ECON4 Globalisation and Trade Flashcards
Define globalisation
Definition - The ever-increasing integration of the world’s economies (national/regional/local) into a single international market
What are the key characteristics of globalisation?
More trade in G+SFree movement of capitalLabour - migration and specialisationinterchange of intellectual capitallarger trading agreements
Causes of globalisation?
ContainerisationLess protectionismThe death of distance/ITeconomies of scalebusiness demandsinternational financial flowslegislation
Key benefits of globalisation
tech innovationFDIEconomies of scale
Key disadvantages of globalisation
ineqeuitable distributionthreat to sovereignty and cultural identityinterdependence
types of tax avoidance
transfer pricingmoving production to low tax countrylow tax head office
benefits of FDI
can trigger multiplierincreases R&D New jobsProductivityIncrease in export capacity
Disadvantages of FDI
profits may not go to host countryland grabslow ehtical standardvolatilelow quality jobs
Why are their MNCs?
barriers to entryeconomies of scaleicnreased innovationglobal brandingpatentinggain politcal influence
define footloose capitalism
Fickle companies - may leave quickly if things change (however, this can be difficult for manufacturing)
Summary of inequality and globalisation
Decreases inequality between countriesIncreases inequality within countries
What is comparative advantage
One country has a lower opportunity cost of producting than another
What is absolute advantage?
A country can produce a good more efficiently (less goods and services than another country)
What happens to PPF when two countries are trading at a favourable exchange rate
PPFs pivot out and become parallel
What would the specialisation diagram look like if a country has absolute advantage in one of the goods and the other country had the absolute advantage in the other
How do you calculate the opportunity cost of good A in a trade diagram?
Find what’s the price of each good for a country.
Country A could Good A for £20 per unit or Good B for £10 per unit
Therefore, the opportunity cost of producing Good A = amount produced of Good B/amount of produced of Good A = -.5
Essentially shows for each good of A you have to give up 0.5 of Good B
How can you use a trade diagram to calcualte the COST of exchange?
What theory opposes Adam Smith’s specialisation?
Theory of comparative advantage
Name 3 assumptions of theory of comparative advantage
no transport costsproduction costs/tech costs constant2 economies 2 goodsmobile factors of productionhomogenous goodsno barriers to tradeperfect knowledge
What are the primary determinates of a comparative advantage
quantity and quality of production
What 4 factors influence the pattern of trade?
comparative advantageEmerging economiesTrading blocs/agreementsexchange rates
What can be used to measure trade openess
ratio of trade to GDP = (X-M)/GDP
How has production changed? 3
Fragmentation of productiondigitilisationrise in automation
2 benefits of trade
Reduced costs - comparative advantage specialisationMore choice
Risks of trade 2
overdependenceloss of culture and sovereignty
formula for terms of trade
index of X prices/index of M prices *100
SR determinates of Terms of trade
change in ERinflationchange in demand
LR factors effecting terms of trade
productivitychange in income
What does a rise in Terms of trade mean
prices of exports rise and prices of imports fall- buy more imports per export- may worsen balance of payments (depends on elasticity)
To see how elasticity affects balance of trade what can we look at?
Export market
