Mini model for teaching Balance of Payments
The Balance of Payments is often a stumbling block for students - not only in confusing it with government budget balances, but also in sorting out the difference between the current account and the financial+capital accounts, and how they relate to each other. My department have stumbled upon a way of illustrating this using the Mini factory at Oxford as an example - particularly useful as we make an annual trip to that factory with our Year 13 students which is a genuinely great way of enhancing their appreciation for business economics. We think this works for the Balance of Payments, so I would like to share it and hope it works for you too. One warning - it is hard to get though this without mentioning the B word*.... be prepared to deflect the political perspective!
As an intro, the BBC came up with a very helpful little video last week "How British is a Mini?", which illustrates the spread of the supply chain across the EU and makes a good starter.
Follow this up with this list of questions and scenarios, getting the students to identify the area of the Balance of Payments affected and using a whiteboard or screen to illustrate each inflow or outflow from either the current account or the financial account.
Where on the UK’s BoP would the following transactions be recorded, and would they be a positive, or negative, entry?
1. BMW’s investment of £1.75Bn into UK Mini production facilities.
2. Some body parts for Mini are sourced from suppliers in France, Spain and Romania.
3. Some of the Minis produced in Oxford are sold to buyers in the USA.
4. Some of the Minis produced in Oxford are sold to buyers in the UK.
5. Some of the senior management at the Oxford plant are German nationals who send some of their pay back to Germany.
6. Profits made by the UK Mini operation are re-patriated to BMW’s head office in Munich.
7. Some German BMW shareholders use some of their dividends to buy shares in BP.
8. Some other German BMW shareholders reinvest some of their dividends into a hedge fund which speculates on the pound appreciating against the euro.
* = Brexit