Chapter 14 : The international economy: globalisation and international trade Flashcards
What is globalisation?
Globalisation is the process of increasing economic intervention into the world’s economies.
What are the causes of globalisation?
- Development of transportation
- Growth of MNCs
- Improvement of information and communication technology
- Mobility of labour and capital
- Trade liberalisation
What are some advantages of globalisation? Explain them.
- Greater employment
- Lower prices
- Technological innovations and transfers
- Free movement of capital and labour
- Benefits of trade
What are some disadvantages of globalisation? Explain them.
- Growing inequality
- Environmental costs
- Greater risk of external shocks
- Less cultural diversity
What is free trade?
Trade between companies without any barriers getting in the way. For example tariffs.
What are some advantages of free trade? Explain them.
- Access to goods that cannot be produced domestically
- Lower prices
- Greater consumer choice
- Economic growth
What is comparative advantage?
A theory created by David Ricardo that suggests that a county should specialise in producing goods and services where they have lower opportunity cost compared to another country and then trade.
What are some advantages of comparative advantage? Explain them.
- Countries like China and South Korea have made major productivity gains
- Lower prices
- Maximum output
- Allocative efficiency
What are some disadvantages of comparative advantage? Explain them.
- Overspecialisation can be negative because of high human costs due to exploitation of local workers
- Less harsh labour laws cause companies to benefit from child labour and coercive employment practices
- Environmental consequences
What is the balance of payments?
All flow of money between the residents of a country and the rest of the world.
What is the current account?
It records the value of imports and exports.
What are remittances?
Transfers of money across national boundaries by migrant workers.
What is primary income?
Income from interest, profits and dividends generated from foreign investment and migrant remittances.
What is secondary income?
Income that includes spending on military aid and overseas development aid.
What are the key factors that affect a country’s current account balance?
- A strong exchange rate
- High productivity
- Low inflation
What is protectionism?
Implementing policies to protect an economy from the restrictions of imports.
What are the two types of protectionism?
- Tariffs
- Quotas
What is a tariff?
Placing taxes on imported goods and services to increase the price of imports.
What is a quota?
The restriction on the quantity of an import into an economy.
What are examples of a quota?
Export subsidies and administrative barriers.
What is an export subsidy?
When a government provides subsidies for firms that produce subsidies.
What is an administrative barrier?
Regulations and other administrative barriers that make it harder for imports to enter a country.
