Global Systems Flashcards
Define Globalisation
Widening, deepening and speeding up of interconnevity between countries.
What does the International Monetary Fund do?
IMF: Intervenes in situations of financial crisis to provide loans and conditions for restructuring the economy to avoid future crisis.
What direction are high value manufactured goods moving?
HICs > LICs
HICs > NICs
What direction are low value manufactured goods moving?
NICs > HICs
What direction are raw materials moving?
LICs > HICs
LICs > NICs
What is Primary Product Dependency?
A country’s entire economy is reliant on the production of one product for exports, usually raw materials.
Advantages of International Trade
- Comparative advantage
- Economies of Scale
- Fewer domestic monopolies
- Purchasing power
- Multiplier effect (in terms of job creation and increased services)
- Technology transfer
Disadvantages of International Trade
- Decline of local industries
- Protectionism
- Deskilling
- Exploitative work practices
What are Economies of Scale?
Increasing production causes lower cost per unit. Greater profits, lower prices.
What is Comparative Advantage?
Countries specialises in producing a good that can be produced more efficiently and at a lower cost than other areas Higher profits.
Why might specialisation in one product be problematic?
They will be dependent on supply, which can be finite, and can’t adapt or develop.
What is Deskilling?
As goods produced elsewhere, quality and usage of (traditional) knowledge and skills decreases.
Positive of Primary Product Dependency
- Comparative advantage
- Low upfront investment
- Attracts FDI
Negative of Primary Product Dependency (Issues caused by it)
- Supplies are finite
- Resource curse
- Discourages investment in other areas/ less diversification of manufacturing
- Volatile prices as supply fluctuates but demand remains the same
What is Fair Trade?
Provides a fair price to producer as their is a common minimum price. Includes Fair Trade Premium, which is additional money for investment in Socioeconomic Welfare. Involves a compliance with environmental standards and Human Rights control.
Positives of Fair Trade
- Minimum prices set
- Social premium
- Human Rights consideration
Negative of Fair Trade
- Minimum price encourages over supply creating a Fair Trade dependency. Producers prices then fall
- Fair trade is on primary products so there is no encouragement to diverse.
- Inefficient > money stys in HICs
- Farmers in HICs benefit more than LICs
What are the SIX Barriers to Trade?
- Tariffs
- Quotas
- Subsidies
- Import Licensing
- Voluntary Export Restraint (VER)
- Embargoes
What are Tariffs and why are they a barrier to trade?
Tax on imports. Imports are more expensive therefore people buy domestically. E.g. Smoot-Hawley tariffs 1930 > tit for tat retaliation.
What are Quotas and why are they a barrier to trade?
Physical limit of imports. Reduce imports so people buy domestically which increases consumer prices.
What are Subsidies and why are they a barrier to trade?
Grants to domestic products and producers to cover the costs. This lowers prices. E.g. US Cotton Subsidies. However, LICs often lose out.
What is Import Licensing and why is it a barrier to trade?
License to import. Prevents countries from importing so buy domestically.
What are Voluntary Export Restraints and why are they a barrier to trade?
Reduce exports agreement. Very politically based.
What are Embargoes and why are they a barrier to trade?
Ban imports of a certain good/ or from a certain country.
What is the World Trade Organisation?
WTO: Deals with the rules of trade between nations at a global or near global level. Has 164 members, representing 98% of World trade.
What are the FOUR WTO rules of trade ?
- Countries promote free trade
- Countries cannot give special access to certain countries
- Countries should act predictably in their trading
- There should be fair competition
Strengths of the WTO
- 164 members. Democratic
- No major trade disputes
- 1930s- 65% tariffs. Now 9%
- Successful introduction of free trade.
What is Free Trade?
International trade left to its natural course without the presence of tariffs, quotas or any other restrictions.
Weaknesses of the WTO
- Free Trade means LICs can’t develop infant industries.
- Can’t protect against TNCs. No developed country has become so without protectionism.
- Race to the Bottom. To compete they exploit workers to get prices down.
- There are trade agreements outside the WTO
- Patents unfair. Prevents LIC developing. Indigenous knowledge.
What is Ethical Investment?
Investors make a deliberate choice to invest capital based on the activities of the firm/organisation.
Strengths of the IMF
- Provides loans to countries in need of a bailout. E.g. Iceland $1.6 bln Iceland after eruption
- 290 members > inclusive
Weaknesses of the IMF
- Conditions attached to loans exacerbate financial problems.
- Decline of public services as a result of spending cuts
- Removes political sovereignty
- Total staff from 185 countries always elect a European director
- Voting power based on capital contribution
What is the World Bank?
WB: Provides loans for developing countries to reduce poverty. Funds a variety of projects either ‘bottom-up’ or ‘top-down’.
What is a Top-Down project?
Decision to undertake projects or developments made by a central authority. Little or no consultation with the local people who may be affected.
What is a Bottom-Up project?
When local people are consulted and supported in making decisions to undertake projects based on their specific needs.
Strengths of the WB
- Long term investment and development
- Low interest
- Promotes private businesses/infrastructure
Weaknesses of the WB
- Top-down > little consideration of local people
- Conditions may cause more problems
- Always had an American Director
What are FOUR Global Institutions?
- New Development Bank
- G 7/8 and G20
- Organisation for Economic Cooperation and Development
- Organisation of the Petroleum Exporting Countries
New Development Bank
BRICs countries alternative to Bretton Woods institutions. Increasing swing of political power towards the East.
G 7/8 and G20
Since 1975, groups of the World’s most powerful nations met to coordinate responses to shared economic challenges, but the traditional G 7/8 countries are of declining importance
Organisation for Economic Cooperation and Development
36 high and middle income countries aiming to improve social and economic well-being across the globe.
Organisation of the Petroleum Exporting Countries
Cartel of 15 oil-producing countries, global oil dependency gives these countries power on a global scale
What are Trade Agreements?
Two or more countries agree on terms that help with trade.
What are the Trade Blocs?
Group of countries with a common agreement that promotes and manages trade. Removes barriers between members, while keeping common barriers with non-members.
FOUR forms of Trade Groupings
- Free Trade areas
- Custom Unions
- Common Markets
- Economic Unions
What are Free Trade Areas?
Lower barriers to trade between members
Common Markets
Free trade of goods, services, people, capital
Economic Unions
Shared currency
THREE examples of Trade Blocs
- Transatlantic Trade and Investment Partnership (TTIP)
- NAFTA
- EU
What is the North American Free Trade Agreement?
NAFTA:
- It’s an agreement between Mexico, USA and Canada
- Responsible for making N. America one of the most active trade regions and accounts for 19% of global exports ad 25% of imports
Advantages of NAFTA
- Has quadruples trade. Three countries trade went from $290 billion to $1.23 trillion from 1993 to 2019
- Lower tariffs reduced import prices
- Increased FDI
Disadvantages of NAFTA
- U.S jobs lost
- Suppression of wages
- Deteriorated Mexico’s environment
Positives of Trade Blocs
- Larger captive market for businesses
- Economic growth due to increased trade
- Economic peaks and troughs are filtered through the group.
- Increased output > greater employment opportunities
- Can set higher environmental standards
- Greater negotiating power
Negatives of Trade Blocs
- Trade diversions as members products are artificially cheaper. Negative impacts on non-members
- Declining domestic capacity to produce certain food, manufactured goods or services > over-specialisation
- Spacial division of labour: manufacturing moves to lower costs within the same bloc as manufacturers can still benefit from lower tariffs E.g. factories moving from the US to Mexican Maquiladora along the border
- Loss of sovereignty/ some financial control (European Central Bank)
- Trade disputes between blocs E.g. EU & US Estradiol
- Expensive E.g. EU cost $960 bln approx between 2004-14
- Issues with shared resources E.g. Scallop wars in the UK