4.1

Question 1

What is an emerging economy?

Answer 1

An emerging economy is one in the process of rapid growth and industrialisation.

Question 2

Key features of an emerging economy

Answer 2

• Economies making a transition • Going through a process of rapid industrialisation (i.e. development of secondary & tertiary sectors) • Have potential to become developed economies • Enjoy faster long-term economic growth than most developed economies • Many inhabitants still in poverty, though economic growth is taking many out of poverty • Domestic businesses still struggle to access global markets (e.g. trade barriers)

Question 3

The original emerging economies (BRICs)

Answer 3

Brazil, Russia, India, China China is now the world’s largest economy and is considered a developed country. Brazil has since entered a prolonged recession, as did Russia.

Question 4

Comparing the Economic Growth Rates of the UK and Emerging Economies

Answer 4

Uk growth rate- slow rate of growth A % of world GDP has shifted towards Asia Pacific over time. It is reasonable to expect that emerging economies will continue to enjoy faster economic growth (on average) compared with developed economies, in particular because: • Urbanisation process continues • Industrialisation – especially in East Asia and SS Africa • Population growth • Per capita income growth, rise of middle classes and consumer society • Workforce will continue to improve skills and be more productive • Technological innovation in many emerging markets (especially in Korea, China, India)

Question 5

Business opportunities from emerging economies

Answer 5

• Growing numbers of educated middle class consumers = growing consumer spending - Cultural shifts – e.g. higher demand for personal products, private education & healthcare - Demand for infrastructure and other products & services from developed economies - Source of high-skilled but low-cost labour (outsourcing / offshoring) - Great potential for joint ventures and acquisitions

Question 6

Business threats from emerging economies

Answer 6

• Increasingly large pool of skilled, but low cost labour - Undervalued currencies make their exports cheaper - Inadequate protection of brand and other intellectual property - State subsidy of industries to make them more competitive globally Expansion into emerging markets poses greater risks for businesses located in developed economies such as the UK. Key risks include: • Political instability • Cultural differences / sensitivities • Variable approaches to financial & legal dealings (e.g. contractual law) • Corruption and bureaucracy still an issue • Emerging markets becoming major exporters • Low-cost production makes developed economies uncompetitive in some markets

Question 7

Key indicators of economic growth

Answer 7

• GDP per Capita - Literacy rates - Quality of health care and accessibility - Human Development Index (HDI)- includes life expectancy, literacy rate, GDP per Capita- assess the quality of life in a country- the closer to 1 the better

Question 8

Compare the growth rates of the Uk with emerging economies

Answer 8

Question 9

Opportunities and threats of emerging economies for the Uk

Answer 9

Question 10

Risks of a Uk business expanding into an emerging economy

Answer 10

• Political instability
• Cultural differences / sensitivities
• Variable approaches to financial & legal dealings (e.g. contractual law)
• Corruption and bureaucracy still an issue
• Emerging markets becoming major exporters
• Low-cost production makes developed economies uncompetitive in some markets

Question 11

Limitations of HDI

Answer 11

HDI - A composite index that attempts a broader measure of economic development

• The standard HDI measure does not take into account qualitative factors, such as cultural identity and political freedoms (human security, gender opportunities and human rights for example)
• The GDP per capita figure – and consequently the HDI figure – takes no account of income distribution.
• If income is unevenly distributed, GDP per capita will be an inaccurate measure of people’s monetary well-being
• Purchasing power parity (PPP) values used to adjust GDP data change quickly and can be inaccurate or misleading

Question 12

What is international trade?

Answer 12

• International trade is the exchange of goods and services
• It takes place between businesses, governments and consumers (economic agents)

Question 13

What are some benefits of international trade for businesses and economies?

Answer 13

• Export revenues and jobs help to reduce poverty
• Low prices for consumer as markets are more competitive
• Technology is spread, raising productivity
• Knowledge and skills cross borders
• Economies of scale – causing lower unit costs and prices
• Better use of scarce resources
• Boost GDP

Question 14

What are limitations of international trade?

Answer 14

• Transport costs e.g. emissions from food miles
• Negative externalities from production and consumption
• Structural unemployment as patterns of trade change
• Rising inequality – uneven gains from trade
• Pressure on wages and working conditions
• Risks from global (external) shocks

Question 15

What are exports?

Answer 15

Goods and services produced by one country are sold to another.

Question 16

What are imports?

Answer 16

Imports are goods and services produced by one country brought into another country.

Question 17

Why are some countries better at producing certain goods and services than other countries?

Answer 17

1. The relative opportunity cost of production for a good or service is lower than in another country

2. A country is relatively more productively efficient than another

The basic rule for a country is to specialise in the goods and services that a country is relatively best at. This opens up important potential gains from specialisation and trade

Some examples of countries specialising include:

• Zambia and Chile - copper mining
• Bangladesh - textiles • Vietnam - light manufacturing (assembly)
• Angola – crude oil
• Ivory Coast - cocoa

Question 18

Why do countries specialise in one particular good/ service?

Answer 18

• If each country specialises, total economic output can be increased across the global economy
• Providing that a good price can be found from buyers, then specialisation should focus on those goods and services that provide the best value
• In many countries, competitive advantage is shifting towards specialising in and exporting high-technology manufactured goods and high-knowledge services which get a higher price
• As a country develops more capabilities, then it can produce a wider range of closely-linked goods and services
• Countries such as South Korea, Japan, Germany, the USA and UK all have a highly diversified pattern of exports
• Nations at a lower stage of development tend to have fewer capabilities and thus export a narrower range of products

Question 19

What is FDI and the two types?

Answer 19

FDI is investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses.

Inward FDI - E.g. an overseas business decides to build a manufacturing factory in the UK A foreign retail firm invests to open new stores in the UK

Outward FDI - E.g. an UK business expands into an overseas market by opening a new production facility A UK business completes a takeover of a business based in another country

Question 20

What is globalisation?

Answer 20

• Globalisation is a process in which economies have become increasingly integrated and inter-dependent
• Globalisation is dynamic rather than an end state
• Globalisation is not inevitable – it can reverse, indeed the growth of world trade in goods and services slowed in recent years following the global financial crisis

Features of globalisation iclude:

• Trade to GDP ratios are increasing for most countries
• Expansion of Financial Capital Flows between countries
• Foreign Direct Investment and Cross Border M&A
• Rising number of global brands – including from emerging countries
• Deeper specialization of labour – components come from many nations
• Global supply chains & new trade and investment routes e.g. South-South trade
• Increasing levels of international labour migration and migration within countries
• Increasing connectivity of people and businesses through mobile and Wi-Fi networks

Question 21

What factors have contributed to globalisation?

Answer 21

Containerization - The costs of ocean shipping have come down, due to containerization, bulk shipping, and other efficiencies. The lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to those in export markets, and it makes markets more contestable globally

Shift from protectionism to open trade - Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened and average import tariff levels have fallen. However, in the last few years, there has been a rise in non-tariff barriers such as import quotas as countries have struggled to achieve real economic growth and as a response to persistent trade and current account deficits

Growth of MNCS - global businesses and brands have invested significantly in expanding internationally. This is particularly the case for businesses owning brands that have proved they have the potential to be successfully globally, particularly in faster-growing economies fueled by growing numbers of middle class consumers.

Question 22

Benefits and drawbacks of globalisation

Answer 22

Benefits:

• Encourages producers and consumers to benefit from deeper division of labour and economies of scale
• Enhanced growth has led to higher per capita incomes – and helped many of poorest countries to achieve faster economic growth and reduce extreme poverty measured as incomes
• Advantages from the freer movement of labour between countries
• Gains from the sharing of ideas / skills / technologies across national borders
• Competitive pressures of globalisation may prompt improved governance and better labour protection

Drawbacks:

Inflation: Strong demand for food and energy has caused a steep rise in commodity prices. Food price inflation has placed millions of the world’s poorest people at great risk.

Globalisation has been linked to rising inequalities in income and wealth.This leads to political and social tensions and financial instability that will constrain growth. Many of the world’s poorest people do not have access to basic technologies and public goods. They are excluded from the benefits.