Chapter 1: international eco integration Flashcards
define globalisation
Globalisation refers to the increasing interactions and integration between people and economies in terms of trade, communication and movement of people; and the increased impact of international influences on economic activity and all aspects of life.
what are the major indicators of integration between economies
- international trade in G&S
- international financial flows
- international investment flows
- technology, transport and communication
- the movement of workers between countries
what is the trend in anti-globalisation
an anti-globalisation movement has emerged in several countries in recent years based on perceptions that it reduces national sovereignty (power) and exacerbates inequality
why has slowbalisation emerged
‘Slowbalisation’ emerged due to lower growth in trade volumes, increased restrictions on trade, a slowdown in investment flows and rising geopolitical tensions
what are some factors contributing to the slowdown in trade and investment
- renewed use of protective trade barriers due to escalating geopolitical tensions
- ‘Friendshoring’
- ‘Reshoring’
- Slower growth in GWP
- The war in Ukraine
what does it mean trade tends to be more volatile than output
during economic downturns, growth of global trade tends to contract fastener than GWP
Ie swing in trade is larger than swings in GWP
why do countries import
increasingly chosen to import some goods and services rather than producing them themselves as traditional barriers (cost, time regulations) have been removed or reduced
- Transportation technology have made this more efficient at lower cost
when do econommies benefit from trade flows
- the G&S they produce efficiently are in demand (or short supply) –> more export revenue
- their major trade partners experience periods of stronger economic growth
why is finance the most globalised sector
money moves between countries faster than goods and services or people
how did International financial flows grow substantially following financial deregulation worldwide
controls were lifted on:
- Foreign currency markets
- Flows of foreign capital - allow other countries to make investments in other countries
- Banking interest rates
- Overseas investments in share markets
deifne Foreign exchange markets
networks of buyers and sellers exchanging one currency for another to facilitate flows of finance between countries
what features of financial deregulation have facilitated the growth of forex markets (how has deregulation by gov
grown forex markets)
- easing of capital controls ie measures by gov to control the flow of capital into and out of the country
- shift from exchange rates to governments allowing the value of their currency to be determined through the forces of supply and demand
who are the main drivers of global financial flows
speculators and currency traders who shift billions of dollars in and out of financial markets worldwide to undertake short-term investments in financial assets
what is the main benefit of greater global financial flows
they enable countries to obtain funds that are used to finance their domestic investment
- firms in countries with low national savings levels dont have the funds to undertake large-scale capital investments if closed off from global financial flows
- eg. AUS benefited from the use of foreign capital to overcome a persistent savings-investment gap
what are the significant negative economic impacts of changes in global financial flows
- speculative behaviour can create significant volatility in the forex markets and domestic financial markets (ie quick changes)
- herd mentality (once trend established, it continues)
- caused several large currency falls and financial crises
- effects can be devastating for individual economies which lose the confidence of international investors
what is one way of distinguishing b/w growth of global finance and global investment
finance is the short-term, speculative shifts of money and investments are the longer-term flows of money to buy or establish businesses
what is one measure of the globalisation of investment
the expansion of foreign direct investment
define FDI
the movement of funds between economies to establish a new business or buy a substantial proportion of shares in an existing economy (10% or more)
- long term investment
define Transnational corporations (TNCs)
global companies that dominate global product and factor markets
- operate in at least 2 countries
- Having production facilities in other countries
- Carrying out packaging and marketing tasks elsewhere
what do TNCs bring to an economy
- FDI
- new tech
- skills and knowledge
- job opportunities
- profit shifting to tax havens
- remittance of dividends to parent countries
- Exploitation of labour and the natural environment
define cartel
groups of competitors who seek to reduce competition between them by colluding on price and supply
- eg. As TNCs increase in both volume and significance, there has been an increase in cross-border cartels
how do govs encourage TNCs to set up in their country
through supportive supportive policies such as subsidies or tax concessions
list a range of technological developments which have facilitated the integration of economies
- freight technology such as standardised shipping containers, more efficient logistics systems and increased use of automation in warehouses
- Cheaper and more reliable international communications –> better internet
- Computer and communications networks
- Smartphones and mobile internet access
- Advances in transportation
how are technological developments beneficial
- allow more efficient movement of goods, people and information
- become more closely integrated
- driver of growth in trade and investment –> major export opportunity
- increasingly interconnected nature of the global economy
what is the trend in labour markets
Labour markets have been far less internationalised than markets for G&S or finance and investment as people are not as free to move between jobs in different locations or economies
- labour migration fell due to reduced job opps but migration picked up again driven by the EU, US and AUS
- continued to grow despite pandemic
what are pull and push factors for migration
While there is strong economic motivation for migration (‘pull factor’), geopolitical turmoil, domestic instability and conflict are also significant factors driving movements (‘push factor’)
define brain drain
whereby some of their most talented and skilled workers are lost to other countries
why are brain drains bad
loss of human capital, shortage of workers, increase in the technological gap and fiscal impact of lost income taxes (publicly funded education of skilled migrants is not ‘repaid’)
where does the movement of labour tend to be concentrated
at the top (highly skilled) and bottom ends (low-skilled) of the labour market, both to advanced economies
Define intenational division of labour and why its beneficial
- international division of labour: how the tasks in the production process are allocated to different people in different countries around the world
- relocation (full or partial) of many manufacturing and service industries to emerging and developing countries where labour is cheaper
what is the effect of migration of labour
- deindustrialisation and job displacement in advanced economies
- developing economies - more manufacturing, less services
- Advanced economies - more services, less manufacturing
- efforts to ‘reshore’ some manufacturing are unlikely to see much of a reversal of this trend
what are the significant barriers to working in other countries
- Distance and cost
- Immigration restrictions
- Language
- Cultural factors
- Incompatible educational and professional qualifications
define offshoring
involves companies shifting production between countries to reduce production costs
eg. Many firms operate global supply chains (or global value chains), with production facilities in several countries
what is the result of offshoring
the emergence of export-oriented economies that can compete based on their abundance of cheap labour ie a lot of exporters who can sell for cheap due to cheap labour
- eg. recent yrs increasingly seen service functions such as IT support move to more competitive locations based on cost
define comparative advantage
the idea economies should specialise in the production of goods and services that they can produce at the lowest opportunity cost
- Developing countries have a comparative advantage in labour-intensive manufacturing
- Advanced focus on specialised services that use more highly skilled workers
define the international business cycle and give eg
fluctuations in world economic growth - changes in the level of economic activity
- For most countries, their economic growth is synchronised with global rates
-eg. even countries where the pandemic was less severe suffered immense economic damage, partly due to the flow-on effects of the recession in other countries
through which channels does increased integration of economies occur
- trade flows - a boom or recession will affect an economy’s demand for the exports of its trading partners
- investment flows - economic conditions in one economy will affect whether firms will invest in new operations overseas
- TNCs
- financial flows - varies and amplifies changes in the international business cycle
- Confidence in consumer and financial markets - heavily influenced by conditions in other countries
- Global interest rate levels
- Commodity prices
-International organisation
qhat are some factors that can differ between countries
- interest rates
- economic policy decisions
- regionla factors
- exchange rates
- structural factors
define regional business cycle
the fluctuations in the level of economic activity in a particular geographic
region over time
what are the components of each economy’s business cycle
Each economy’s business cycle has a country-specific component (factors unique to that country)
- regional component - common movements in growth rates within a region or regional business cycles
- global component - common global movements or the international business cycle
describe regionalisation in more interconnected regions vs less interconnected
- more: asian regions closely linked and affected by regional influences
- less: african regions (less regionally connected) rely more on local and global economic shifts than regional shifts
how can smaller economies create significant ripple effects across a region
- Larger economies had to provide financial help to struggling countries
- Trade with struggling countries, like Greece, slowed down
- Confidence among consumers, businesses, and investors dropped across Europe
ie not only large economies but small regions can significantly influence the global eco
