6.2 Globalisation + free trade Flashcards
Define globalization
increases in worldwide trade and movement of people and capital between countries.
Define an MNC
full form
Multinational Corporations - Businesses which have their operations, factories and assembly plants in more than one country
Adv of MNCs to home country (of the MNC)
opportunities for marketing
employment opportunities to people of the home country to work abroad
favourable balance of payments - in the long run they export products
Adv to host country (country where MNC has set up)
employment and training to the labour force in the host country.
Transfers of skills and expertise - increases the quality of host country’s labour force
Increase in GPD
Increase competition - local businesses become more efficient
extend consumer and business choice
MNCs bring with them efficient business practices, technologies and standards
significant tax revenues
Disadv to home country of MNCS
MNCs transfer capital from the home country to various host countries - unfavourable balance of payments.
MNCs may not create employment opportunities to the people of home country
Invesmtnets in foreign countries may be more profitable - MNCs may ignore home country’s industrial and economic development
Disadv to Host country of an MNC
Domestic businesses may not be able to compete
MNCs may not act ethically or in a socially responsible way
Profits earned by MNCs may be remitted back
Employment created is usually unskilled and assembly line jobs
Drain natural resources
Define free trade
there are no restrictions for trade between economies.
What are the adv of international trade refered to as
Gains from trade
Define international trade
Movement and exchange of physical goods, services and money across international border
What is an open economy
National economy that engages in international trade with other economies
Advantages of free trade
Allows countries to benefit from specialisation
Increases consumer choice
Increases competition and efficiency
Creates new business opportunities
Enables firms and economies to benefit from the best workforces, resources and technologies
Increases economic inter-dependency - reduces potential for international conflicats
Disadvantages of free trade
Free trade may reduce opportunities for growth in less-developed economies and threaten jobs in developed economies.
Causes rapid resource depletion and climate change
Exploitation of workers and the environment
Income inequality worsens
What is protectionism
involves the use of trade barriers by governments to restrict international market access and competition
List the trade barriers
Tariffs
Subsidies
Quotas
Embargo
Excessive quality standards
Explain tariffs
why are they imposed
Indirect taxes on imported goods that make them more expensive
imposed in order to discourage domestic consumers from buying them.
Explain subsidies
government allows subsidies to domestic producers so that they can increase their output and reduce costs and in turn reduce prices
Explain quotas\
this is a limit on the number of imports allowed into a country in a given period
Restricting supply causes a shortage which pushes prices up
Explain embargo
this is a complete ban on imports of a good to a country.
Explain execessive quality standards
Govts impose unreasonably high quality standards along with constantly changing regulations so that businesses can’t keep up and imports reduce
What is an importing lisence and how do govts use it
Legal document issued by a govt custom’s authority, approving the importation of certain goods into its territory
Govts can selectively issue these or make applications time-consuming and difficult to complete to cause delays
Reasons for protectionism
To protect infant/sunrise industries
To protect sunset industries
To protect strategic industries
To limit over-specialization
To protect domestic firms from dumping
To correct a trade imbalance
What are infant industries and why do govts want to protect them
industries that are new and are hoping to grow
Lesser competition from foreign firms will increase their chances of survival and growth.
What are sunset industries and why do govts want to protect them
those industries that are on their declining stage
Govts want to reduce the rate of decline since those sudden closure of those firms may result in high unemployment
What are strategic industries and why do govts want to protect them
Vital industries such as transport, energy defence etc.
governments will want to protect these so they are not dependent on supplies from overseas.
What is ‘dumping’
why do govts want to prevent it
a kind of predatory pricing, that occurs when imports are sold at a price either below the price charged in the home market or below its cost of production.
domestic firms will be unable to compete and be forced to go out of business. Once this happens, the foreign firms will raise their prices and enjoy monopolistic power.
How can protectionism correct trade imbalances
reduce the imports coming into a country and thus reduce expenditure on imports by domestic consumers.
Consequences of protectionism
They restrict consumer choice.
They restrict new revenue and employment opportunities.
cost-push inflation.
They protect inefficient domestic firms:
Other countries may retaliate
