4.1 Flashcards
Globalisation
Growing interdependence of countries and rapid change it brings
Globalisation
Inc integration of world’s local, regional and national economies into a single international market
Factors affecting globalisation
- improvements in transport infrastructure
- improvements in IT and communication
- trade liberalisation
- international financial markets
- TNCs
Improvement in transport infrastructure
Quick reliable cheap methods to allow production to be separated around the world
Improvement in IT and communication
Companies able to operate across the globe
Trade liberalisation
- Cheaper and more feasible to trade since 1945
- breakdown of soviet bloc and opening of china shown area for business to expand into
International financial markets
Ability to raise money and move money around the world for international trade
TNCs
- Large companies inc their own profits and take advantage of low labour costs
- sell and produce goods around world and have power to lobby governments
Impacts of globalisation
- consumers
- workers
- producers
- government
- environment
- economic growth
Consumers
- consumers more choice due to range of goods
- lower prices as firms take advantage of comparative advantage and produce in countries with lower costs
- other cases leads to rise in prices as incomes are rising
- possible loss of culture
Workers
- large scale job losses in western world due to manufacturing moving to countries such as china
- inc migration affect worked by lowering wages
- migrants provide important skills inc AD
- international competition led to a fall in wages for developed and inc wages for developing
- skilled workers inc wages inc inequality
Producers
- firms source products from more countries and sell in more countries reducing risk of impact on business
- employ low skilled workers cheaper in developing countries and exploit to have larger markets
- firms who aren’t global lose out
Government
- receive higher taxes
- lose through tax evasion
- TNCs bribe and lobby governments = corruption
Environment
- inc demand raw materials
- inc trade and production = emissions
- globalisation= world work together to tackle climate change
Economic growth
- inc investment —> inc injection and inc multiplier. Creates incentive to make supply side improvements
- TNCs bring world class management techniques and technology
- trade inc output allows exploitation of comparative advantage
- power of TNCs cause political instability as they support undemocratic regimes
- companies may leave countries when there’s no gain causing structural unemployment and reduce growth
Theory of comparative advantage
Countries find specialisation mutually advantageous if the opportunity costs of production are different
Absolute advantage
Country produce good more cheaply in absolute terms than another country
Comparative advantage
Country able to produce good more cheaply relative to other goods produced
Numerical approach
Pic from cr
Diagrammatic approach
Pic cr
Assumptions limitations comparative advantage theory (cat)
- no transport costs to lower cat
- costs are constant and no economics of scale
- goods are homogenous but products aren’t making it difficult to say there’s a ca as they can’t be compared
- fop perfectly mobile, no tariffs/ trade barriers
Advantages specialisation of trade
- shows how world output can inc when countries specialise in what they’re best at producing inc global economic growth
- benefit from economies of scale dec costs dec global price
- dif countries dif fop trade benefit everyone
- consumers have inc choice inc consumer welfare
- inc competition incentive to innovate
- countries isolate themself due to politics= economies stagnate
Disadvantages specialisation of trade
- trade lead to over dependence on certain exports/ imports problems if large price falls
- structural unemployment jobs lost to foreign firms who are more efficient/ competitive
- problem in Manchester due to traditional industries dec e.g ship building
- environment suffers e.g. transports/ deforestation
- loss of sovereignty due to international treaties
- loss of culture due to foreign ideas/ products
Factors influencing pattern of trade
- comparative advantage
- emerging economies
- trading blocs and bilateral trading agreements
- relative exchange rates
Comparative advantage
- change in CA affects trade pattern
- inc in exports of goods from developing countries to developed ones
- developing countries have advantage due to lower labour costs
- deindustrialisation of countries means manufacturing dec
- ageing pop means wage competitiveness falls
Emerging economics
Shift trade by taking up larger proportion of imports and exports
Trading blocs and trading agreements
- Inc trade between countries and influence trade pattern
- e.g. UK trading more with EU countries
Exchange rates
- Affects relative prices of goods between countries
- e.g. UK trade deficit with Europe due to strong £ but china keep currency weak to make exports competitive
Terms of trade
Measures rate of exchange of one product for another when two countries trade
Improvement
Country can buy more imports with same level of exports
Deterioration
Export prices fall or import prices ruse
Calculation for terms of trade
Average export price/average import price x 100
Factors of a country’s terms of trade
- improvement/deterioration
- exchange rates, inflation and changes in demand/supply of imports/exports
- improvement in productivity
- changing incomes
Improvement/ deterioration
Improvement- rise export/fall import prices
Deterioration- fall export price/inc import price
Productivity
Improvement of productivity compared to country’s trading partners dec trade as export prices fall relative to import
E.g. technology or more efficient labour
Changing incomes
Affects patter of demand for g+s
Rise in world income causes rise in demand for tourism rising prices and inc trade
Prebisch singer hypothesis
Long run price of primary goods declines in proportion to manufactured goods so those dependent on primary exports will see a fall in trade
Impact of changes:
PED
- PED of exports/imports inelastic then favourable movement in trade improve current account on BOP
- PED elastic favourable movement would worsen current account
Impact of changes:
Fall in gdp
- improvement of trade dec GDP
- rise unemployment if causes by inc export price
- if export fall due to import dec then imports rise
- both cause reduction in production within country and dec employment
- long term decline trade suggests long term decline in living standards as less imports bought
Impact changes:
Export import revenues
- improvement caused by inc demand for exports= beneficial for country
- deterioration caused by improvement in international competitiveness= beneficial
- export and import revenues more important that price
- for an improvement to be beneficial export revenues must inc
Preferential trading area
PTA
Tariff and other trade barriers are reduced on some but not all goods traded between countries
Free trade areas
FTA
- Two or more countries agree to reduce trade barriers on goods
- each member imposes their own tariffs on goods imported outside trading bloc
Custom unions
- removal of tariffs barriers between members and acceptance of common external tariffs against non members
- members negotiate as a single bloc with third parties such as other trading bloc
Common markets
- trade barriers and tariffs removed
- micro economic policies and monopoly power tackled to be successful
- establish a single market
