4.1 - International Economics Flashcards
1
Q
What is globalisation?
A
Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
2
Q
What are the four main characteristics of globalisation?
A
- Increasing foreign ownership of companies
- Increasing movement of labour & technology across borders
- Free trade in goods/services
- Easy flows of capital (finance) across borders
3
Q
What factors have contributed to globalisation in the last 50 years?
A
- Economies of scale generated by containerisation in the shipping industry
- A rapid growth in the number & influence of TNCs
- Deregulation of many financial markets in the 1990s → led to the expansion of global financial services & provided more access to capital
- The improved ability for firms to easily connect & promote themselves internationally due to the internet & improvements to communications technology e.g Skype, WhatsApp, WeChat etc
- The end of the Cold War between Russia & the West in 1990 opened up former communist countries around the world enlarging the global supply of labour e.g. more than 800,000 people migrated from East to West Germany between 1990 & 1991
- The Increased effectiveness of the WTO in negotiating new trade agreements & helping countries to open up to free trade (trade liberalisation),→ increased international specialisation & volume of trade
4
Q
What are the impacts of globalisation on consumers?
A
- More choice - wider range of goods avaialable from all around the world
- Lower prices - firms are taking advantage of comparative advantage & produce in countries with lower costs
- Rise in prices - rising incomes → higher demand for G&S
- Loss of culture
5
Q
What are the impacts of globalisation on workers?
A
- Structural unemployment from shifiting sectors
- Increased migration - could lower wages but also important skills could increase AD & jobs
- Wages for high skilled workers increase due to high demand → increasing inequality
- Poor conditions in sweatshops
6
Q
What are the impacts of globalisation on producers?
A
- Firms are able to source products from more countries & sell them in more countries → reduces risk since a collapse in the market of one country will have a smaller impact on the business
- Can employ low-skilled workers cheaply in developing countries, exploit comparative advantage & have larger markets → increased profits
- Firms unable to compete internationally will lose out
- Monopoly power of MNCs
7
Q
What are the impacts of globalisation on government?
A
- May receive higher taxes as TNCs pay taxes and so do their employees - could lose out through tax avoidance
- TNCs have the power to bribe and lobby governments → corruption
- Increase in organised crime
8
Q
What are the impacts of globalisation on environment?
A
- Rapid depletion of natural resources
- Deforestation
- Increased global warming
- The world can work together and tackle climate change by sharing ideas and technology
9
Q
What is comparative advantage?
A
- Comparative advantage is the theory which states that a country should specialise in the G&S that it can produce at the lowest opportunity cost
- Excess production can be exported
- G&S not produced in the country can be imported
- Developed by David Ricardo in 1817
10
Q
What is absolute advanatage?
A
- Absolute advantage occurs when a country is able to produce a product using fewer factors of production than another country
- A country may have absolute advantage but comparative advantage - it should produce G&S in which it has comparative advantage
11
Q
What are the assumptions of comparative advantage?
A
- Transport costs are zero: it does not account for moving the G&S between countries - depending on a nation’s location this is more/less of a problem
- There is perfect knowledge: each country knows what it has a comparative advantage in & also the comparative advantages of other countries
- Factor substitution is easily achieved: economies can quickly adjust to changing global market conditions by switching from capital to labour - and vice versa
- Constant costs of production: the theory does not take into account the economies of scale that can be achieved with an increase in output
12
Q
What are the limitations of comparative advantage?
A
- Over-dependence: specialisation creates a dependence on other countries which generates vulnerability e.g. receiving gas supplies from Russia works well when relations are good but has proven otherwise in an unexpected time of war
- Environmental damage: The impact of negative production externalities isn’t considered by the theory - can worsen the quality of life in towns, cities & countries
- Distribution of income: The GDP/capita is likely to increase, however, the distribution of the extra income is likely to be uneven with the wealthier gaining more
- Structural unemployment: as countries specialise certain industries are likely to shut down → unemployment → these workers may not be able to move into other occupations → rise in long-term unemployed
13
Q
What are the advantages of international specialisation & trade?
A
- Lower prices
- Greater variety of G&S
- More competition leads to better-quality products
- Economies of scale create efficiencies
- Higher economic growth
- Improved living standards
14
Q
What are the disadvantages of international specialisation and trade?
A
- Global monoplies emerge: as TNCs grow in size & increase market power, they can dictate prices & output in many regions + can influence governments & gain access to raw materials through bribery & corruption
- Exposure to external shocks: shocks to other economies have a knock-on effect due to the interdependence that develops with trade e.g. russia-ukraine war
- Deficit on current account on balance of payments: in developing countries, this situation is usually as a result of a lack of global competitiveness & it is importing necessity products
- Unemployment: many firms that were successful in the local market may well fail in a global market + structural → government SSPs make a difference to the length & severity of structural unemployment
- Dumping due to illegal government support: some governments support key industries to ensure they are globally competitive - usually in the form of subsidies which encourage excess production - this excess production is then dumped on world markets at low prices
- Loss of sovreignity and culture
15
Q
What is terms of trade and what is the formula?
A
- Terms of trade refer to the ratio of a country’s average price of exports to the country’s average price of imports
- Terms of trade = index of average export prices / index of average import prices x 100
