4.1- International Economics Flashcards
Define globalisation
Process in which national economies have become increasingly integrated and inter-dependent
What are three characteristics of globalisation
- Free movement of labour across international boundaries
- Free trade in goods and services between countries
- The availability of technology and intellectual capital
- International trade becoming a greater proportion of all trade
- Increased foreign ownership of firms
- Industrialisation of developing/emeging economies
Define Multinational corporations(MNCs)
An MNC is a firm which functions in at least two countries. They are attracted by;
- The availability of cheap labour and raw materials
- Good transport links
- Access to diffeent markets
- Pro-foreign investment government policies
What are the effects of MNCs
MNCs can choose to diide their operations in a country by producing different parts of a product where it is cheapest to do so, this can reduce regional unemployment
What are three casuses of globalisation?
- Trade liberalisation
- A reduction in the cost of transporting goods
- MNCs wishing to increase their profits by investing in other countries
- Growth in international trading blocs
- Increase in specialisation- as countries specialise, the become interdependt and rely on other countries to export what they do not produce
What are three benefits of globalisation
- Trade encourages countries to specialise which increases output
- Globalisation allows countries to produce where they have a comparative advantage as countries specialise
- Producers can benefit from larger economies of scale
- Increased competition as a result of international trade
- Greater employment as a result of free movement of labour
What are drawbacks of globalisation
- Specialisation can lead to overreliance of few industries in an economy
- Domestic firms may be outcompeted
- Climate change as a result of increased emissions due to transport
- Depletion of natural resources
- Greater risk of external shocks due to economic dependency
- Increasing world trade imbalances in the balance of payments
Effects of globalisation on developing countries
- Increase in FDI
- MNCs may exploit workers by paying them low wages
- Skilled workers leave to work for more developed countries
- MNCs often bring more efficient production methods
Effects of globalisation on developed countries
- Increased levels of imprts lead to a trade deficit
- MNCs gain access to cheap labour which leads to lower costs of production and lower prices
- Cheap overseas production of goods has led to a severe production in some industries in developed countries
Define absolute advantage
Occurs when a country can produce using fewer factors of production than another nation
Define comparative advantage
A country has a comparative advantage if the opportunity cost of producing a good is lower than the opportunity cost for other countries
What are the assumptions made with the theory of comparative advantage
- Constant costs of production(ignoring economies of scale)
- Transport costs are 0
- There is perfect knowledge
- Factors of production can easily be switched from producing one good to another
