3.8. Ethical Investment and Trade

Question 1

What is ethical investment?

Answer 1

When a person, company or group only invests in areas that are considered socially responsible

Question 2

What are generally avoided by ethical investors?

Answer 2

Companies that cause environmental or humanitarian harm

Question 3

What has happened to ethical investment since the 1990s?

Answer 3

Amount of ethical investment by US companies almost tripled between 2005 and 2016

Question 4

Why don’t governments want to invest in tobacco, firearms or polluting energy companies?

Answer 4

Governments don’t want to be associated with promoting or being seen to be ok with these products

Question 5

Why do investors make a choice based on a company’s activities?

Answer 5

Governments are more likely to invest in more environmental companies that are more green, transparent companies

Question 6

Why do companies change their products to suit more people?

Answer 6

• More sustainable = more ethical investment
• Companies are aware of social and environmental concerns -> companies are more likely to invest in companies that are more ethical as they want to be associated with their values

Question 7

How do socially responsible choices/ personal principles and beliefs contribute to ethical investments?

Answer 7

Consumers change choices companies make so if consumers stop buying, companies will change the product - mat make it more sustainable/ ethical

Question 8

What is greenwashing?

Answer 8

Unjustified and misleading claims from brands that their products are more environmentally friendly than they really are

Question 9

How might a company greenwash its customers?

Answer 9

• Impressing sounding initiatives to reduce carbon emissions at the head office
• Eco friendly packaging and not much else
• Misleading claims and targets
• ‘Sustainable ranges and collections’

Question 10

Foreign direct investment definition:

Answer 10

When a person, company or other group spends money in another country in order to generate a profit

Question 11

Factors attracting foreign investors

Answer 11

• Size of the market
• Stability of the market
• Possibility of extracting resources for themselves
• Ability to access financial services

Question 12

How has the pattern of investment changed?

Answer 12

Until the 1980s developed countries mainly invested in other developed countries but now developed countries have begun investing in more emerging economies and developed countries
e.g. in past 10 yrs, China, India, Brazil and Mexico were some of the largest receivers of foreign investment

Question 13

What has FDI risen to?

Answer 13

Reached $41 trillion in 2023, a 4.4.% increase from the previous year

Question 14

Where is investment now coming from?

Answer 14

Emerging economies now invest heavily in less developed countries e.g. China invests a lot of money in countries in Africa and South America

Question 15

Protectionism

Answer 15

Some countries limit trade using tariffs to protect their industries from foreign competition

Question 16

What is free trade?

Answer 16

A policy that removes the barriers of trade rules

Question 17

How is the pattern of global trade changing?

Answer 17

Developed countries remain the biggest global traders but some emerging economies are catching up

Question 18

How are more countries opening up to international trade?

Answer 18

By removing barriers to trade

Question 19

Who sets global trade rules?

Answer 19

The WTO

Question 20

What was the WTO set up to do?

Answer 20

Increase trade and help resolve trade disputes between member countries

Question 21

What are trading blocs?

Answer 21

• Associations between different governments that promote and manage trade
• They remove trade barriers between their members while keeping common barriers to countries who aren’t part of the bloc

Question 22

What are many trading blocs?

Answer 22

Regional - they make it easier for countries to trade with their neighbours

Question 23

What are other trading blocs based around?

Answer 23

Specific industries
E.g. some of the main oil exporting countries are members of the OPEC which aims to standardise prices to prevent countries undercutting one another with cheaper prices

Question 24

What are special economic zones?

Answer 24

• Areas that have different trade and investment rules to the rest of a country
• They increase trade while keeping barriers in the rest of the country

Question 25

Access to markets

Answer 25

- Access is affected by wealth - developed countries often put higher tariffs on goods imported from less developed countries which then makes it harder for less developed countries to access the market - Developed countries have more money to invest so they can afford high tariffs imposed by developing countries by opening factories within them - Access is affected by being a member of a trading bloc - member countries have access to the markets of all other member countries - Less developed countries outside of the trade blocs may have to pay high tariffs to export their goods to those markets.

Question 26

How do SDT agreements give less developed countries greater market access?

Answer 26

- They let the least developed countries bypass developed countries' tariffs giving them greater access to markets - Profits made from SDT agreements allow less countries to diversify the range of industries they have - Some argue SDT agreements have a negative impact on developed countries by allowing cheap imports into the country - suggest trade blocs are more effective

Question 27

Economic consequences of differential access

Answer 27

- It's hard for countries with poor market access to establish new industries - face high tariffs and may be undercut by TNCs producing similar products more cheaply - Makes them dependent on selling low value primary products that tend to fluctuate in price, so countries with poor market access often have low GNI - Countries with high levels of market access tend to see more economic growth as they can trade more

Question 28

Social consequences of differential access

Answer 28

- People in countries with better market access tend to have higher paid jobs - more disposable income - Countries with less market access have a lower quality of life - Dangerous, poorly paid work has moved from developed countries to less developed countries