Block 1 Revision

Question 1

Globalisation definition

Answer 1

The integration of markets and market mechanisms to facilitate market activity

Question 2

Globalisation of markets

Answer 2

enables a lower trade barrier between markets, frequently facilitated by brand identity

Question 3

Globalisation of production

Answer 3

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

Question 4

Examples of globalisation of production

Answer 4

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

Question 5

Current account surplus

Answer 5

Higher exports than imports

Question 6

Absolute advantage (Adam Smith)

Answer 6

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

Question 7

David Ricardos Comparative Advantage

Answer 7

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

Question 8

Neo-Classical explanations of international trade : Heckscher-Ohlin

Answer 8

Although productivity and efficiency are advantages, it is factor endowments (land and natural resources) that are the main advantage

Question 9

Tin example in the UK

Answer 9

The UK used to be a leading producer, but then Bolivia was able to produce similar quality at cheaper prices so it changed.

Question 10

Leontief Paradox

Answer 10

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

Question 11

Product-life theory

Answer 11

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

Question 12

New-Trade theory - Krugman (not sure year)

Answer 12

Key concepts are - economies of scale, product differentiation, and first mover advantage

Implications include - trade between similar countries, market structure, and government role

Question 13

(Jeffery Neilson et al 2014)

Answer 13

China is the factory of the world

India is the worlds back office

Question 14

What is factor endowment

Answer 14

Land, labour, and resource

Question 15

Types of political system DICT

Answer 15

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

Question 16

Economic systems

Answer 16

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

Question 17

Legal systems MCCT

Answer 17

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

Question 18

Contracts

Answer 18

The tools to govern transactions

Question 19

Why is the idea to increase GDP

Answer 19

Nations want to promote their own domestic GDP, therefore they look to penalise imports and favouring exports

Question 20

Government driven general policy

Answer 20

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

Question 21

Government driven fiscal policy

Answer 21

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

Question 22

Options available for governments to regulate instruments of trade policy

Answer 22

Tariff - Tax
Quota - quantity restriction
Subsidy - local firms
FDI and Ownwrshup restrictions - limit dominance by foreign firms/interests

Question 23

Edwards 2017 thesis

Answer 23

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

Question 24

State Governance and trade

Answer 24

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

Question 25

State measures to promote trade

Answer 25

Subsidies
Export financing
Foreign trade zones
Government agencies

Question 26

Global trade promotion examples

Answer 26

GATT - General agreement on tariffs and trade
WTO - to promote trade and expand markets for trade
IMF - promotes international money corporation

Question 27

Global Value Chains

Answer 27

GVCs link firms, workers and consumers around the world, often providing a stepping-stone for firms and workers

Question 28

New York Times 2016

Answer 28

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

Question 29

Krugman (2018)

Answer 29

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

Question 30

Baldwin (1989) -

Social concerns model
Economic self-interest approach

Answer 30

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

Question 31

Gereffi 2014 - economic shift

Answer 31

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

Question 32

Ravenhill (2014) - power asymmetries

Answer 32

Power asymmetries - developing economies have to make more concessions

Question 33

Ravenhill (2014) - inflexible agreements

Answer 33

Major traders like the US and EU use rigid templates in their agreements. This limits the ability of developing economies to upgrade their industries

Question 34

Gereffi and Fernandez-Stark (2016) - 6 dimensions of GVC analysis

IGG / ULI

Answer 34

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

Question 35

Gereffi and Fernandez-Stark (2016) - four pillar model for SME participation in GVCs

Answer 35

Access to market
Access to training
Access to finance
Collaboration and Coordination

Question 36

Leontief vs Heckscher Ohlin

Answer 36

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.

Question 37

Heckscher Ohlin theory prediction (Ohlin 1933)

Answer 37

Predicts that a country will export goods that utilise its abundant factors of production and import goods that’s utilise its scarce factors

Question 38

Krugman (1996) economies of scale

Answer 38

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

Question 39

Krugman (1996) - first mover advantage

Answer 39

The first firms to enter a market and achieve large-scale production can benefit from lower costs and establish dominant position