BUSINESS ECONOMICS

Business Economics

Business Economics

Reasons why Britain has always been successful at selling goods and services abroad and what threats to these cross-border opportunities exist.

Introduction

The balance of trade in services is positive for many years. In 1999, Britain became the second largest exporter of service in the world, and in 2004, the UK reached a record annual trade surplus in services, although there is less surplus in 2005, partly due to increased insurance claims related to hurricane Katrina in the United States (BIS Economic Papers, 2010, pp. 2). A strong surplus is particularly common in financial services and high technology business services. Britain has a comparative advantage in selling financial services in the world. London is one of the three major financial centres around the world and has the largest share of trade in international markets (Greenaway, 2007, pp. 127). Many foreign banks have been established in the capital and money markets of London. Many financial companies of the UK have world class status in their field. The UK commercial banks, insurance companies, securities, fund managers, futures and options and money market brokerage companies are part of a complex network of financial and business services, which are a great asset for the British balance of payments accounts (BIS Economics Paper, 2010, pp. 5).

The net income flow for the UK is positive, which reflects the heavy investment done in overseas markets in recent years by British businesses and individuals. The transfer balance is negative because the British government is a net contributor to the EU budget (Borchert, 2009, pp. 121).

Critical Analysis

A sharp depreciation was experienced by the pound sterling in 2007 and 2008. Aggregate data suggest that the response of exports on the weakening pound is limited. Recent estimates by the Bank of England (2010) show that exports of goods and services have responded differently to the weakness of sterling (Bank of England, 2010, pp. 44). The calculations show that the relationships with past trends, good's exports were supported by the weakening. This indicates that the export of goods depends on the price. However, the export of services is apparently under the influence of global demand, while exports of services with low productivity, mainly due to lower exports of financial services. Other analysis published by the World Bank found that trade in a wide range of business, professional and technical services were more stable than the trade in goods during the financial crisis (OMB, 2010, pp. 2).

Most studies on the impact of exchange rate on exports tend to look at appreciations rather than depreciations. The study by the University of Nottingham showed that fluctuations have little influence on decisions to start or stop the export. However, appreciation has a negative effect on the export business. A one-point increase in the real effective exchange rate (REER) is associated with a fall in exports as a percentage yield of 1.28%. If this relationship is linear, it is expected that the depreciation would increase the amount of the major products that are exported (Maher, 2006, ...