4.1 Flashcards
Define Globalisation
the increased interdependence of economies through trade
Give three examples of global companies
Dell, Amazon, BP
identify three characteristics of globalisation
- increased trade
- increased Foreign Direct Investment (FDI)
- increased migration of movement of people
identify three characteristics of de-globalisation
- increased trade barriers such as tariffs
- falling trade as a % of global GDP
- less migration
identify three causes of globalisation
- lower transport and communication costs
- increased importance of transnational corporations (TNCs)
- lower trade barriers or trade liberalisation
explain how trade liberalisation can increase globalisation
when trade can take place with no restriction, this reduces the transnational costs of trading. when the cost of trade reduces, more trade will take place. this has been seen within trading blocs such as the EU, where the free movement of goods and services has increased the volume of trade amongst member countries.
explain how reduced transport and communication costs causes globalisation
transport and communications are a cost of production, so if these aspects of tradce can be reduced then world supply can increase. this means that it becomes cost effective to import goods from further away rather than product them domestically, which increases the chances of specialisation. it also means that production can be broken down so that components can be maden in various countries and transported to an assembly point. comms improvements have meant that it is easier to manage a global workforce, as well as market and sell products globally without having a physical presence in a country.
Explain how the existence of Trans National Corporations (TNCs) cause globalisation
TNCs have found that there are three reasons to expand internationally - this is because:
- in search of resources
- in search of markets to sell their products
- in search of efficient locations to produce.
this means that the profit motive has driven TNCs to look for opportunities to reduce costs, and increase revenues internationally.
which is the most significant cause of globalisation?
TNCs are a key driver of globalisation because they have been re-locating manufacturing to countries with relatively lower unit labour costs in order to increase profits and returns for shareholders.
identify three benefits of globalisation
- increased world ouput, through comparative advantage
- reduction in poverty by giving countries access to inflows of money
- improved quality and choice for consumers
identify three disadvantages of globalisation
- externalities from transport and increased production
- inequalities within and between countries
- vulnerability to external shocks
- structural unemployment
- exploitation
why has there been a public backlash against globalisation in recent years
- concerns about global warming, habitat destruction and resource depletion
- concerns about the distribution of global wealth
- concerns from individual firms who have lost their jobs or been disadvantaged by international competition
does globalisation benefit the world
globalisation and trade have gone hand in hand with reductions in poverty, increasing life expectancy and improvements in the standards of living - so overall yes.
identify three benefits of foreign direct investment (FDI to the host country
- transfer of technology (capital) and knowledge (human capital)
- provides employment and income/boosts AD in the short run, and LRAS through investment in productive potential
- provides tax revenue
identify three disadvantages of FDI to the host country
- exploitation of workers: low wage, poor working conditions
- bringing in overseas managers rather than employing local people
- environmental damage if government turn a blind eye to activities
- may have been given tax incentives, so not contributing to tax revenue
what are global supply chains and give examples
when sequences in the productive process can take place in different countries. for example, the raw materials for a pencil may be found in canada, the design of the pencil takes place in the uk, and the construction takes place in china.
define the law of comparative advantage
it states that a country should specialise in the production of a good in which they have the lower opportunity cost
define absolute advantage
when a country can produce at a lower opportunity cost compared to another country
draw a table to illustrate comparative advantage
look at notes
show on the table the opportunity costs for each country of producing each good
see notes
at what rate of exchange would trade be beneficial to both countries?
needs to be between opportunity cost ratios. see notes
draw a production possibility diagram to illustrate comparative advantage
one good e.g. trucks y axis, another good e,g cars x axis
two lines, skewed, one for country A and one for country B. going down from y axis to x axis
evaluate the benefits of specialisation
advantages:
- can become more efficient/productive as an economy
- can benefit from economies of scale
- can produce more and improve standards of living
disadvantages:
- if comparative advantage changes over time you may need to change the structure of your whole economy with significant transition costs e.g. structural unemployment
- you may get diseconomies of scale
- costs of transport may make trade too expensive with some countries
- makes you vulnerable if you are not producing strategic products such as food
use comparative advantage to explain the benefits of free trade and globalisation
the benefit of trade is that it allows countries to specialise in the products and services for which they have a comparative advantage. this means that world output can increase as countries specialise in products in which they are relatively efficient at producing. an increase in world output means that populations have more products and services to consume which increases standards of living globally.
