4.1 Flashcards
Define GDP
The value of all the goods and services produced in a country
Define emerging economy
An economy in the process of rapid growth and industrialization relatively low income per head (per capita)
What are some common features of remerging economies?
-Rapid industrialisation
-Have potential to become developed
-Struggle to access global markets
What are some perceived threats from emerging economies?
-Large pool of skilled, low cost labour
-Exports cheaper due to undervalued currencies
What are some opportunities for emerging economies?
-Growing consumer spending
-Demand for infrastructure and other products & services
-Source of high skilled low cost labor
-Potential for acquisitions
What are some risks from doing business in emerging economies?
-Political instability
-Corruption & bureaucracy still an issue
-Emerging markets becoming major exporters
-Variable approaches to finical & legal dealings
Why are emerging economies enjoying high growth rates?
-Industrialization
-Population growth
-Workforce improve skills and more productive
-Technological innovation
What are the 2 key indicators of growth?
- GDP per capita
- Purchasing power parity
How to calculate GDP per capita?
GDP divided by the number of people in the country
Define purchasing power parity
A measure of real growth that uses the price of a basket of goods and services to compare prices across countries
What is Human Development Index?
Combination of statistics (literacy, health and GDP per capita into a single value) to help make comparisons of the people and their skills
What are some benefits from international trade?
-Creation of jobs help reduce poverty
-Low prices for consumer due to competition
-Technology is spread raising productivity
-Knowledge and skills cross borders
Drawbacks of international trade?
-Transport costs
-Negative externalities from production and consumption
-Structural unemployment
-Rising inequality
Define Exports
A function of international trade whereby goods and services produced by one country are sold to another country.
Define imports
Goods and services brought into one country from another
What is specialisation?
When a country produces goods or services that its best at.
Why does specialization make sense?
-Provides a competitive advantage
-Can produce wider range of closely linked goods.
Define Foreign Direct Investment (FDI)
Investment from one country into another rather than involves establishing operations of acquiring tangible assets including stakes in other businesses
What are the 2 main flows of FDI?
-Inward FDI (money coming into economy)
-Outward FDI (expanding overseas)
Reasons why businesses engage in FDI?
-Take advantage of lower labour costs
-Operate closer to sources of raw materials
-Avoid protectionist measues
-Support strategy of market development
Define globalisation
The geographic dispersion of industrial and service activities
Characteristics of Globalisation
-Greater trade across borders
-Development of global brands
-Greater use of outsourcing
What are some factors contributing to globalisation?
-Containerisation
-Technological change
-Economies of scale
-Difference in tax systems
-Less protectionism
What are some benefits of globalisation?
-Benefit from deeper divisions & economies of scale
-Competitive markets reduce monopoly profits
-Higher per capita incomes
-sharing of ideas / skills / technologies
What are the drawbacks of globalisation?
-Inequality
-Inflation
-Vulnerability to external economic shocks
-Unemployment
-Dominant global brands
Define Protectionism
Any government attempt to impose restrictions on trade in goods and services to protect domestic businesses.
Define Tariffs
A tax placed on imported goods from other countries. (increases price of good which shifts demand in favour of products from domestic firms)
Define Import quotas
Government imposed limit on the amount of a product allowed into one country
Define Subsidies
Payments given to domestic business to help lower costs of production.
What are some arguments in favour or protectionism?
-Infant industry protection (helps start ups establish)
-Protect jobs, skills
-Protection against import dumping (stop predatory pricing)
Arguments against protectionsim
-Higher prices for consumers
-Retaliation from other countries (price wars)
-Extra costs for exporters
Define Trade blocs
Groups of countries that form an agreement to reduce or eliminate protectionist measures between each other.
Benefits of trading blocs?
-FDI
-Economies of scale (larger markets created)
-Competition
-Greater trade
-Market efficiency
Benefits of Tariffs
-Protects infant industries
-Increase in government tax revenues
-Reduces dumping
Drawbacks of Tariffs
-Increases costs of imported raw materials
-Reduces competition and consumer choice
Advantages of import quotas
-To meet extra demand domestic business may need to hire more workers which reduces unemployment
-High prices for products may encourage new start ups
-Countries can easily change import quotas as market conditions change.
Disadvantages of import quotas
-Quotas limit supply so price of products rise
-Domestic firms may become inefficient over time as quotas reduce competition
Advantage of subsidies
Reduced costs, means lower prices making domestic firms more competitive, helps protect jobs.
Disadvantage of subsidies
Businesses may become inefficient as they know their costs are being subsidised.
What is protectionist legislation
Government can impost legislation laws to restrict imports and protect customers and businesses
Advantages of protectionist legislation
Allows domestic firms to grow due to limited competition
Disadvantages of protectionist legislation
Can lead to retaliation from countries facing legislation
Define Trade creation
Businesses are able to enter new markets leading to an increase in sales volume and revenue.
What are the 3 largest trading blocs?
-EU
-ASEAN
-NAFTA
Benefits of being in a trading bloc?
-Access to more markets
-External tariffs protect firms
-Infrastructure support
-Free movement of labour
Drawbacks of belonging to a trading bloc?
-Increased competition
-Common rules and regulations
-Retaliation
-Inefficiency and trade diversion
Define Trade diversion
Trade taken away from efficient producers who operate outside the bloc and replace by trade within the bloc
