Extract 5 Flashcards
Definition of Globalisation
Processes that have resulted in ever-closer links between the world’s countries
Characteristics of Globalisaton (2)
- Global Brands
- Global sourcing
Factors promoting globalisation (5)
- Reduction in protectionism
- reduction in international capital movement restrictions
- Falling communication costs/ development in IT
- Fall in transport costs
- Liberalisation of domestic markets
Effects of globalisation |(4)
- Higher living standards
- enjoyment of global brands
- spreading of practice/ technology
- improved medical supplies
Definition of FDI
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.
Benefits of FDI (5)
- 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
Costs of FDI (6)
- 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
Common characteristics of developing countries (6)
- 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
Diverse characteristics of developing countries
- resource endowment
- size of economy
- historical background
- Geographical area
- role of state in the market
Development definition
process of improving peoples economic well-being and quality of life
Differences between growth and development (4)
- 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
Policies to promote development (4)
- State ownership, gov’t intervention and import substitution
- Export promotion
- Filling the savings gap through international aid
- Washington Consensus and role of markets
Functions of IMF (3)
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
Criticism of IMF (2)
- Can support countries with bad human/labour rights records
- Can implement policies that cause crises such as budget restrictions and nationalisation of resources
State Ownership: aim
large investment into infrastructure through Import Substituting Industrialisation (ISI), tariff implemented in order to allow domestic industries to grow
State Ownership : Evaluation (4)
- 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
Export Promotion: Aim
Create comparative advantage for goods to export to developed world. Heavy investment into strategic industries and education (to raise productivity)
Export Promotion : Evaluation (2)
- 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
Filling savings gap through international aid: Aim
Use aid ( non-commercial and characterised by low interest rates, long repayment period etc.) to fill savings gap to allow investment
Filling savings gap through international aid: Evaluation (5)
- 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`
Washington Consensus: Aim
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)
Washington Consensus: Evaluation (3)
- 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)
Define sustainable development
Development that meets the needs of the current generation without compromising the ability of future generations to meet their own needs.
Aims of IMF (3)
- Facilitate expansion and growth of international trade
- Provide exchange stability
- Promote international monetary co operation
