Chapter 14 Flashcards
Define the term globalisation
Increasing economic integration across international borders
Define free trade
When two or more countries trade without barriers
What are the 7 causes of globalisation?
Improvements in communication
Improvements in transport (in terms of speed and cost reduction)
Containerisation (which has generated massive increases in efficiency for firms transporting goods globally + growth of air freight)
Increased free trade
Closer political ties between countries, especially since the end of communism in many countries
Abolition of capital controls
Coca-colonisation (destruction of local cultural identities)
What are the main characteristics of globalisation?
The growth of international trade and the reduction of trade barriers - trade liberalisation
Greater international mobility of both capital and labour
A sig increase in the power of international capitalism and MNCs or transnational companies
The deindustrialisation of older industrial regions and countries, and the movement of manufacturing industries to newly industrialising countries (NICs)
More recently, the movement of internationally mobile service industries, i.e. call centres etc, to NICs
A decrease in gov power to influence decisions made by MNCs to shift economic activity between countries
What are the 5 more features of globalisation?
Greater foreign trade
Higher levels of overseas migration
Increasing capital flows between countries through FDI and portfolio investment
Increased regional specialisation - i.e. greater division of labour
Emergence of global brands
Greater use of outsourcing/ offshoring
What are the 5 consequences of globalisation for more developed economies?
Increasing ability to outsource production to low-cost countries
Potential for higher sales by targeting products at fast-growing, less-developed countries
Exploitation of economies of scale by producing on a global scale
Increased competition for firms in developed economies from low-cost producers
Need to diversify away from manufacturing as less-developed economies utilise their absolute and comparative advantage in manufacturing
Ability of firms to recruit globally - though this may push down wages in the local economy
Possible ‘brain drain’ as skilled workers seek opportunities overseas
Define the term containerisation
The use of uniform-sized containers for transportation of goods, which significantly reduces the cost of transportation through increased efficiency
Define the term outsourcing
Part of a firm’s production is performed by another firm (or, in the case of offshoring, the work is done by a firm in another country)
What is the WTO and what does it encourage?
World Trade Organisation encourages the growth of international trade and the reduction of trade barriers = trade liberalisation
Define the WTO
An international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers to trade. As such, it has become closely associated with globalisation.
Define the term multinational corporations (MNCs)
Enterprises operating in several countries but with their headquarters in one country.
Define the term less developed countries
Countries considered behind in terms of their economy, human capital, infrastructure and industrial base
Name 3 nations who are less developed economies
Asia, Africa, Latin America
What are the 6 characteristics of less developed countries
Low GDP per capita
Fast population growth
Primary product dependence
Poorly developed infrastructure and financial markets
Large informal economy
Large rural population/agricultural output
What do the critics of globalisation say?
Globalisation has led to a ‘McDonaldisation’ or ‘Coca-colonisation’ of sig part of the world economy.
On one hand - companies i.e. Nike are accused of exploiting their workers with low wages, but multinationals argue that low wages they are paid far exceed the wages paid by indigenous firms - they believe this encourages local wages to rise.
MNCs also claim to improve labour productivity, health and safety and other labour market conditions in the poor countries in which they operate.
What are the consequences for less developed countries with globalisation?
Increasing dominance by global brands from developed countries - Coca-colonisation etc (although many global brands succeed by adapting their products to local tastes = GLOCALISATION)
Issues of treatment of local workforces
Having to adopt free market macroeconomic policies in order to attract FDI
Having to open up markets to foreign competition, placing local businesses at risk of failure
Define the term more developed countries
Countries with a high degree of economic development, high average income per head, high standards of living, usually service industries dominating manufacturing, and investment having taken place over many years in human capital and infrastructure.
What does FDI stand for?
Foreign direct investment
Argument for globalisation
Free market economists generally support globalisation and regard it’s growth as inevitable. They argue that the benefits of further global economic integration, which include the extension of political freedom and democracy as well as the economic benefits of more production and higher living standards, sig exceed the disadvantages, i.e. destruction of local cultures. However, opponents argue that globalisation is a respectable name for the growing exploitation of the poor, mostly in developing countries, by international capitalism and US economic and cultural imperialism.
What are the 5 benefits of MNCs to less developed economies?
Employment boost
Multiplier effects of FDI
Wages may rise to attract local labour
Tax rev boosted
Hard currency may be earned
What are the 6 drawbacks of MNCs to less developed economies?
Wages offered by MNCs are often v low
MNCs may bring in their own workers
Tax avoidance by MNCs
Poor working conditions
Environmental damage
Increased competition for local businesses
What are the 3 reasons for foreign trade?
Access to cheaper products
Greater variety of products
Lower production cost through specialisation and outsourcing
Define absolute advantage
One country being able to produce a product at a lower cost than in another country
Define comparative advantage
One country being able to produce a product at a lower opportunity cost than another country
How is comparative advantage measured by?
The opportunity cost of producing a product, in terms of what could have been produced instead in the same country.
For absolute advantage, what does specialisation do?
Increases world output. It allows the countries in question to trade, making each country better off than before
For comparative advantage, what does specialisation do?
World output is higher than before specialisation.
Trade is mutually beneficial (at an appropriate exchange rate) - each country can consumer more despite one country being less efficient at producing both products.
What are the assumptions of the model of comparative advantage, which make it thus hard to implement in the real world?
Factor immobility between countries
Perfect factor mobility within each country (i.e. workers can make either product)
No economies or diseconomies of scale - costs remain the same. This doesn’t occur in the real world
Transport costs are small enough not to matter
No artificial trade barriers - there are tariffs, quotas and transport costs in the real world.
Perfect info - doesn’t exist in reality
Describe the changing pattern of UK trade
The UK is an open economy - foreign trade accounts for around 30% of UK GDP
Trade with EU has grown over the last 50 years (though may decline due to leaving EU)
There has been a gradual decline in trade with former Commonwealth countries
There has been a gradual decline in manufacturing exports
The UK has a high level of financial services exports
Areas of success for export include air tech, cars and military tech.
Define trade protection
Using artificial barriers known as protectionist policies to restrict the flow of imports into a country
What are the 4 protectionist policies?
Tariffs - taxes on imports. Increases import prices, encouraging switch to domestic alternatives
Quotas - limits on the quantity of imports
Export subsidies - when govs subsidise export-producing industries
Red tape/artificial barriers - length administrative procedures or complex legal standards for imports
What are the arguments for protectionist policies?
Protection of jobs
Infant industry - protecting small domestic industries from larger, more efficient competition
Anti-dumping - stops large overseas businesses selling output below cost to drive domestic businesses out
Sunset industries - protecting industries in long-term decline
Strategic reasons - protecting strategically important industries (i.e. agriculture)
What are the arguments against protectionist policies?
Based on comparative advantage, free trade maximises global output
Protecting infant/sunset industries encourages inefficiency
Higher prices (and possible job losses elsewhere due to reduced spending power)
Protectionist policies usually encourage retaliatory measures
What are the features of the single European market?
Customs union
Freedom of movement of EU population
Free movement of capital between members
Common product standards and regulations
Some fiscal coordination
Some countries share monetary policy via Euro currency
Define the term customs union
Free trade areas with a common external tariff on imports from outside
Define the term balance of payments
Record of financial transactions between the UK and rest of the world
Explain the arguments in favour of leaving the EU
Less competition from low-cost producers within the EU
Trade diversion - avoiding common external tariff on non-EU imports
No further financial contribution to EU (almost $10 billion per year)
Less downward-pressure on wages from EU migrants willing to work for low wages
No need to comply with EU rules and regs
UK unaffected by new laws made by European Parliament
