity so that the combination of their knowledge may drive forward the innovation that has seen the human race greatly raise its standard of living, health level, and productivity.

Perhaps the clearest reason as to why cities are so necessary to growth is that productivity, it seems, rises with density. On average, as the share of the country’s urban population rises by 10%, the country’s per capita output increases 30%¹. This may be due to many different urban aspects. For one, there are much greater employment opportunities due to the scale of urban markets and therefore individuals can discover what they’re best at. Secondly, modern statistical evidence also finds that individuals work longer hours if they live in metropolitan areas with numerous competitors in their own occupational niche². Thirdly, cities enable collaboration, and through the joint production of knowledge an innovative atmosphere is fostered,.