4.1 Globalisation Flashcards
Impact of Economic Growth on Businesses
Potential for increased profits as businesses enter new markets and gain more customers
Customers are likely to have income elastic demand, leading to increased sales and revenues/profits
Reduced costs of production as businesses can benefit from lower labour costs and cheaper raw materials in emerging economies
Increased trade opportunities as demand for goods and services increases
Increase in investment because, as the economy grows, businesses want to expand so they are more likely to invest
There may also be an increase in foreign direct investment (FDI) as businesses want to benefit from growing economies
Impact of Economic Growth on Individuals
Reduced unemployment as there is more demand, which requires more labour to increase output
Increased average incomes as individuals now have rising incomes due to employment, which increases the standard of living
Access to quality public services as more tax revenue is generated. The government can improve the quantity and quality of public services
Indicators of Growth
- GDP Per Capita
- Literacy
- Health
- HDI (Health Development Index)
Define Imports
Imports are goods and services bought by people and businesses in one country from another country
Define Exports
Exports are goods and services sold by domestic businesses to people or businesses in other countries
Define Specialisation
Specialisation occurs when a country/business decides to focus on producing a particular good/service
Define FDI
Foreign Direct Investment (FDI) is investment by foreign firms which results in more than 10% share of ownership of domestic firms
What is Inward FDI?
Inward FDI occurs when a foreign business invests in the local economy
E.g. In 2017, Kenya opened the Kenya Standard Gauge Railway line built by Chinese investors
What is Outward FDI?
Outward FDI occurs when a domestic business expands its operations to a foreign country
E.g. Dyson has moved its manufacturing from the UK to Malaysia, China and the Philippines
Define Globalisation
Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
Define Trade Liberalisation
Trade liberalisation is the removal or reduction of barriers to trade between different countries
Benefits of trade liberalisation
Increased international trade allows businesses to increase their market size
This leads to increased output and countries can benefit from economies of scale
Freer trade helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply
Drawbacks of of Trade Liberalisation
Domestic firms, in particular, Infant industries may not be able to compete against international firms
Some industries may be subject to dumping as businesses abroad may sell excess products at unfairly low prices
Factors Contributing to Increased Globalisation
- Political Change
- Reduced cost of transport and communication
- Increased significance of TNCs
- Increased Investment flows (FDI)
- Migration (within and between economies)
- Growth of the global labour force
- Structural change
Define TNCs
A transnational company is a business that operates in more than one country
Define Protectionism
Protectionism is when a government seeks to protect domestic industries from foreign competition
What does a tariff do?
A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses
Benefits of tariffs
They protect infant industries so they can eventually become more competitive globally
An increase in government tax revenue
Reduces dumping by foreign businesses as they cannot sell below the market price
Disadvantages of Tariffs
Increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers
Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
Define Import quota
An import quota is a government imposed limit on the amount of a particular product allowed into the country
Benefits of import quotas
To meet extra the demand, domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy
The higher prices for the product may encourage new businesses to start up in the industry
Countries are able to easily change import quota as market conditions change
Foreign countries view a quota as less confrontational to their business interests than tariffs
Their exporters can still sell their goods at the higher price in domestic markets (but a limited amount)
Disadv. of import quotas
Quotas limit the supply of a product and whenever supply is limited, the price of the product rises
They may generate tension in the relationship with trading partners
Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition
Define legislation
This involves the creation of new laws by a government
Define subsidies
An amount of money paid to a firm by a government for each unit produced
Define Trading Bloc
A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
3 Largest trading blocs
- EU
- ASEAN
- USMCA
Benefits of Trading blocs for businesses
- Access to more markets
- External tariff walls
- An external tariff wall is a tax applied to imported goods by a group of countries that have formed a trade agreement
This protects businesses within the trading bloc from competition from businesses outside of the trading bloc
- Infrastructure
- Free movement of labour
Drawback of trading blocs for businesses
- Increased competition
- Common rules & regulations
- Retaliation
- Inefficiency
