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Economics - The Global Economy > Extract 5 > Flashcards

Extract 5 Flashcards

1
Q

Definition of Globalisation

A

Processes that have resulted in ever-closer links between the world’s countries

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2
Q

Characteristics of Globalisaton (2)

A
  • Global Brands

- Global sourcing

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3
Q

Factors promoting globalisation (5)

A
  • Reduction in protectionism
  • reduction in international capital movement restrictions
  • Falling communication costs/ development in IT
  • Fall in transport costs
  • Liberalisation of domestic markets
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4
Q

Effects of globalisation |(4)

A
  • Higher living standards
  • enjoyment of global brands
  • spreading of practice/ technology
  • improved medical supplies
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5
Q

Definition of FDI

A

Investment made by a multinational corporation (MNC) in a country other than where its operations originate; e.g the establishment of branches and productive processes abroad, or the purchase of foreign firms.

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6
Q

Benefits of FDI (5)

A
  • Injection into circular flow of income
  • positive effect on balance of payments
  • increase in tax revenue for gov’t (income tax receipts from newly employed and VAT)
  • improved productivity (pressure from MNC on local suppliers to become more efficient)
  • Technology transfer
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7
Q

Costs of FDI (6)

A
  • Employment may only be short term
  • MNCs may invest in labour saving technology
  • Net effects on balance of payments less than expected (Profits may be repatriated)
  • tax receipts less than expected
  • environmental costs
  • productivity gains less than expected, depending on type of FDI
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8
Q

Common characteristics of developing countries (6)

A
  • Low living standards
  • Low levels of labour productivity
  • High rate of population growth
  • Economic structure dominated by primary sector production
  • High degree of market failure
  • Lack of economic power in international markets
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9
Q

Diverse characteristics of developing countries

A
  • resource endowment
  • size of economy
  • historical background
  • Geographical area
  • role of state in the market
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10
Q

Development definition

A

process of improving peoples economic well-being and quality of life

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11
Q

Differences between growth and development (4)

A
  • Growth may be unequally distributed, not raise a nations income
  • Growth may deplete natural resources (hinder future generations)
  • Growth may be achieved through capital intensive methods
  • Growth may produce high levels of pollution
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12
Q

Policies to promote development (4)

A
  • State ownership, gov’t intervention and import substitution
  • Export promotion
  • Filling the savings gap through international aid
  • Washington Consensus and role of markets
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13
Q

Functions of IMF (3)

A

Surveillance - IMF officers observe economies and design policies best suited to that economy
Technical assistance - Help countries design/implement effective policies
Lending - Help countries with balance of payments issue

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14
Q

Criticism of IMF (2)

A
  • Can support countries with bad human/labour rights records

- Can implement policies that cause crises such as budget restrictions and nationalisation of resources

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15
Q

State Ownership: aim

A

large investment into infrastructure through Import Substituting Industrialisation (ISI), tariff implemented in order to allow domestic industries to grow

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16
Q

State Ownership : Evaluation (4)

A
  • Bias towards urban industrial sector, neglect of agriculture
  • Income inequality rises due to unequal distribution of GDP
  • Protectionism stifled growth because of small domestic market (firms lack economies of scale to generate lower unit costs and productive effiencies)
  • Quotas/ Tariffs distort prices so resources not allocated efficiently
  • Funds may not be directed towards education/healthcare so may not increase development
  • Protectionism meant domestic firms lacked competition and over time developed inefficiencies
17
Q

Export Promotion: Aim

A

Create comparative advantage for goods to export to developed world. Heavy investment into strategic industries and education (to raise productivity)

18
Q

Export Promotion : Evaluation (2)

A
  • Danger that economic development may depend on growth of demand in other countries
  • Can also encourage competitive devaluations of exchange rate in order to maintain international competitiveness
19
Q

Filling savings gap through international aid: Aim

A

Use aid ( non-commercial and characterised by low interest rates, long repayment period etc.) to fill savings gap to allow investment

20
Q

Filling savings gap through international aid: Evaluation (5)

A
  • Aid not driven by need
  • Little evidence that it has promoted economic growth (Africa)
  • Raises levels of debt, worsens BOP
  • Corruption in recipient country may mean that aid does not reach intended recipients
  • Gov’t may become dependent on aid for expenditure`
21
Q

Washington Consensus: Aim

A

Policies that increase role of market forces
- Fiscal discipline (Control inflation)
- Market liberalisation/privatisation (eliminate productive inefficiency)
- trade liberalisation/encouragement of foreign investment (scrapping of tariffs, exposes domestic firms to greater competition)
Firms have to adopt these policies to receive aid and other forms of help (Advice etc)

22
Q

Washington Consensus: Evaluation (3)

A
  • Trade liberalisation can result in raised food prices due to currency devaluations and end of price control
  • Fiscal discipline has been achieved through cuts in education/health, worsening development
  • Developing markets often lack basic infrastructure that allow markets to function efficiently (e.g lack of financial institutions)
23
Q

Define sustainable development

A

Development that meets the needs of the current generation without compromising the ability of future generations to meet their own needs.

24
Q

Aims of IMF (3)

A
  • Facilitate expansion and growth of international trade
  • Provide exchange stability
  • Promote international monetary co operation

Economics - The Global Economy (5 decks)

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