Task The reason behind this is because an open

Task
One

An
open economy is one that collaborate
with other economise around the world through international trade. One can find
varying degrees why the majority of nations operate in an open economy. Number
of evidence shows that countries that are open to trade grow much faster
compared to those that remain closed. The main reasons are due to:

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1. 
Increased Competitions and Lower Prices:
One of the major advantage of open economy is that consumers can choose
from a large variety of good and services since the number of supplies
increase. This creates competition among producers, therefore, their focus is
more on specialisation and productivity improvements.  Consumers have the opportunity to benefit
from lower operating costs and labor of many different foreign markets since the
prices that they pay for their goods and services are lower due to competition
(Shane, 2017).

2.
Expanded Markets and Customer Bases:  
The
advantages of an open economy are not only limited to consumers but it also
allows companies for global interaction. This will help businesses to reach
different customers in different nations (Hall, 2017). For instance, in Malta
one can find several foreign companies including Mc Donald’s which established
in United States, Lidl founded in Germany, Vodafone established in United
Kingdom and Apple (ICentre) started in California. These businesses had the
opportunity to expand their business in Malta due to this precious open
economy.

3.
Access to new technology:
International
trade is a major influence since countries can have the opportunity for the
access to new technologies. We might think that new technologies may have
negative consequences for those employees who might lose their jobs due to
capital labour substitution. However, open economy is flexible enough to be
able to reemploy these workers. Therefore, as a result, there shouldn’t be any
loss of jobs but instead it creates new job opportunities in support
industries.

4. Greater Choice for Consumers:
Another major advantage attributed to an open economy is that consumers get
to enjoy a greater choice in goods and services. The reason behind this is
because an open economy allows the access of different products made from
different nations. Therefore, as a result consumer have the opportunity to buy
exotic product, example buying cars in Malta which are made in Japan. Merging
with international markets provide the opportunity to choose the best
product/service from the word market since buyers are not limited to buy
domestic goods only (Alphaeconomics, 2012).

5.
Comparative Advantage:
The
meaning of comparative advantage is when a country produces a good or service
for a lower opportunity compared to other countries. A country with a
comparative advantage does not necessarily mean producing goods/services of
high quality, but it could also mean producing them at a very low cost or large
quantity. This type of advantage is a win-win situation since businesses from
different countries are helping each other out, thus a high dose of trust must
be built.  For example, since Summer come
much earlier in Malta than in Spain they started trading together due to
tomatoes scarcity on that particular month. Eventually Spain kicks in again as
soon as Maltese tomatoes ends. Another example is when England started trading
its cheap cloth for Portugal’s wine. This is because it would cost England much
more money to produce wine due to their climate. In turn, Portugal didn’t have
the ability of manufacturing cheap cloth. Therefore, one can understand that
both benefited by trading what they produced the most efficiently (Amadeo,
2017).

Task Two

Information
and communication technology had change the way we communicate, do business and
treats illnesses. ICT goods exports include telecommunications, communication technology
goods, audio, videos and many more.

From the given diagram, one can notice that there was a boom of ICT exports in
Malta as from the year 2000. In fact, Malta manged to establish itself as a
leader and the forefront of the industry. 
This opportunity sums up the Maltese comparative advantage. One must
highlight the fact that Malta was the first country that commenced granting
gambling licences to online gambling operators (Mitev, 2011), this was one of
the reasons that cause this ITC export bloom.

The Maltese legislation together with the income Tax Act was also another
reason why Malta had a very strong growth in the iGaming industry.  Malta had the most favourable regulations and
gaming taxation schemes including tax holiday. Thus, these attracted a number
of iGaming companies to invest in our island. Another important advantage is
because we are an English-speaking country, therefore, knowing a popular
language helps to reduce several barriers.

However, from the given diagram, one can notice that during last 5 years, China
started to develop a better comparative advantage than Malta. The reason behind
this result is because China started to evolve more in technology and developed
a better quality legislation and benefits associated with this sector. This
created a drastic negative change in the Maltese ICT export.  From this analysis, one can easily understand
that comparative advantage is not a static concept as it may change overtime.  

The Malta Gaming Authority is a single regulatory body of all gaming activities
in Malta. This MGA is taking several actions for this negative result. They are
proposing a revised regulatory framework in order to put the gaming industry
into a better position and retain Malta’s reputation in this sector (MGA,
2017).

Another issue of this result is regarding the skills gap amongst the employees
working in this sector. According to Pentasia Anthony Hennessy (2016), there is
a shortage of digital stills in Malta. He stated the fact that this industry is
facing problems as we are struggling to fill job vacancies. The iGaming
industry, like many other sectors, need to be updated by offering new training
opportunities to keep ahead. In fact, the iGaming academy has now teamed up
with MCAST to start tackle this issue by launching the first iGaming focused
course which will be available to more than 1000 students (MCAST 2016). 

Moreover, other countries shown in the diagram such as UK, Japan and USA have
constantly kept below Malta in terms of quality amongst ITC export. However,
high quality and immediate solutions must be kept updated in order to sustain
our Maltese comparative advantage. 

Task Three

Terms of trade (TOT) is a measure which compares the import prices and export
prices. If the price of a country’s export is greater than its imports, its TOT
will improve.  An increase in TOT
indicate a greater demand for country’s exports (Investopedia, n.d).

TOT determine how healthy a country’s economy is. In 2008, a very well-known
global financial crisis emerged. This created a financial recession in United
States and across Europe. In the EU, financial crisis has evolved into euro
crisis (The Economist, 2017). This created a very negative impact across the
majority of world since the demand of imports and consumption had been reduced.
Countries exporting goods lost money due to a decrease in sales and thus their
economies were affected badly (Friedman, 2017).

However, one must highlight the fact that although most of the EU
countries were all affected by the euro crisis, Malta was the only country
which remained unaffected (Economywatch, 2010). This means that even though
there was a fall in the exchange rate, Malta remained stabled  due to a low debt-to-GDP ratio and
financially sound banking sector. Malta became a very attractive country for
foreign investors since it gained a very strong reputation as a financial
services centre of choice in Europe. Thanks to our conservative and
well-regulated banks it seems that Malta have avoided liquidity problems. This
coupled with the fact that the financial sector is very well regulated by our
single regulatory body of financial services known as MFSA – Malta Financial
Services Authority (FinanceMalta, 2014). The sector of financial services in
Malta had a remarkable growth with the registration of hundreds of companies
and the generation of thousands of jobs.

Due to this reason, Malta registered a more favourable economic performance
compared than other European countries. Protection and security is the key
motivators for investors to move to Malta (In-Malta, 2010). Therefore, this was
the main reason why there was no doubt in mind that it was the right decision
to make. Traditionally, the Maltese banking sector has always been cautious for
the future. This attitude is one of the primary factors which protected our
locals Maltese banking during this global financial crisis. This shows us that
the Maltese economy confirms its strong fundamentals and its potential.