3.1 Globalisation Flashcards
Name 3 key facts that happened to the global economy after world war 2
- 1980, the Chinese government began to trade internationally
- 2000, structural change as jobs move from primary through to tertiary
- Emerging economies began to grow alongside BRICs
What happened as a result of the financial crisis in 2008
Slow growth in many developed countries meant low demand for trade with emerging economies (interdependence)
What are the 4 possible reasons for the change in patterns of trade?
Protectionism - increases taxes and therefore lower incomes all round
Brexit - uncertainty
New tech leads to less offshoring
Ageing population changes demand for different services
What affect does economic growth have on individuals?
- More job opportunities
- Demand for people with scarce skills will be high
- People may migrate from agricultural areas to cities
- Patterns of employment change as markets change (structural)
- Improved healthcare, education –> living standards
How might a company compete on price?
- Economies of scale
- Productivity
- Outsourcing/ offshoring
How might a company compete not on price?
- Branding
- Reputation
- Advertising
- Loyalty schemes
What’s rationalisation?
Reorganising production to achieve efficiency. Merged companies usually reduce their number of HQs in order to reduce costs
Who are gainers and losers in developed economies with regards to globalisation?
G: Exporters, people with scarce skills
L: People with low skills and work for non-competitive importers
Who are the gainers and loser in emerging economies with regards to globalisation?
G: People who move from agriculture to manufacturing
L: Poor working conditions, low skilled workers, low bargaining power
What is the nominal value?
Value when purchased, not current value
What is current price?
Price at the current value at that time
What is real value?
Money value with the effect of inflation removed
What is a constant price?
Price that would’ve been used if there was no inflation
How to convert from nominal to real value
Nominal value x 100 / price index = real value
What does a conversion from nominal to real show?
It shows if something other than inflation has affected the price
How do you calculate index numbers?
Current value / base year value (x 100)
With 100 being the base number
Why do we now export and import most of what we produce and consume?
It has become easier to trade internationally. This is called free trade
What have the government done to ensure free trade of imports and exports doesn’t happen?
Put trade barriers in place in order to discourage consumers buying them and instead buy domestic goods
What is a tariff?
Taxes on imported goods
They make the prices of imported goods higher so they are less competitive
What is trade liberalisation?
Reducing barriers to trade so economies can move closer to free trade
What is the WTO
World trade organisation 1995
Oversees and regulates the trading environment and helps to reduce trade barriers
What doesn’t the WTO do/ downfalls
It is not a global policeman
It cannot force countries to co-operate
Accused of favouring richer countries
Some doubt that free trade is good
Define specialisation
Producing more of the goods and services that have a competitive advantage. This advantage can be enhanced by economies of scale
How does specialisation occur and what is the chain reaction of this
Economies specialise in products they have a competitive advantage in (eg. Germany with motor vehicles) As this happens across the globe, imports are cheaper and trade is therefore easier everywhere. This leads to enhanced growth with GDP and income.
How do competitive advantages of a certain product occur in a country?
Specialisation causes workers to have specialised skills and therefore fewer employees are needed. Finance is easily available and technologies are adopted worldwide. Efficiency and productivity increase and over time production costs are reduced.
How can trade liberalisation cause structural change?
Exporting becomes easier
Businesses adapt and specialise
Successful businesses are likely to expand
Some businesses close down as they cant adapt
Jobs in one country centre around what they specialise in
What is a supply chain?
Sequence of processes which all work together in order to create the final product
What’s the difference between outsourcing and offshoring?
Outsourcing - getting another business to do it for you
Offshoring - moving production abroad
How can supply chain management help businesses adapt to flexible markets?
By planning for changes in the market to do with trade liberalisation. More barriers added may make it harder for production to take place
How can trade liberalisation increase FDI into developing countries?
A reduction of barriers means companies are more likely to outsource/offshore production to emerging economies and invest in place with cheaper input costs.
What’s a trading bloc?
Groups of countries where barriers to trade are minimal or eliminated between the member countries. Countries outside of this bloc have their own trade policies.
Whats the difference between a free trade area and a common market?
Complete free trade with both. However, free trade areas have their own agreements with the rest of the world whereas common markets have a unified policy with the rest of the world.
What is a single market?
A free movement of people and capital. There’s no obstacles in trying to invest or travel within these countries.
What are trade creation and trade diversion
Creation occurs when trade barriers are removed and therefore trade increases within countries.
Diversion occurs when trade decreases between countries not in the same trading bloc.
What are the advantages and disadvantages of trading within a trading bloc?
A:
- More exportation
- No tariffs benefit businesses and consumers (lower costs and therefore, prices)
- Possibilities of economies of scale
- More FDI
- Greater competition stimulates efficiency
D:
- No protection over domestic industries
- Reaching agreement is difficult
- A common external tariff with other countries maybe benefit some and disadvantage others
What could happen if there’s a lot of one type of business within a trading bloc?
If there’s lots of competition within the block and some businesses have a tough time sourcing materials
How might activity in one economy impact activity in another and why?
Due to increased interdependence many factors may affect another country, such as:
- growth rate with affects the demand for exports
- Commodity prices in a developed country may affect developing countries GDP
- occurrences such as Brexit are likely to have knock-on impacts across the globe
What’s protectionism?
Government policies such as tariffs and quotas which protect the domestic economy from imports that may reduce employment in that domestic economy.
What are the main reasons for implementing barriers to free trade?
- To stop cheaper imports replacing domestic goods which would cause unemployment
- To protect infant industries
- To keep the balance of trade stable (objective)
- Tariffs are a good source of revenue
What affect do tariffs have on the supply curve?
Shifts to the left (up)
Price rises and the demand of the import will fall
If an import tariff is placed on an Canadian wine, what are UK consumers likely to do?
Demand is likely to fall as consumers will either go without or buy a domestic good instead
What does the affect of a tariff/quota depend upon?
The price elasticity of the product
- If the product is inelastic, the change in price is unlikely to cause a large change in demand and therefore a low impact is likely to happen
What are quotas
Physical limits set on the amount allowed to be imported in one year
What do quotas do to the supply curve?
They meet the supply curve with a vertical line and becomes perfectly inelastic
- Reduced supply means prices rise and demand falls
What other forms of protectionism are there?
- Subsidies
- Keeping the exchange rate low (weak pound)
- Safety standards
What are the disadvantages of trade barriers?
- Consumers pay higher prices, so have lower disposable income
- Less competition means less efficiency/higher costs/prices
- Exporting countries have lower incomes
- Can provoke retaliation
- Infant/original industries have little competition and can charge high prices
Give a case study of a company that prefers protectionism over liberalisation
The steel industry in the USA put pressure on the government to protect their market from imports
Why do most businesses want to keep trade barriers low?
They value the ease of trade, want to keep prices low and sales high. The home market usually isn’t big enough and liberalisation means many other markets can be tapped into.
What is the G20
A group of leaders who represent each continent to discuss trade agreements once a year.
What does the IMF do
International monetary fund
It promotes monetary and economic stability and helps governments out if they struggle with trade deficit that may impact exchange rates tremendously
What does the World Bank do
Helps the poorest countries develop economically
Offers grants and loans
What’s a bilateral trading agreement
An agreement between two economies
What is the current account of the balance of payment?
Records all imports and exports, visible and invisible, plus inflow and outflows of income from investments
How can a slowing economy (recession) cause an appreciation of the pound?
Incomes are falling Fewer imports are demanded Businesses sell more abroad Surplus develops Pound appreciates
What does demand for exports/imports and their affect on the current account depend upon
Price elasticity of demand
When can structural change occur because of demand
Demand increases/decreases for some products. This can be caused by global business developments that make imports cheaper and by new export opportunities.
What is shown in the financial and capital account?
FDI
It creates a demand for the currency
What are the main advantage and disadvantage of FDI
D - producers less competitive
A - Increased employment and income
What are time lags
A factor in many economic changes
Most businesses already have stock so don’t need to buy for 6 months, this creates a time lag for change to the economy
What are the benefits but possible downfalls on the eurozone
A single currency with a set exchange rate saves time and trouble. Competition is not evident however so, businesses that export may have to cut costs and wages, or government policies may be implemented. There is no depreciation to fall back on.
