Global Economy Flashcards
FDI
Purchase of physical capital abroad by multinational corporations
Specialisation
When workers are assigned specific tasks within a production process, and production is limited to one, or small group of products
Globalisation
The process that has resulted in ever closer links between the worlds economies
Division of labour
When the production process is divided into different stages, enabling workers to focus on specific tasks.
Comparative advantage
A situation where one country produces a good or service at a lower opportunity cost relative to others
Specialisation by comparative advantage
Specialising in those forms of production in which the country’s advantage is most marked or where it’s disadvantage is least marked
Trade barriers
Obstacles designed to protect domestic producers at the expense of foreign producers, and to reduce the volume of trade across national borders
Balance of payments
Records money flows into and out of a country over a period of time
Current account
Includes money flows due to trade, transfers of interest, profit and dividends and transfers of money by governments and international organisations
Terms of trade
The price of a country’s exports relative to the price of its imports
Commodity
Raw materials
Resource nationalisation
The tendency of people and governments to assert control over natural resources located on their territory. Conflicts with the interests of multinational corporations.
Remittances
Money sent home on a regular basis to family and friends by migrants from the country they are working in
ODA (official development assistance)
Foreign aid given by governments to developing countries in the form of grants and loans
Inflation
The sustained increase in the general level of prices in an economy
Economic growth
An increase in the real GDP of an economy - production of more goods and services
Economic development
An improvement in people’s wellbeing and quality of life
Debt and portfolio investment
Purchase of financial assets
5 causes of globalisation
Trade liberalisation Reduction of restrictions on movement of capital Better communications and technology Rising living standards Fall in transport costs
5 indicators of globalisation
Global brands Transfer of technology Worldwide expansion of internet Global sourcing Overseas production
What is protectionism?
Imposing restrictions on trade in order to protect domestic firms from foreign competition. Can be in the form of tariffs, quotas etc.
7 Arguments for protectionism?
Protects domestic employment Infant industry argument Prevents 'dumping' Protects product standards To raise govt. revenue To improve a current account deficit To avoid risk of overspecialisation
4 arguments against protectionism?
Market distortion
Allows production inefficiencies
Regressive
Risk of retaliation
Why does depreciation not always correct a CA deficit? (USA)
Insufficient depreciation
Insufficient time allowed for correction
Chinese keeping currency at artificially low levels - distorting weighted average
Marshall-Lerner condition may not be satisfied
Influence of economic fundamentals
Consequences of a CA deficit?
Decreases AD
Could lead to an economic crisis
Can put downward pressure on the exchange rate
