4.1- Globalisation Flashcards
What are the countries in BRIC
Brazil, Russia, India and China
What are the countries in MINT
Mexico, Indonesia, Nigeria and Turkey
Economy definition
An economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money
What are the indicators of economic growth
- Gross Domestic Product (GDP) per capita
- literacy
- health
- Human Development Index (HDI)
What is GDP
GDP stands for Gross Domestic Product. The GDP figure for a country shows the sum total of everything they produce as a nation
Define specialisation
Specialisation is the process of concentrating on and becoming expert in a particular subject or skill
What are the downsides of specialisation
A country may become over reliant on one industry (eggs in one basket) and this does not spread risk. Other countries may become cheaper in the same industry and it may be harder to compete
Define FDI
FDI is foreign direct investment – this means that a business from one country decides to establish themselves in another country
Define globalisation
Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange
Define trade liberalisation
Trade liberalisation is the process by which international trade is made easier through relaxation of tariffs and barriers
In 1947 General Agreement on Tarriffs and Trade (GATT) was created. What is GATT and what are the benefits of GATT
GATT meant new jobs for unskilled workers. Countries enjoyed trade benefits of between $250 and $680 billion dollars income a year. Labour intensive production manufacturers in developing nations, enjoyed comparative advantage because of low labour costs
What is the World Trade Organisation (WTO)
WTO was created by GATT in 1994 and exists to reduce barriers to trade and to ensure that countries keep to the agreements they have made
Why are tariffs imposed
Governments want to protect their domestic businesses so they use; tariffs, quotas and legal regulations to slow the rate of imports coming into a country
What is trade liberalisation and what are the benefits
Trade liberalisation is the process of taking down barriers to trade between nations removing quotas and tariffs. Consumers ultimately benefit because liberalised trade can
help to lower prices and broaden the range of quality goods and services available – because they are now allowed to buy imported goods
What are the benefits to business of trade liberalisation
Companies can benefit because liberalised trade diversifies risks and channels resources to where returns on investment are highest
What are the drawbacks to trade liberalisation
Competition can intensify between businesses and between nations and profit can end up being squeezed. Employment that has been created by lower trade barriers, may only be temporary or menial
How has political change led to increased globalisation of markets
Politics used to be only carried out by individual governments who wanted to protect their interest of their country. Politics now happens on a global scale with regular meetings, this has led to less protectionist policies (tariffs and quotas etc) and more open trade between nations
Who are the G7 countries
Canada, France, Germany, Italy, Japan, United States and the United Kingdom
How is globalisation caused by reduced cost of transport
Cost of transporting goods long distances
between countries has been reduced by cargo
containers. Can gain a business EOS as they can ship huge quantities at once
How is globalisation caused by reduced cost of communication
Communication and trade via the Internet has meant an explosion in globalisation and has been a huge catalyst for change Messages can be sent instantly and for free via telecommunications systems such as e-mail or Skype
How is globalisation caused by increased significance of MNCs
Globalisation has been caused by some large companies setting up or buying existing businesses in other countries. These businesses that operate in other countries are called MNCs and are from the developed countries (G7)
How is globalisation caused by FDI
Busiensses outside of important market trading blocs will invest in a business or set up production inside the trading bloc to get round tariffs, e.g. Honda, Nissan and Toyota manufacturing in the UK
How is globalisation caused by migration
Many countries maintain extensive legal barriers to prevent foreigners seeking work or residency from entering their national borders.
But in the EU there is free movement of people between nations to work (at the moment, may change after Brexit).
Immigration provides a source of low income, able bodied workers
How is globalisation caused by global labour force
A global labour force is one that is free to seek better jobs in other countries.
This can cause resentment from host nations, where citizens feel that their jobs are being taken by immigrants
What is structural change
Structural change is an economic condition that occurs when an industry changes the way it operates
How is globalisation caused by structural change
The countries that are able to pull themselves out of poverty are those that move away from primary sector business (agriculture)
Define protectionism
Protectionism is the theory or practice of shielding (or protecting) a country’s domestic industries from foreign competition by taxing imports, imposing quotas or passing laws
What are some reasons for protectionism
It is human nature to want to protect what is ours
Protectionism is a government‘s actions to protect the businesses and interests of their own nation
Government is looking to protect what is theirs
What is a tariff
A tariff is a tax placed on an import to increase its price and decrease its demand
How does tariffs positively impact a business
Imposing a tariff will help a country to:
Protect their fledgling (new) domestic
industries from foreign competition
Protect their aging and inefficient industries
from foreign competition
How does tariffs negatively impact a business
If a business faces having to pay stiff tariffs they may have to reduce production and this can mean job losses
What are the three key reasons to why tariffs are imposed
1) To raise tax revenue:
Poorer countries may impose heavy tariffs on imports to raise much needed funds for healthcare and education
2) For environmental reasons:
Tariffs are sometimes only placed on goods that have negative externalities e.g. cigarettes (sin tax)
3) Protectionism
What are the advantages of tariffs
Domestic produced goods do not incur the tariff and so are likely to be cheaper.
Tariff protection allows domestic businesses to sell more because they gain a price advantage compared to imports.
Domestic producers gain price advantage.
It can ensure better job security.
It can raise important tax revenue for government which can be spent possibly on infrastructure.
What are the disadvantages of tariffs
Some products, even with tariff cost added, do not put off potential customers willing to pay for unique or unusual imported products
Tariffs may just increase the costs to consumers
Other countries may retaliate by imposing their own tariffs on imports
What is an import quota
A quota is a physical limit on the quantity of goods imported or exported for example only 10,000 units a year
Imposing a limit on the quantity of goods that are imported will increase the share of the market available for domestic products (made in the home country)
Why are quotas imposed
When an import quota is set, it allows a country to be sure of the amount of the good imported from the foreign country
What are the uses of import quotas
Import quotas are imposed to protect jobs of domestic producers
Import Quotas are also imposed as a bargaining chip to be used in negotiations on trade
Other uses for quotas are to protect strategic industries such as defence and agriculture. In market environments where imports are on the rise, quotas are more protective than tariffs
What are the advantages of import quotas
protects domestic industries e.g. USA calling for quotas on steel imports
safeguards jobs in domestic industries
Benefit to the customers, the price of imported goods rise so domestic goods appear cheaper and better value in comparison
What are the disadvantages of quotas
When one country uses quotas, its trading partners do the same and the end result is less exporting opportunity for all producers and higher prices for all consumers.
Quotas are also complex for the country using them. They require a lot of paperwork indicating exact amounts of products for each country facing a quota.
It is also difficult to measure the precise degree of protection quotas offer
What is government legislation
Sometimes a country will not be able to set tariffs or quotas because of trade agreements or membership of a trade bloc, this means they need to come up with other ways of protecting their domestic industries from floods of cheap imports
They can do this through legislation e.g. No fakes, safety of toys etc.
What are the advantages of government legislation
Government legislation can be a very powerful tool in preventing fake imports into countries
What are the disadvantages of government legislation
Every import into the UK cannot be checked 2% are fake (according to the OECD) so no matter how many laws a country has it cannot prevent ALL fakes from arriving on their shores
The profits go to organised crime and can be in any sectors including medicine, machinery and clothing
What are domestic subsidies
Subsidy is a way of a government protecting their domestic markets
Money is given to local producers to make their goods cheaper on the domestic market
This artificially raises the price of foreign goods relative to domestic goods therefore reducing demand for them
What are the advantages of domestic subsidies
Encourages businesses to increase their production, this can lead to more jobs being created and tax paid back to the government
Can give domestic producers first mover advantage when exporting to emerging markets (BRICS, MINT)
Can help domestic businesses to gain economies of scale from extra production
What are the disadvantages of domestic subsidies
Domestic subsidies are a form of protectionism and so is open to retaliation from other nations in return. This may mean higher tariffs or quotas on our exports.
Subsidies essentially encourage business activity which would be unprofitable and inefficient without the government financial hand out in the form of the subsidy
Define trading bloc
A trading bloc is a type of intergovernmental agreement to reduce regional trade barriers
What is the EU trading block
The EU is a single marketplace between the 28 member countries (with a notable exception of Switzerland which remains independent).
There is free movement of; people, money, goods and services between all 28 countries
19 of these countries also opted to have the Euro as their currency (to stabilise their currency), this is the Eurozone
What is ASEAN trading
ASEAN was started in 1967 by Thailand, Malaysia, Philippines, and Singapore to promote economic and social growth in the region
Since then it has expanded several times with five more countries joining the trade bloc
It has negotiated a free trade agreement among member states and with other countries such as China, as well as eased travel in the region for citizens of member countries
What is NAFTA trading
NAFTA was created in 1992 with the simple idea of giving the customers in the USA, Canada and Mexico cheaper goods.
Without import tariffs between the countries the goods are less expensive which is a bonus for the consumer, but not always popular with business
Define trade bloc expansion
The process of more countries joining an existing trading bloc, thereby making it expand
What is free trade
Free trade is trade that takes place between counties without protectionism e.g. no tariffs or quotas on imports
What opportunities to a business does free trade bring
1) Freedom to trade; For example UK businesses can sell goods and services freely across the whole of the European Union
2) Enlarged market; For example the size of the market for British goods is now 499 million people, can mean EOS
3) Protection from international competition outside of the BLOC; For example UK businesses are protected from competition from China
4) Freedom of movement of people; For example UK firms can employ talented people from across Europe.
What are the drawbacks of free trade
Free trade agreements (such as trading blocs) can also create problems for business
Dominance of developed countries in global trading
It can kill off domestic business in developing nations
It can reduce national sovereignty or identity as countries become standardised, westernised and Mcdonaldized
