Chapter 1 Global Interdependence 11-22 Flashcards
What is international competitiveness, and why is it important?
refers to a country’s ability to compete in international markets, affecting trade, production, and income. High competitiveness improves living standards by increasing national income, while low competitiveness makes selling goods/services harder domestically and internationally.
What are the key economic determinants of competitiveness?
Labour productivity (influenced by technology, education, and training).
Relative price levels (domestic inflation vs. trading partners).
Relative wages (domestic wages vs. trading partners).
Exchange rate (affects export/import prices).
How is competitiveness measured?
Real unit labour costs:
Trade-weighted exchange rate (TWI):
What does purchasing power parity (PPP) state?
PPP theory suggests that goods should sell for the same price across countries when prices are converted using the exchange rate. Differences indicate misaligned exchange rates.
What is the formula for PPP exchange rate?
Ep=P1/P2 where
*Ep = PPP exchange rate
P1 = price of good in country 1
P2= price of good in country 2
What does the ‘Big Mac’ index measure?
compares Big Mac prices globally to determine if exchange rates are overvalued or undervalued. It reflects production costs like wages and raw materials.
Why might iPhones or iPads better reflect PPP than Big Macs?
iPhones/iPads are standardized products with less variation in production costs across countries, unlike Big Macs, which reflect local wages and raw materials.
What is globalisation?
opening of international borders for trade, investment, immigration, and technology exchange.
What are the benefits of globalisation?
Higher incomes and innovation.
Cultural exchange and improved living standards.
Lower global poverty and wider access to goods.
What are the main indicators of globalisation?
Trade as % of GDP: Rose from 39% (1990) to 60% (2019).
Tariffs: Dropped from 15% (1990) to 5% (2019).
FDI: Grew from $239 billion (1990) to $1322 billion (2019).
Internet and mobile subscriptions: Significant growth since 2000.
Tourism: International arrivals tripled (1990–2019).
What are the three waves of globalisation?
First Wave (1870–1914): Driven by colonial expansion and industrialisation.
Second Wave (Post-WWII–2009): Expanded trade and living standards.
Era of Slowbalisation (Post-2010): Marked by trade tensions, protectionism, and slower economic growth.
What drives globalisation?
Market liberalisation (e.g., GATT, WTO).
Technological advances (e.g., IT outsourcing, improved transport).
Multinational corporations (MNCs): Promote trade, investment, and technology diffusion.
What are the positive effects of globalisation?
Access to diverse goods at lower prices.
Job creation, higher wages, and reduced poverty.
Technological innovation and cultural exchange.
What are the criticisms of globalisation?
Widening income inequality.
Job losses in less competitive industries.
Environmental degradation.
Erosion of cultural diversity
What does the Globalisation Index measure?
assesses economic, social, and political globalisation. Top-ranked countries include Switzerland, Netherlands, and Belgium, with Australia in the top 25.
