Block 1 Revision Flashcards
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
State measures to promote trade
Subsidies
Export financing
Foreign trade zones
Government agencies
Global trade promotion examples
GATT - General agreement on tariffs and trade
WTO - to promote trade and expand markets for trade
IMF - promotes international money corporation
Global Value Chains
GVCs link firms, workers and consumers around the world, often providing a stepping-stone for firms and workers
New York Times 2016
Apple hardly employs people in the USA, moving operations to China where labour is much cheaper
Companies used to feel an obligation to support American workers
Krugman (2018)
iPhones are made in China- but China only accounts for 4% of their price
Surge in imports between 2000 and 2007 displaced millions of workers
Baldwin (1989) -
Social concerns model
Economic self-interest approach
Social concerns model: the basic idea of the model is that trade policies are explainable mainly by the govs concern for the welfare of certain social and economic groups
Economic self-interest approach: an individual favours or opposes a particular trade policy depending on whether the policy increases or decreases the persons real income
Gereffi 2014 - economic shift
A geo-economic shift towards very large economies in the global south may reshape the power relations between global lead firms and suppliers. For example, China could shift from an exporter to producing for themselves
Ravenhill (2014) - power asymmetries
Power asymmetries - developing economies have to make more concessions
Ravenhill (2014) - inflexible agreements
Major traders like the US and EU use rigid templates in their agreements. This limits the ability of developing economies to upgrade their industries
Gereffi and Fernandez-Stark (2016) - 6 dimensions of GVC analysis
IGG / ULI
GLOBAL
1. Input-output structure of a GVC
2. Geographic scope
3. Governance structure - lead firms and industry organisation
LOCAL
4. Upgrading
5. Local institutional context
6. Industry stakeholders
Gereffi and Fernandez-Stark (2016) - four pillar model for SME participation in GVCs
Access to market
Access to training
Access to finance
Collaboration and Coordination
Leontief vs Heckscher Ohlin
Paradoxical because HO predicts that the U.S. should export capital-intensive goods, and import labour-intensive goods
Leontief finds that to show the opposite. US labour was more productive, had higher tech and more efficient.
Heckscher Ohlin theory prediction (Ohlin 1933)
Predicts that a country will export goods that utilise its abundant factors of production and import goods that’s utilise its scarce factors
Krugman (1996) economies of scale
Refers to the cost advantages that firms can exploit by producing larger quantities of a good or service
Argues that economies of scale create an incentive for countries to specialise in
Krugman (1996) - first mover advantage
The first firms to enter a market and achieve large-scale production can benefit from lower costs and establish dominant position
