Global Interdependence Flashcards
Define Globalisation
refers to the freer movement of goods, services, investment, ideas and people around the world. It implies the opening up of international borders to the flow of trade, workers, tourists and investment.
- World become increasingly integrated/interdependent.
- Countries joined together to create a global market due to:
- > Rapid advances in communications and transport (both cheaper and faster).
- > Invention of internet, mobile phones and fax machines.
Four trends that have affected the relationship between trade and development:
- The economic growth of many developing countries
- The growing integration of global production through supply chains
- The higher prices for agricultural goods and natural resources
- Increasing interdependence of the world economy, which causes shocks to reverberate more quickly and globally
Linkages Between Economies
- Investment: refers to the money flows around the world.
- Tourism: Leisure, business events, school groups. Is an 80 billion dollar industry.
- Immigration: Australia relies on immigration to build population and develop the extend the skills base of our population.
- Trade: Stimulus to growth, expands the global economy and inc. standards of living and creates wealth around the world.
Patterns and Trends in Global Trade
World exports increased by a factor of 5 between 1990 and 2013.
World GDP increased by 70%.
Surge in world exports after 2002 due to China
Trade
- Trade has grown so much due to the success of world organisations such as WTO, IMF, World Bank.
- Trade is advantageous to all, everyone gains when they trade.
- Exporting = domestic producers gain from higher prices and greater production
- Imports = domestic consumers gain from lower prices and greater consumption
-Trade divided into 2 sections:
-> Goods (merchandise): this makes up 80% of trade and includes agricultural goods (wheat, rice and corn), mining and fuels (iron-ore, gold and petroleum) and manufactured goods (cars, TVs and clothing).
Manufactured goods make up 70% of goods traded.
-> Services: makes up 20% of trade. Intangible products (things you cannot touch). This includes travel, telecommunications, insurance and financial services.
Factors Affecting Global Trade
- Exchange Rate
movement in exchange rate affect price of exports and imports - World Economic Growth
Australia is dependent on foreign demand
inc. economic growth in foreign countries = demand for our exports - Domestic Economic Growth
Higher domestic economic activity increases amt of imported consumer goods and services (more people w/ money) - Relative Inflation Rates
Higher inflation rate than other countries = decrease in competitiveness - Relative Interest Rates
Interest rates are higher than other economies, financial capital will flow into the Australian economy - Productivity and Cost efficiency
Productivity improves cost efficiency by increasing output per worker
International Competitiveness
- The degree to which a country can produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the incomes of it’s people over the long term.
- International competitiveness is a measure of a country’s advantage or disadvantage in selling it’s products in international markets.
- International competitiveness affects:
- international trade
- therefore national production,
- employment and income.
Improving competitiveness implies an improvement in national income. - IC is improving if there is an increasing demand for a country’s products AND standards of living are improving in the country.
Competitiveness is important to Australia because it leads to more exports demanded which creates jobs,
increased incomes and leads to economic growth.
If $AUD increases, international competitiveness decreases.
If $AUD decreases, international competitiveness increases.
Real Unit Labour Costs
reflects changes in a country’s wages relative to its productivity.
Productivity
Measures how much output can be produced from a given input, such as labour.
Trade Weight Index
Measures the change in the value of the Australian dollar relative to our major trading partners.
TWI decrease = increase in competitiveness
PPP Theory
Same product should sell for the same price in different countries, once converted to a common exchange rate.
- Prices vary due to differences in the costs of producing.
- Prices will reflect the cost of inputs
Causes of Globalisation
- Liberalisation of markets to the flow of goods, services and investment.
- Tariff rates has fallen from an average of 29% in 1990 to below 8%.
- Regional trading groups have encouraged the expansion of free trade by reducing / eliminating trade barriers.
Technology
- Advances in transport / communication = distant is non existent
- Transport costs = cut therefore increase in trade and tourism eg.
- Internet has enabled the growth of trade in services.
- Allows services to be outsourced to countries with cheap labour therefore inc. profit
- Multinational Corporations
- Large firms with headquarters in one country and subsidiaries in one or more other countries.
- These firms establish production and / or retail and distribution facilities.
- These companies play an increasingly major role in the world economy.
- Expanding out allows for an inc. in sales, market share and profits.
Number of determinants to a countries competitiveness and quality and price comparison to rest of world
- Inflation Rate:
- > refers to consistent and appreciable rise in general level of prices. The higher the inflation rate and the more costly the good is to ROW, a decrease in international competitiveness will occur.
- Wages:
- > wages are one of the most expensive costs in producing a G&S. If wages increase relative to other countries then this will be passed on through higher priced G&S there decreases competitiveness.
- Labour Productivity:
- > refers to how skilful and productive a countries’ labour force is. This can change due to factors such as higher quality of goods produced at a faster rate. This will increase competitiveness.
- Exchange Rates:
- > Appreciation in $AUD makes our exports more expensive thus decreases competitiveness and vice versa.
Multinational Businesses (MNCs):
Huge increase over last 40 years. In 1970 there were 7000 MNCs whilst today there are more than 82000 MNCs.
MNCs make up 10% of world GDP.
In 2008, 77 million people employed in MNCs.
- Benefits of a firm expanding into foreign markets include:
- > Increase in sales, market share and profit.
- > Reduction in transport costs.
- > Cheap labour in some countries (e.g. Nike factories in Asian countries offer very cheap labour).
- MNCs be they good or bad are an inevitable development that will occur when the world becomes more globalised.
- Big companies who want to expand and have reached their capacity in their own country can only go one way - and that is to branch out into other countries.
Discuss the extent of globalisation (how much it has expanded in the last 40 years).
- Globalisation often wrongly blamed for world’s problems of climate change, world poverty and environmental degradation (this is a myth by those opposed to change and progress).
- Creates unprecedented prosperity – evidence is seen in ever expanding trade in G&S and cross-border glows of financial resources and people.
- Propelled by cheaper/faster transportation, more innovative IT, fewer trade barriers and better economic management.
- Indicators illustrating how we have become more globalised:
- > Value of X (G&S) as % world GDP increased from 19% (1980) to 29% (2010).
- > 1980; FDI has increased by factor of 5; increasing from 6% world GDP (1980) to 30% in 2010.
- > Number of internet users as % of world population increased from 0.1% (1990) to 30% (2010).
- > Number mobile phone subscriptions as % of world population increased from 0.2% (1990) to 78% (2010).
- > Number international tourist arrivals as % of world population increased from 4% (1980) to 14% (2010).
Trade has been ‘engine of globalisation’ and also cheaper/better transport etc.
- Commonly used measure of trade openness is ‘ratio of country’s trade to GDP’:
-> Increased amongst developed/developing countries.
Quick/simple measure of country’s level of integration with ROW.
-> Economies that increase trade openness over time experiences fast rate of EG.
