2.4: Life in a global economy Flashcards
What is globalisation?
The process through which an increasingly free floe of ideas, people, goods, services and capital leads to the integration of economies and societies.
What is FDI?
Foreign direct investment.
When businesses or governments invest in other countries.
Describe the role of increasing FDI on globalisation.
Funds are coming from one country and being used to finance investment project in other countries.
Describe the role of world trade rising on globalisation.
World GDP increased over the last few decades due to economic growth. World trade has increased due to globalisation.
Describe the role of increased migration on globalisation.
Globalisation has seen increased movement of people as they move to places where there are job opportunities.
Has been made easier by the breakdown of authoritarian regimes and the creation of trading blocks with reduced trade barriers between countries.
Describe the critics view of globalisation.
Focus on the unhealthy dominance of US and European corporate culture across the globe.
See a process by which rich western economies exploit less well-endowed nations.
See images of low-paid sweatshop workers that symbolise all that is wrong with globalisation.
Describe the supporters’ view of globalisation.
Brings wealth and development to many countries.
Has made billions of people around the world better off in both financial and material ways.
Interdependence may bind countries together and help maintain peace and stability on a global level.
What is the IMF?
International monetary fund co-ordinates the international monetary system.
Tries to maintain stability, and provide adequate finance for world trade to continue without interruption.
What is the World Bank?
Lends to developing countries i order to fund projects which will help them to raise incomes and make their economies more efficient.
What is the WTO?
The World Trade Organisation.
Supervises world trading arrangements and trade negotiations and helps to resolve disputes between governments.
Capital market liberalisation
Promoted by the IMF as a means of stimulating economic growth in developing countries
FDI helps both big businesses and governments to expand productive capacity
Interdependence
Economic instability can spread from one economy to another.
Eg: Asian financial crisis in the late 1990s
Containerisation
Reduced cost of transport and communication have made it easier and cheaper to communicate with other countries = amount of trade increases
Containerisation = reduced transport costs
Cheap air travel and telecoms
Multinational corporations
Businesses that are active in more than one country
May have distribution outlets or factories abroad or may offer services that are bought by organisations etc located in other countries
Outsourcing
Buying inputs from foreign suppliers, or locating the whole production process abroad
Objective=exploit cost savings
BRICS
Brazil, Russia, India, China and South Africa
Large, fast-growing economies with a significant influence on regional and global affairs
China’s growth
Led by investment and exports but this relies on rest of world being able to buy ouput
Recession reduced China’s exports
Now aiming for slower, more sustainable growth, relying more on domestic demand
Russian economy
Many problems - poltical events and the West’s subsequent sanctions and falling oil and gas prices
Rouble fallen in value
Exports to Russia dropped sharply
Brazil economy
Reliea heavily on selling commodities
Falling demand and volatile commodity prices slowed Brazil’s growth rate
Progress depends on developing manufacturing
India’s growth
A rapid spurt followed ny slowing growth
Expected to increase in future
GDP per capita
GDP divided by population and gives rough idea of how wealthy a country is
Not always helpful - some countries appear wealthy but there may be huge levels of inequaloty
HDI
3strands
Income - GDP per capita at PPP, giving an idea of population’s living standards
Life expectancy - An indicator of population’s health
Years spent in school - indicates population’s level of education
Liyeracy rates
Percentage of adults who can read and write
Health indicators
Infant mortality rates
Incidence od disease
Access to clean water
Mobile phone use
Can lead to economic dvlpment in remote areas
Specialisation
People make the most of their skills by concentarting on those goods and services where they have an advantage
Advantages of specialisation
Leads to increased output and efficiency
Economies of scale are gained as output increases
Goods and services produced more cheaply
Compt adv increased
Competition helps to lower price and drive innovation
Disadvantages of specialisation
Can lead to over reliance on one area of economy
Compt adv can move elsewhere
Emerging economies usually rely heavily on one commodity product
Fluctuating commodity prices can be problem
Reliance on imports for other goods and services
Demand for export falls, structural unemployment ,ay be severe
Free trade areas
Groups of countries that trade completely freely with each other, with no trade barriers, each member country retains its own trade policies in relation to rest of world
Common markets
Completely free trade internally and a common external free trade policy
Free movement of goods, services, peopl and capital
Exports
Goods and sevices produced by us that we sell to a foreign country
Imports
Goods and services that we buy from a foreign country
Visible export/import
Can be touched and handled - physocal good
Invisible export/import
Cannot be touched or handled - service
Trade surplus
Positive balance of trade
Export > import
Trade deficit
Negative balance of trade
Export < import
Benefits of cheap imports
Allows countries to achieve higher standards of living by obtaining goods and services from most efficient sources - creating consumer choices
Raise stamdards of living because consumer has more disposable income to spend
Producers able to source cheaper raw materials and components from abroad - cut costs and be more competitve, creating employment, income and wealth
Keeps inflation low
Negatives of cheap imports
Can harm domestic industry as consumers substitute cheaper foreign goods for more expensive home products
Domestic businesses will leave market
Changes in ex rate
High exports = high demand for that currency = strong currency
High imports = high supply for og currency = weak currency
Impact of changing ex rates on firms
Flexible + vary over time - can be a source of great uncertainty
Ex rate rises = domestic businesses lose competitiveness compared to imports
Fall in ex rates make imports more competitive
