Chapter 16: The nation in the world economy Flashcards
Globalisation has caused a decline in price gaps
Declining price gaps can be seen for most goods and services. They are an indication of global integration of economies.
Countries can specialise, becoming more efficient at a given type of products
This is cause comparative advantage.
If countries specialise in the production of goods and services in which they have a comparative advantage, trade expands the consumption possibility frontier, an effect similar to that of technological progress.
HOWEVER,
tariffs may impede this specialisation. Tariffs and other policies often impede this specialisation process, resulting in forgone mutual gains.
Effect of tariffs on infant firms
If infant industries are temporarily subsidised or protected by tariffs, then firms can reduce costs over time as they benefit from learning by doing, economies of scale and economies of agglomeration.
A countries comparative advantage depends upon
This depends on not only on the abundance of capital, labour, land and other resources but also institutions, culture, and public policy.
Gains from trade and conflict
Both within and between countries conflicts arise over the distribution of mutual gains made possible by specialisation and trade.
e.g. Germany and China
Roderick’s trillemma
This states that countries may not be able to simultaneously achieve complete globalisation, democracy and national sovereignty
Globalisation effect of trade in different contexts.
Freer movement of goods and services and of capital may promote more rapid economic growth under some conditions but, under other conditions, may retard growth.
Globalisation
A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance and to a lesser extent labour. The term is sometimes applied more broadly to include ideas, culture, and even the spread of epidemic diseases.
Hyper globalisation
An extreme (and so far hypothetical) type of globalisation in which there is virtually no barrier to the free flows of goods, services and capital. See also: Globalisation.
Specialisation
This takes place when a country or some other entity produces a more narrow range of goods and services than it consumes, acquiring the goods and services that it does not produce by trade.
Comparative advantage
A country has comparative advantage compared to some other country in the production of the good for which it has the greatest absolute advantage, or least productivity disadvantage. See also: Absolute advantage.
Price gap
Difference in the price of a good in the exporting country and the importing country. It transportation costs and trade taxes. When global markets are in competitive equilibrium, these differences will be entirely due to trade costs. See also: Arbitrage.
Trade costs
The transport costs, tariffs or other factors incurred in trading between markets in two countries that mean that, for affected goods, the Law of one price will not hold across each market. See also: Law of one price.
Arbitrage
The practice of buying a good at a low price in a market to sell it at a higher price in another. Traders engaging in arbitrage take advantage of the price difference for the same good between two countries or regions. As long as the trade costs are lower than the price gap, they make a profit. See also: Price gap.
Globalisation I and II
Two separate periods of increasing global economic integration: Globalisation I extended from before 1870 until the outbreak of the first world war in 1914. Globalisation II extended from the end of the second world war into the 21st century. See also: Globalisation.
