As the vote for Scottish Independence comes to an end Friday, there are several reasons for both sides to be extremely passionate about their stance. There are many different reasons why the Scots want their independence, but I want to examine mostly the change in trade terms that will occur with a breaking of the Union through some of the material we discussed in class.
Firstly, Scotland has one extremely valuable export: oil. Without the hinderance of sharing the revenue from oil with the U.K., Scotland could see more money coming in from what they are exporting. This isn’t to say that they would be exporting more goods, but they would receive 100% of the revenue from what they are exporting, and therefore income would rise with the PPF curve shifting outwards on the X axis, where the exports are shown. With more income for the Scottish people, they have a higher propensity to buy otherwise too pricey imports, helping their terms of trade.
Secondly, if Scotland became independent, they would very likely try to become a member of the European Union. If this were to happen, they would become instantly much stronger trade partners with the rest of Europe. Using the same currency as other European Union members, they would be able to avoid any trade mispricing that occurs with different currencies. This too helps their terms of trade.
However, there is much to consider in that Scotland would in turn be losing the benefits that it received from other U.K. exports that Scotland had nothing to do with. In that regard, they may see their PPF shrink in the way of exports, causing income to most likely fall, which would then cause imports to become too pricey and unattainable, causing that region of their PPF to shrink as well.
The real key in figuring out what change would occur with Scotland and their terms of trade is all about balance. If they can offset the exports they are losing from the rest of the U.K. by gaining more revenue from their own oil, it would have a positive effect of their terms of trade. If they cannot, it would hurt them in the end. While the vote involves many different topics that weren’t discussed, this is one big example of what could happen if the union between Scotland and the UK were to end.
some sources… http://www.thewire.com/global/2014/09/yes-or-no-a-voters-guide-to-scottish-independence/380379/
This is a very interesting topic because whenever a state or province would leave a union it could have many effects on the world market. We talked about this vote in my money and banking class a bit and it ended up not passing I believe so unfortunately we wont get to see the effects on world trade any time soon. This is still a good what if though because you bring up several good points about Scotland's oil exports, ppf and terms of trade. Do you think that the time and money it would take Scotland to establish a stable government would have an effect on trade. Also, Scotland could make way for other states or provinces leaving their unions which could be very interesting. good blog post though, very interesting.
ReplyDeleteJamie, I like what you said about Scotland making way for other states to leave their unions. It's interesting to consider what would happen if part of the United States were to leave the union. For instance what if Alaska were to leave the Union? They would be similar to Scotland in that their main export would probably be oil, but who could they trade with? More than likely one of their main trade partners would have to be Russia, a country currently being sanctioned by the United States. Would the United States thus sanction Alaska? Or what about Hawaii, the only other state not attached to the continental United States. The majority of Hawaii's goods must be imported so it would interesting to see how it would fair when it could no longer trade as openly with the rest of the United States.
ReplyDeleteDavid, I really liked your post because after hearing about the possibility of Scotland gaining independence constantly on the news, I began to wonder how that would effect the terms of trade for the United Kingdom. Now since the post was made, Scotland failed to sever themselves from the United Kingdom, but it is intriguing to think about what the fallout would have been. In my opinion there is no possible way that this could help the United Kingdom, because their PPF would take a significant hit. Hypothetically, the effect on Scotland is definitely hard to predict. It makes me wonder what would have happened to the global price of oil? Would there have been a change at all? It is an interesting situation to dissect, because there are a lot of dynamics that come into play including Scotland and their pursuit of being allowed into the EU. Always interesting to speculate.
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