Page 88 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Chapter 5

4.3 The capital and financial accounts

 Show transactions in a country’s external assets and liabilities.

 Record capital and financial movements by firms, individuals and governments.

 E.g. foreign direct investment

4.4 Equilibrium

 Concerned about persistent (“fundamental”) disequilibria in key areas.

– persistent deficits on their current accounts (E.g. UK)

– persistent surpluses on their current accounts (E.g. Japan)

 Causes of a structural deficit in the balance of payments current account

Import penetration Poor export performance

 Growth in consumer spending is  Willingness and ability of domestic
often largely supported by imports. producers to supply abroad.

 Imports become more competitive  Price competitiveness of exports.

 Domestic currencies overvalued  Firms in some countries tend to
have more surplus capacity
 Foreign currencies undervalued

 Domestic producers have lacked
competitiveness

82