4.1 International Economics Flashcards
Globalisation Characteristics
Growing interdependence of countries and the rapid rate of change it brings about
The OECD defines globalisation as the geographic dispersion of industrial and service activities
Globalisation Factors
Improvements in transport infrastructure and operations => quick, reliable and cheap methods to allow production to be separated around the world
Improvements in IT and communication => allow companies to operate globally
Trade liberalisation => cheaper to trade
International financial markets => ability to raise money
TNC => sell and produce goods all around the world and have power to lobby governments
Globalisation Impact
Consumers
More choice since there are wider range of goods available from all around the world
Lead to lower prices as firms take advantage of comparative advantage and produce in countries with lower costs
Leading to a rise in prices since incomes are rising and so there is higher demand for goods and services
Many consumers worry about loss of culture
Globalisation Impact
Workers
Large scale job losses in west manufacturing sectors as these have been transferred to east
Increased migration may affect workers by lowering wages but migrants can also provide important skills and an increase in AD => increases jobs
International competition leads to fall in wages for low skilled workers in developed countries
Wages for high skilled workers increase => more demand => more inequality
TNCs provide training for workers => new jobs
Globalisation Impact
Producers
Firms able to source products from more countries and sell them in more countries => reduces risk since collapse of market in one company has smaller impact on business
Able to employ low skilled workers much cheaper in developing countries => exploit comparative advantage and have larger markets => increase profits
Firms unable to compete internationally lose out
Globalisation Impact
Government
May be able to receive higher taxes since TNCs pay tax and so do the people they employ, however could lose out through tax avoidance
TNCs also have power to bribe and lobby governments => corruption
If government uses correct policies, can maximise gains and minimise losses
Globalisation Impact
Environment
Increase in world production has led to increased demand for raw materials
Increased trade and production leads to more emissions
Globalisation means world can work together to tackle climate change
Globalisation Impact
Economic Growth
Increases investment => injection with large impact from multiplier => incentivises supply side improvements
World class management techniques and technology
Increase output since it allows exploitation of comparative advantage
Political instability => support regimes which are unpopular and undemocratic
Comparative cost advantages change overtime and so companies have to leave country when it is no longer offers an advantage => structural unemployment => reduce growth
Absolute and Comparative Advantage
Theory of comparative advantage states countries find specialisation mutually advantageous if opportunity costs of production are different
If same => no gain from trade
Absolute advantage exists when country can produce a good more cheaply in absolute terms than another country
Comparative advantage exists when a country is able to produce a good more cheaply relative to other goods produced
Absolute and Comparative Advantage Assumptions and Limitations
Comparative advantage assumes there are no transport costs => could lower/prevent any comparative advantage
Also assumes costs are constant and there are no economies of scale which help to increase gains from specialisation
Assumes factors of production are perfectly mobile, there are no tariffs or other trade barriers and there is perfect knowledge
Whether trade takes place will depend on terms of trade between countries
Specialisation and Trade
Advantages
Shows how world output can be increased => increases global economic growth
Allow countries to benefit from economies of scale => reduces costs => decrease prices globally
Different countries have different factors of production => trade allows countries to make use of factors
Enables consumers to have greater choice => increased consumer welfare
Greater competition => incentive to innovate => increases consumer welfare and lowers costs
Specialisation and Trade
Disadvantages
Lead to over-dependence => some countries dependent on specific exports while some on imports
Structural unemployment as jobs are lost to foreign firms
Environmental damages
Countries suffer from loss of sovereignty
Loss of cultures
