4.1 Globalisation Flashcards
How is Economics Growth Defined?
An increase in a country’s productive capacity.
How is Emerging Economics Defined?
The economies of developing countries where there is rapid growth, but also significant risk.
How is Human Development index (HDI) defined?
A collection of statistics that are combined into an index, ranking countries according to their human development.
How is Literacy rate defined?
The Percentage of adults (over 15) that can read and write
How is Purchasing Power Parity (PPP) defined?
A measure of real growth that uses the price of purchasing a standard basket of goods and services in order to compare prices across economies.
Why do Investors like Emerging Markets?
- they are likely to grow more quickly than more mature markets.
- Therefore a business should be able to increase profits and dividends.
what happens when an Emerging Market is experiencing an increase in average income?
- Likely due to the middle classes expanding
- This increase in income allows consumers to spend more on both imports and domestically produced goods and services.
- Buying more domestics goods encourages the growth of domestic firms –> increased market power –> compete internationally
- Consumers may also buy more imported goods and services –> increasing their profitability and making emerging markets more attractive to new entrants.
What Does the Initialism BRICS stand for?
- Brazil
- Russia
- India
- China
- South Africa
What does the Initialism MINT stand for?
- Mexico
- Indonesia
- Nigeria
- Turkey
How is GDP defined?
A common measure of national income, output or employment.
What are the top 5 countries with the highest GDP?
1- US --> £9.4 trillion 2- China --> £3.7 trillion 3- Japan --> £3.4 trillion 4 - Germany --> £2.1 trillion 5- France --> £1.6 trillion
What are the implications of economic growth for individuals and businesses?
- Growth, especially in emerging markets are attractive to new entrants, create trade opportunities and ;alter existing employment patterns.
How does Economic growth create trade opportunities and what is the implications for both individuals and businesses?
- When an economy is growing consumption may also be growing –> good for those looking to invest or sell their goods/services.
- it is likely that disposable income is rising so this increases the overall demand for goods and services.
- Demand is likely to become income elastic, providing greater opportunities for increase revenues and profit.
- These goods/ services can be produced domestically or imported from abroad, creating many opportunities for trade.
How does Economic growth alter existing employment patterns and what is the implications for both individuals and businesses ?
- More growth normally correlates to more people employed
- employment is one of the most important indicators of the health of an economy
- if there is low levels of employment –> people have no disposable income –> cant buy your product/service –> not a good idea to export there
- however, unemployed people are looking for work so a firm could find a pool of labour to make goods that could be exported elsewhere –> so directly investing in a country like building a factory might be a good idea.
- future employment trends are also important –> new technology may mean fewer workers are required –> making cheap labour no longer a significant comparative advantage for an emerging economy as it once was.
What are some indicators of growth?
- GDP per Capita
- Data from a countries GDP
- literacy
- Health
- Human Development Index
What data from a countries GDP could be used by a business as an indicator of a countries growth?
- GDP figures do indicate the value for economic activity and can be calculated to show the value of all of the goods, produced, or purchased in an economy
- They take account of price changes over time adjusting for inflation –> real GDP
- Nominal GDP doesnt take into account inflation
- look at GDP per resident (GDP per capita)
- However GDP usually uses market exchange rates to compare different countries this can cause problems –> exchange rate constantly changing, good and services are more expensive in developed countries therefore GDP maybe skewed
- Prefer using PPP exchange rate –> good idea of what buyers in different countries can afford and what their overall welfare might be in real terms.
How is literacy used as an indicator of a countries growth?
- the quality of employees. both as workers and potential consumers
- a company looking to invest wants the most productive employees they can find at the lowest costs.
- a company exporting to a country will want to consider the consumers they want to sell to, understanding their potential consumers they will know how to market its goods and services to them
- this can be found out by the literacy rate provided by the UN which is the percentage of adults that can read and write.
How is Health an indicator of a countries growth?
- An assessment of the health of a population may include –> life expectancy at birth, infant and maternal mortality, pollution exposure and access to clean water.
- The World Health Organisation collects and evaluates statistics relating to a broad range of indicators that can be used to assess population health
What is the Human Development Index (HDI)?
- The HDI combines statistics on life expectancy, education and income for a particular country into a single rankable value.
- it is published by the United Nations Development Programme, the index attempts to assess a country’s people and their skills, rather than simply the economic conditions
- Life Expectancy –> how many years can someone expect to live, indicated the overall health of a nation as well as the quality of its health care and social systems. Highest = Japan 83.6 year/ Lowest = Sierra Leone45.6 years
- education –> help to assess the average amount of education a 25-year-old person has but does not consider the nature or quality of that education. Highest = US and Germany 12.9 years/ Lowest = Burkina Faso 1.3 years
- Gross National Income per Capita (GNI) –> measures the relative wealth of the population ( as measured in PPP$). Highest= Qutar (199,029)/Lowest = Democratic Republic of the Congo (444)
How is HDI an useful to a business?
- A business may want to use the HDI to investigate a potential market or location for investment.
- e.g. if a company markets and sells products for the elderly it would need to evaluate the life expectancy in a target country to assess how many people might want to buy their products in the future.
- If the same business wanted to sell products that came with a high price it would also want try to match countries that have the longest life expectancy to those that have high levels of GNI so to ensure that their potential customers could actually afford their products/- the company may need to hire technicians and scientist to research and develop its new products –> could search table for mean years of schooling to highlight places where potential employees could be found to target recruiting.
How is Comparative advantage defined?
The theory that a country should specialise in products and services that it can produce more efficiently than other countries.
How is competitive advantage defined?
The idea that a business should specialise in any area (products, services, management, research, etc) where it can perform better than its competitors.
How is Division of Labour defined?
Different workers specialising in different productive activities
How is Exports defined?
Goods or services that a firm produces in the homer market, but sells in a foreign market.
How is Foreign Direct Investment defined?
Investing by setting up operations or buying assets in businesses in another country.
How is Imports defined?
Goods and services that are bought into one country from another.
How is international trade defined?
Exporting (selling abroad) and importing (buying from abroad).
How is Specialisation defined?
A production strategy where a business focuses on a limited scope of products or services. This results in greater efficiency, allowing for goods and services to be produced at a lower cost per unit.
How are Tariffs defined?
Taxes that are imposed on imports.
what are Exports?
- Trade liberalisation, has reduced quotas and tariffs has made exporting easier. Export is the most common route for a firm to expand into the international market. Exporting services is also known as ‘invisible’ exports, e.g. accountants and lawyers. the UK is very competitive in financial services particularly banking and insurance
- A business can export directly by hiring someone to be its local agent or indirectly by getting another person or firm to prepare the documents and take on all of the responsibility for selling and distributing the products or services for them
- Exports are seen as a less risky way to enter international markets, i.e. by testing the water, however they are not risk free as things like exchange rates can have an impact, as well as quotas.
What are Imports?
- Imports are the goods and services that are brought into one country from another
- Barriers to limit the amount of imports are called tariffs, which are taxes on imports, these are becoming lower and easier to manage to be fairer, but NTB’s – Non-tariff barriers are more difficult, i.e. giving subsidies to local farmers, putting quotas on the number of imports and how many should actually be made within the country
What is the link between business specialisation and division of labour?
- At the core of the modern exchange economy, and thus of international trade, is the concept of the division of labour whereby workers specialise in a productive activity.
- Specialisation increases the speed and skill at which a task can be done thereby improving efficiency.
- as the market becomes larger, the opportunities for specialisation become greater and narrower.
- Adam Smith expressed division of labour as the process of making a pin.
What is Comparative Advantages?
- the theory that the country should specialise in products and services that it can produce more efficiently than other countries.
- this theory was illustrated by David Ricardo.
- he illustrated that if two countries produced what they are they are best at and traded the total output of both products goes up and consumers in both countries are better off.
- this theory has limitations, such as it assumes that the world does not change. yet our modern, globalised world changes rapidly and often unpredictably
- Nevertheless the theory provides a good base for understanding why two countries, and their consumers, can benefit from specialisation and trade.
What is Competitive Advantages?
- Michael Porter extended the comparative advantage theory that businesses can gain a competitive advantage in international trade just like countries do
- the idea that a business should specialise in any area (products, services, management, research, etc) where it can perform better than its competitors.
- specialisation in production on a limited scope of products could lead to a lower cost per unit thus can reduce prices or increase profit margins.
Why might a business invest directly in other countries?
- many business out grow their home markets and in order to seek out new growth they expand into new markets.
- when the potential competitive advantages like ownership of resources, locations and internal organisation) combine a firm can benefit form becoming a multinational company and investing directly in other countries
- a firm may decide to do this because the business:
- has a high potential for making a profit if it invests in
a new market - needs to maintain control over its subsidiaries in the
new market - is trying to acquire direct knowledge of the local
market - is attempting to avoid barriers to the market
- has a high potential for making a profit if it invests in
What is Foreign Direct Investment (FDI)?
- investing in setting up operations or buying assets in businesses in another country
- most complicated and expensive form of involvement in a country and is the most risky
- not only gain capital but contacts managerial and technical knowledge
- UN considers FDI to have occurred when a firm takes an equity stake of more than 10%
- it is not the same as a foreign portfolio investment such as holding stocks or bonds or tangible assets, the main identifying aspect of FDI is control
