1. Economic Integration: Globalisation leads to greater trade and investment flows between countries. It enables businesses to access larger markets and gain from economies of scale, while consumers benefit from a wider variety of products at potentially lower prices.
2. Cultural Exchange: It facilitates the spread of cultural values, ideas, and practices across borders, promoting cross-cultural understanding and diversity but also raising concerns about cultural homogenisation.
3. Technological Advancements: Innovations in communication and transportation technologies have significantly reduced the costs and barriers to international trade and investment.
4. Labour Markets: Globalisation impacts labour markets by creating job opportunities in developing countries and driving competition for jobs in developed nations, which can affect wages and working conditions.
5. Global Governance: It necessitates international cooperation and policy coordination to address global issues such as environmental challenges, economic disparities, and regulatory standards.

Key aspects include:

1. Productivity: Higher productivity allows a country to produce more output with the same amount of inputs, leading to lower costs and more competitive pricing in international markets.
2. Exchange Rates: A country's exchange rate can affect its competitiveness. A depreciation of the domestic currency can make a country's exports cheaper and imports more expensive, potentially improving competitiveness.
3. Cost Structures: Competitive advantage can be influenced by lower production costs, including wages, materials, and overheads, which can help firms to offer lower prices compared to international competitors.
4. Quality and Innovation: High-quality products and innovations can enhance competitiveness by creating unique value propositions and differentiating products in the global market.
5. Trade Policies: Trade policies and agreements can also impact competitiveness by influencing market access and trade barriers.

In summary, absolute advantage focuses on overall efficiency, while comparative advantage emphasizes the opportunity cost and the benefits of specializing and trading based on relative efficiency.

$\text{Terms of Trade} = \frac{\text{Index of Export Prices}}{\text{Index of Import Prices}} \times 100$

The J-curve effect describes the short-term and long-term impacts of a currency devaluation on a country's trade balance. Initially, after a currency devaluation, the trade balance might deteriorate before it improves. This is because: The J-curve illustrates the initial deterioration followed by eventual improvement in the trade balance after a devaluation, leading to a J-shaped trajectory on a graph of trade balance against time.

Terms of Trade (TOT):

$\text{TOT} = \left( \frac{\text{Index of Export Prices}}{\text{Index of Import Prices}} \right) \times 100$

Explanation:

• Improvement in TOT: This occurs when the export prices increase relative to import prices. It means a country can buy more imports for any given level of exports.
• Deterioration in TOT: This happens when the export prices decrease relative to import prices. It means a country can buy fewer imports for any given level of exports.

1. Calculate the Index of Export Prices (IPE):

$\text{IPE} = \left( \frac{\text{Current year export prices}}{\text{Base year export prices}} \right) \times 100$

2. Calculate the Index of Import Prices (IPI):

$\text{IPI} = \left( \frac{\text{Current year import prices}}{\text{Base year import prices}} \right) \times 100$

3. Calculate Terms of Trade (TOT):

$\text{TOT} = \left( \frac{\text{IPE}}{\text{IPI}} \right) \times 100$

Example Calculation:

Suppose in the base year, the export prices index is 100, and the import prices index is also 100. In the current year, the export prices index has risen to 120, and the import prices index has risen to 150.

6. Index of Export Prices (IPE):

$\text{IPE} = \left( \frac{120}{100} \right) \times 100 = 120$

7. Index of Import Prices (IPI):

$\text{IPI} = \left( \frac{150}{100} \right) \times 100 = 150$

8. Calculate TOT:

$\text{TOT} = \left( \frac{120}{150} \right) \times 100 = 80$

Interpretation:

• TOT of 80: This indicates a deterioration in the terms of trade compared to the base year. It means that for every unit of exports, the country can now buy less than before because the import prices have risen faster than the export prices.