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ECON 401 > Final Study > Flashcards

Final Study Flashcards

1
Q

What is meant by the term globalization of markets?

A

Merging of national markets into a global one.

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2
Q

What is meant by the term globalization of production?

A

Sourcing goods from the globe

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3
Q

What are the major functions of the World Bank?

A

Offer long term loans and assistance to developing countries

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4
Q

What are the major functions of the IMF?

A

Ensure stability of global economy and currencies

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5
Q

What are the major functions of the WTO?

A

Ensure that trade flows smoothly and freely

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6
Q

What are the two major drivers of globalization?

A

Technological changes and reductions of barriers to trade and investment

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7
Q

How might the internet affect business and globalization?

A

Location doesn’t matter,
communication easier,
cultural convergence

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8
Q

What are the trends in FDI and world trade in the past half century?

A

World merch trade grown, outsourcing production for cheapness/quality,

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9
Q

What 6 general concerns do critics of globalization raise?

A

1) Pushing down wages
2) Moving to countries that don’t care about the environment
3) Undermining national sovereignty
4) Homogenized culture
5) Increasing income inequality
6) Exploiting labour in less developed regions

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10
Q

4 reasons why managing an international business is different from managing a domestic business?

A

1) countries are different
2) range of problems wider
3) working within regulations and laws
4) different currencies

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11
Q

Explain how changes in transportation technology have helped globalization

A

Lowered cost of transporting goods worldwide and created a larger “one economy”

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12
Q

Describe how the world distribution of output has changed over the past 50 years

A

Moved more towards emerging countries

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13
Q

What is the basic liberal argument in support of free trade? Limitations?

A

Lower prices
Raises incomes
Helps create jobs

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14
Q

Globalization good example of creative destruction, explain?

A

Destruction of old industries for new ones. Innovation main driver of wealth

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15
Q

In developed countries how would globalization increase demand for skilled workers and reduce demand for unskilled?

A

Unskilled positions are outsourced and skilled positions are less easy to fill by developing economies.

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16
Q

To Cline, what has contributed most to rising inequality? Tech or globalization?

A

Tech 5 times more powerful.

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17
Q

Globalization led to a reduction in the role or relative size of the state in economy?

A

Government expenditures has not been decreasing

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18
Q

Free market stimulate growth and state-directed stifle it?

A

Incentives are off in a state economy. People are incentivized to work in a free market.

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19
Q

Relationship between corruption and economic growth?

A

With less corruption there is more certainty for investment.

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20
Q

What are the key determinants of economic growth?

A

Innovation and Entrepreneurship

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21
Q

What is meant by the term institutional arrangements and why are these important for growth?

A

Contract enforcement, private property protection, IP.

Encourages risk-taking

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22
Q

What important trade-offs must a country make in determining its approach to patent and copyright laws?

A

Society benefits if something helpful can be distributed widely (drugs) but the costs needs to be able to be covered.

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23
Q

Invest in Poland or Russia, only deciding on risk, which choice?

A

Risk higher in Russia but maybe more payoff. Poland less risky but still risky and less payoff.

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24
Q

Starbucks’ expansion into Chinese market challenges?

A

Copyright infringement issues

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25
Q

Stiglitz: problem with strong rules applied to protect IP and patents?

A

Can stymie development and innovation

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26
Q

Stiglitz: what were the original expectations about how globalization would affect inequality?

A

That inequality would be narrowed

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27
Q

What explains Venezuela and Nigeria’s poor economic performances?

A

Overregulation

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28
Q

What is attractive about Polish economy? Weaknesses and risks?

A

Increased privatization, less regulation restraints, easier to start businesses.

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29
Q

How did recent implementations over last 20 years help Ghana?

A

Democratic system, privatized industries, limited corruption on oil sector

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30
Q

What is a civilization and why fear of growing conflict?

A

A cultural entity
Basic differences
World is “smaller”
Modernization is separating people from identities.

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31
Q

What is relationship between civilizations and globalization?

A

Interactions b/n civilizations are increasing

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32
Q

Huntington’s views on Islamic fundamentalism?

A

“Modernization” in non-western societies can mean becoming more traditional.

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33
Q

What’s the difference between greenfield and M&A?

A

Greenfield: from scratch

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34
Q

Trends and characteristics of FDI in the past 35 years?

A

Deregulation and privatization
Less communist rule
Direct investment over exporting

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35
Q

Firms with low value-to-weight ratios choose FDI?

A

With transport costs it is unprofitable.

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36
Q

What are location-specific advantages and why important in FDI?

A

Resources in one area more valuable than another.

Make the decision on whether to FDI, export, license

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37
Q

When would a firm prefer to engage in FDI vs exporting or licensing?

A

When transport costs high or trade barriers high, or control

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38
Q

Advantages/Disadvantages of licensing compared to FDI?

A

Adv: Doesn’t have to start from scratch
Dis: Less control

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39
Q

5 main advantages of FDI for recipient countries?

A 
Increased access to capital
Increased domestic growth
New technologies available
New management techniques
New jobs
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40
Q

Possible costs and benefits of FDI for sending countries?

A 
Ben: 
Profit
Skills/knowledge
New market share
Costs: 
Focus may shift to new country
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41
Q

Why does Gilpin regard post 1980 as the era of the MNC?

A

Much of the FDI growth has been from MNCs.

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42
Q

Pattern of ownership of MNCs changed over the past 30 year?

A

Used to be mainly US. Now other richer countries are growing.

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43
Q

Possible advantages to a nation attracting MNC investment?

A

Accelerated economic development

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44
Q

What are the major concerns that national governments have with respect to attracting MNC investment?

A

Losing local control or reducing national soveriegnty

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45
Q

What policies might governments use to attract MNC investment?

A

Lower tax rates
Subsidies
Less regulatory issues

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46
Q

What are performance requirements and where are they used?

A

Things the MNC has to do to operate.

Train local employees, work with a local firm, source inputs from local firms

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47
Q

What are the arguments in favour of developing a global set of rules governing MNC investment?

A

Investment and output would follow comparative advantage

Efficiency

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48
Q

Why has it been so difficult for nations to agree on MNC rules?

A

Political. Each country wants control over tech transfer, employment, export requirements.

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49
Q

Difference between a spot exchange rate and a forward exchange rate?

A

Spot: one point in time
Forward: in the future

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50
Q

Main determinants of demand for a nation’s currency in the forex market?

A

Buy local goods
Buy local financial instruments
FDI into the local country

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51
Q

Main determinants of supply of a nation’s currency in the forex market?

A

Amount of imports
FDI to other countries
Interest rates higher in other countries

52
Q

4 main uses of forex for international business?

A

1) Convert to received
2) Convert to pay
3) Investment
4) Speculation

53
Q

How to use forward forex rates to reduce or eliminate foreign exchange risk

A

Forward rate would lock in a minimum exchange rate.

54
Q

What is arbitrage?

A

Taking advantage of a exchange rate difference between multiple countries

55
Q

How do currency swaps work and why?

A

Simultaneous purchase and ale of a certain amount of forex for two different dates

56
Q

What is the theory of PPP?

A

Purchase power parity: basket of goods should be equivalent in each country.

57
Q

3 reasons why might PPP not be a good predictor of exchange rates in the short run?

A

1) no transport costs
2) government intervention
3) no investor psychology

58
Q

What is the international Fisher Effect?

A

“For any two countries the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries”

59
Q

Relationship between interest rates, rate of inflation, exchange rates?

A

International Fisher effect.

Higher inflation in one country their currency down.

60
Q

Most common approach to exchange rate forecasting?

A

Fundamental analysis: Interest, monetary policy, inflation

Technical analysis: Uses charts

61
Q 
Inflation: 
Malaysia: 10%
Singapore: 5%
Nominal in both: 3%
Stable?
A

No b/c real interest higher in Singapore

Investments will move to Singapore from Malaysia

62
Q

What is meant by currency convertibility?

A

If someone is allowed to buy or sell currency

63
Q

What is meant by capital flight?

A

Lots of domestic currency conversion to foreign currency

64
Q

What is meant by non-convertibility?

A

No one is permitted to convert domestic to foreign currency

65
Q

How does a flexible exchange rate system operate?

A

Using the forces of the market

66
Q

Merits of fixed or floating exchange rates systems?

A

Fixed: more certainty
Flexible: autonomy on monetary policy.

67
Q

What were policy makers concerned about in Bretton Woods?

A

Keep the world economy from slipping into another recession

68
Q

What were the key elements of the Bretton Woods system?

A

System of fixed exchange rates policed by the IMF

Countries agreed not to devalue

Permitted to borrow funds

69
Q

What led to the breakdown in the fixed exchange system between 1968 and 1972?

A

US wasn’t willing to reduce spending on war or welfare.

70
Q

What is a currency board?

A

Commitment to convert into another currency at a fixed rate

71
Q

How did the mexican peso crisis differ from the Iceland debt crisis?

A

Mexico: currency crisis
Iceland: banking crisis

72
Q

Compare currency crises, banking crises, foreign debt crises

A

Currency: speculative attack on exchange value
Banking: loss of confidence, and a run
Foreign debt: defaults on debt

73
Q

How did the bailout package help Iceland?

A

IMF loans helped Iceland recover

74
Q

Why did Mutharika resist IMF calls for Malawi’s currency devaluation?

A

Thought that devaluing would cause price inflation and hurt the population

75
Q

What is a capital market? Define market makers

A

Bringing together investors and borrowers.

Financial service companies that bring together investors and borrowers.

76
Q

Describe how a domestic capital market functions and explain what is meant by cost of capital

A

Matching investors and borrowers

Cost of raising or borrowing capital

77
Q

Benefits of a global capital market?

A

Larger pool of investors; reduced costs

78
Q

What is the role of commercial and investment banks?

A

Mediate between savers and investors

79
Q

Describe the growth of the global capital market over the past 15 years

A

Significant

80
Q

What are the 3 major factors that account for the growth of the global capital market?

A

1) Information technology
2) Deregulation of financial services
3) Deregulation of overseas capital flows

81
Q

What is the eurocurrency market and why is it attractive?

A

Any currency banked outside its country of origin. Lack of government regulation

82
Q

Difference between hot money and patient money? Which is preferable to economic development?

A

HM: Short-term capital flows
PM: Long-term investments

83
Q

Compare the three waves of globalization

A

1870-1914: Transport advancement, reduce trade barriers, abundant land
1950-1980: Trade deals
1980-now: Information tech, abundant labour

84
Q

Why did the world retreat to nationalism between 1914 and 1945?

A

Beggar-thy-neighbour policies (helps the country but harms neighbours), in response to depression and high unemployment

85
Q

Compare the economic experience of the more globalized and the less globalized developing economies since 1980

A

Worse

86
Q

What are the three major explanations put forward to explain the poor economic performance of the marginalized countries?

A

Join-the-club: Rule of law lacking, infrastructure bad
Geographic disadvantage: Non-coastal for e.g.
Missed the Boat: Lackcomers don’t have anything to offer.

87
Q

Why have capital flows increase to LDCs since the early 1980s?

A

Lower barriers to capital/trade flow, better access to developed country markets

88
Q

What are the potential benefits to an LDC from out-migration? Potential costs?

A

Unemployed workers leaving reduce econ burden at home and probably send money back home.

Some countries can’t afford to lose their skilled workers

89
Q

Describe the impact globalization has had on the incidence of poverty within LDCs

A

Better.. Poverty lessened, income unprecedentedly high

90
Q

What is meant by international architecture for integration?

A

The way to integrate rich and poor countries in trade, investment, etc.

91
Q

What is the grand bargain that was struck at the Uruguay Round?

A

LDCs: lower tariffs
Rich: include agriculture, abolish quotas

92
Q

How has the composition of LDC exports change over the past 25 years?

A

Used to be raw materials, now more manufactured exports

93
Q

According to the World Bank simulation how important is additional trade liberalization to LDCs? To rich countries?

A

More important to LDCs

94
Q

What are the major objectives of the LDC in the so-called development round of trade negotiations in Doha?

A

Improved market access for LDCs

95
Q

Why did the WTO Seattle meeting fail to launch a new round of trade negotiations?

A

Rich countries lacked the will to address the issues for LDCs

96
Q

What are the anti-dumping practices, and how might they become tools of protection?

A

Restrict cheap imports. Protect local industry

97
Q

What are TRIPs? How might the needs of consumer be balanced with those of property owners?

A

Trade Related Aspects of Intellectual Property Rights Agreements. Balance between encouraging R&D and getting the most societal benefit

98
Q

Why are LDCs opposed to incorporating global rules of labour and environmental practices into general trade agreements?

A

Worried about the measures will become tools for protectionist policies.

99
Q

Why might capital mobility be expected to accelerate economic growth in LDCs?

A

LDCs have little capital but developed countries do. If LDCs can borrow easier then investment and growth can happen

100
Q

What are the 4 main types of capital flow?

A

1) Bank lending
2) Bond purchases
3) Stock purchases
4) FDI

101
Q

Why might FDI be a preferred type of capital inflow compared to bank lending?

A

Less risky than bank lending because no fixed schedule

102
Q

Describe recent trends in capital flows to LDCs.

A

Switched from more private debt to FDI. FDI is 90% of private capital flows.

103
Q

What are moral hazard and adverse selection? Why are these problems especially sever in financial markets?

A

MH: willing to take high risks before little downside
AS: The worst people will choose to borrow

104
Q

What is deposit insurance and how does it lead to problems of moral hazard?

A

Insurance against a certain amount of deposits. Banks are willing to be riskier because they aren’t responsible for 100% of the deposit.

105
Q

Trade in capital more prone to mistakes than trade in G/S? What are the mistakes

A

Yes. LDC are more prone to large scale breakdowns in the financial markets, affecting all sectors of the economy.

106
Q

What is the Washington Consensus?

A

Policy recommendations from IMF, World Bank, US Treasury by consensus

107
Q

Why could the LDC’s debt problems be from rich country lenders?

A

Lending at bad rates and the intrinsic fragility of rich banks.

108
Q

What did an investment boom, excess capacity, rising debt, rising imports, and contagion effects play in the Asian financial crisis?

A

Investment boom > price rises.
Excess capacity from overzealous developers
Rising debt from funding failing industries
Recovery attempt:
Rising imports from devaluation

109
Q

What role did pegged exchange rates play in the dev of the financial crises?

A

Force the currency to overvalue. Flexible rates would be more gradual.

110
Q

What were the causes of the East Asian and US financial crises?

A

EA: investment boom that was unsustainable and a recovery that was destructive in the short-term
US: Subprime mortgages and unhindered lending practices

111
Q

What were the costs to the local Asian economies of the financial crises?

A

Output fell. Wages fell. Poverty doubled

112
Q

What is meant by national sovereignty and economic sovereignty?

A

Nations have a right to exist without other countries interfering nationally or economically.

113
Q

Has globalization contributed to a diminution of the role of the nation state in the economy?

A

Shifting. Governments need to be proactive and promote international movement of G/S, people

114
Q

Why is the economic role of the state not likely to diminish in the foreseeable future? How will it change?

A

Because cooperation between states economically will still need to happen

115
Q

What is deep integration and what are the consequences?

A

Harmonizing economic and regulatory policies that affect the attractiveness of markets.
Consequence: How it’ll affect the attractiveness of the country

116
Q

For and against a transparent rules-based regime governing international investment?

A

For: Power back to national governments
Against: More international agreements to do that.

117
Q

What is meant by social contract? Three pillars

A

Implicit agreement between community and state.

118
Q

What is the intent of a social contract?

A

To have smoother operation between private and public

119
Q

How has globalization reduced the ability of developed countries to uphold the social contracts already in place?

A

The change has been more rapid with globalization and straining government to provide for citizens

120
Q

How is globalization changing the nature of the social contract in Canada and elsewhere?

A

Expansion for skilled workers, unemployment rate pretty low.

121
Q

Why has Africa not benefited from globalization to the same extent as other less developed regions?

A

Colonialism fallouts causing corruption and lack of democracy to happen

122
Q

What is a shell state? Limit development prospects?

A

Looks legitimate but exists to maintain power of the ruling individual

123
Q

Why are property rights less secure and defined in Africa and how does this limit development prospects?

A

With the “Big Men” in charge. Loans need to be taken out on a title for a farmer for e.g. to be able to grow their farm

124
Q

What is dead capital and how does it limit development prospects?

A

Land or housing without title. Can’t borrow

125
Q

What is donor fatigue and why has it arisen?

A

Unwillingness to fund (in Africa specifically).

Failure of projects and corruption

126
Q

What is the Millennium Project and what are its objectives?

A

Study on infrastructure, social services, and human capital gaps in Africa to find how they can be sustainable economically

127
Q

What strategy does Jeffrey Sachs propose to promote economic development in Africa and what role does he envisage for the developed nations?

A

Use the IDA for the World Bank to provide more assistance to Africa

ECON 401 (1 decks)

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