Block 1 Revision Flashcards
(39 cards)
Globalisation definition
The integration of markets and market mechanisms to facilitate market activity
Globalisation of markets
enables a lower trade barrier between markets, frequently facilitated by brand identity
Globalisation of production
Sourcing factors of production from diverse locations around the world or multiple markets. It improves time to market overcoming logistical limitations of a global reach
Examples of globalisation of production
iPhones - ‘made in China’ but only accounts for less than 4% of their price. (Krugman 2018)
Bangladesh - low wages are the only way they can sell on world markets, showing why countries cannot all follow first-world rules
Current account surplus
Higher exports than imports
Absolute advantage (Adam Smith)
His assumption is that some countries are better at producing one product, rather than many.
The quality of any industry is limited by its capital
He applies oppurtunity cost to individuals
He applies oppurtunity cost to international commercial
David Ricardos Comparative Advantage
There are limits to a countries overall capacity
Country’s should focus on what they are most efficient at, even if you are efficient in two, he argues that you should just focus on one
Neo-Classical explanations of international trade : Heckscher-Ohlin
Although productivity and efficiency are advantages, it is factor endowments (land and natural resources) that are the main advantage
Tin example in the UK
The UK used to be a leading producer, but then Bolivia was able to produce similar quality at cheaper prices so it changed.
Leontief Paradox
Some countries do not nessecarily export in the way Heckscher-Olin suggests
He found that US exports were less capital intensive than imports. This is paradoxical because the us was widely considered capital abundant
Being capital abundant usual points to the fact that imports will be in labour-intensive goods, with exports being capital abundant. The USA proves this weongn
Product-life theory
When making the product, if it is unique than it will likely be kept within the country of origin, so they can control it more. Towards the end of its cycle life, the production starts to move to poorer, cheaper manufacturing locations
New-Trade theory - Krugman (not sure year)
Key concepts are - economies of scale, product differentiation, and first mover advantage
Implications include - trade between similar countries, market structure, and government role
(Jeffery Neilson et al 2014)
China is the factory of the world
India is the worlds back office
What is factor endowment
Land, labour, and resource
Types of political system DICT
Collectivism - proritise collective goals over those of an individual
Individualism - prioritises freedom of expression and private ownership
Democracy- citizens are involved in decision making
Totalitarianism- democratic rights to self-expression and private ownership do not exist
Some countries may fall into multiple categories
Economic systems
Market economy - all productive activity and privately owned. We know the price of everything.
Common economy - state planned production with prices set by them, very little innovation or efficiency
Legal systems MCCT
Common law - based on precedent
Civil law - based on laws written down
Theoretic law - based on religious teaching, tough for countries to function
Market economy law - a combo between common and civil law
Contracts
The tools to govern transactions
Why is the idea to increase GDP
Nations want to promote their own domestic GDP, therefore they look to penalise imports and favouring exports
Government driven general policy
Defensive rationale - wants to keep and support people/process to be in the country, therefore protecting the national economy
Offensive rationale could also be adopted, national strategy could shift to develop domestic technology startups, UK wants everything in Europe
Government driven fiscal policy
Governments restrict foreign competition by increasing costs to the foreign competitors
The primary intent is to generate additional revenue, this could be through taxation, helping manage the balance of payments
Sometimes they will take in debts from international markets to invest in big projects to turn a profit
Options available for governments to regulate instruments of trade policy
Tariff - Tax
Quota - quantity restriction
Subsidy - local firms
FDI and Ownwrshup restrictions - limit dominance by foreign firms/interests
Edwards 2017 thesis
Interdependence means world peace is possible as people can’t go to war due to countries needing eachother
We aren’t talking about trade, we are talking about rules and that’s the whole idea
State Governance and trade
Market acceptance - culture, religion, language
Industry factors - factors from porters 5 forces model
Collectively both the market factors and industry factors represent a friction - strategy needs to identify the immediate higher friction issues
