Globalisation Flashcards
Definition of globalisation
How trade and technology have made the world into a more connected and interdependent place.
Benefits of globalisation
Capital mobility
Labour mobility
Improved transport
Lower tariffs
Multinational companies
Technology
Features of globalisation
Liberalising trade
Allowed FDI and money to flow
Movement of labour
Connectivity
Specialisation
Global supply chains
Characteristics of globalisation
Greater trade across borders
Increased transfers of capital
Development of global brands
Greater use of outsourcing and offshoring of production
High levels of labour migration
New nations joining trading system
Shift in balance of power
Increased spending on capital investment, innovation and infrastructure
,ore connected and inter-dependent
Costs of globalisation
Structural unemployment
Environmental costs
Tax competition and avoidance
Brain drain
Less cultural diversity
Monopoly power of multinationals
Exploitation of labour
Rise in inequality
Risk of congestion
Trade imbalances
Driving factors of globalisation
Containerisation
Technological change
Economies of scale
Differences in tax systems
Less protectionism
Growth of transnational and multinational companies
Transportation development
Trade liberalisation
Economic and political integration
Capital mobility
Stolper-Samuelson Theorem 1941
Globalisation in developing economies increases income inequality and occurs when countries specialise in low/high cost of production
Gravity theory of trade
Suggests an economy will gravitate towards trading with its closest neighbours and economies which are similar in terms of size, cultural preferences and stage of development.
Factors affecting globalisation (EV)
Supply chain issues post-COVID
Political situation
War in Ukraine, increased commodity prices, shortages and disposable income squeezes
Increased personal and national debt
Non tariff barriers and regional trade blocs
General rising global prosperity trends
Moved towards greener energy
Slowing pace of trade liberalisation
Regionalism/nationalism
Characteristics of LEDC’s
Low income per head
High rates of population growth
Low levels of human capital
High unemployment
Poor infrastructure
Over dependence on exports of a few primary commodities
Benefits of globalisation on LEDC’s
Greater access to technology and infrastructure
Creates jobs and employment
Countries may offer loans for market reforms
Increased living standards
Increased competition
Costs of globalisation on LEDC’s
Risk of increasing inequality
Risk of corruption by economies of scale
Erodes cultural identity (homogenisation)
Forced privatisation of state-owned industries
Risk of environmental destruction
May result in overspendence on another economy
Benefits of globalisation on developed countries
Global inequality fallen
More choice and variety of goods and services
Rising living standards and health
Labour mobility opportunities
Costs of globalisation on developed countries
Lack of local businesses (unable to compete), unemployment
Exploits cheaper labour markets
Risk of job displacement (structural unemployment)
Increased inequality
Homogenisation of culture
Increased competition
Benefits of globalisation on government
More equal society
Increase in PPF and LRAS
Expand influence
Increased living standards
Opportunity to develop competitiveness
Costs of globalisation on developed countries
Prioritising FDI>domestic issues
Social changes
Political dynamics
Reduction in power in some major countries
Loss of freedom over social policies
Loss of power to protect own industries
Increased trade specialisation decreases own independency
Mass immigration
Static gains
Improvements in allocative and productive efficiency in markets.
Dynamic gains
In welfare from improved product quality, increased choice with faster and more innovative behaviour.
Comparative advantage
Focuses on when a country has lower relative opportunity cost when it decided to specialise in a particular product/service.
Absolute advantage
Occurs when a country can produce a product using fewer resources than another nation. If a country using the same factors of production can produce more of a product.
Pro’s of comparative advantage
Higher efficiency
Improved profit margins
Lessens the need for government protectionism
Basis for International trade
Cons for comparative advantage
Developing countries may be kept at a relative advantage
May promote unfair on poor working conditions elsewhere
Can lead to resource depletion
Risk of over specialisation
May incentivise rent-seeking
Assumptions of comparative advantage
Constant returns to scale
Factor mobility
No trade barriers
Low/no transportation costs
No externalities
Factors affecting patterns of trade
Changes in comparative advantage over time:
- Technological development
- Improved education/immigration of skills
- Discovery of depletion of natural resources
Changes in relative exchange rates:
- Impacts on BoP
- Reserves of capital to invest
- Alternative global reserve currencies
Emerging economies:
- Development of democratic governments
- Openness to trade
- Adoption of liberal trade and social policies
Definition of Terms of Trade
A measure of the purchasing power of a currency in international terms.
I.e. how much of another currency your currency can buy.
Calculate TOT
Average export price index divided by
Average import price index
Improvement in TOT
Exports more expensive, imports cheaper
Deterioration in TOT
Exports cheaper, imports more expensive
Factors affecting TOT
Exchange rates: imports cheaper
Demand for foreign products: possible worsening of trade balance
Inflation: cost push increases prices of exports
Interest rates: increase exchange rates
Effect of improved TOT
Ability to import cheaper food and energy which increases living standards of consumers and real incomes.
Definition of a Regional Trade Agreement (RTA)
Reciprocal preferential trade agreements between 2 or more partners and constitutes 1 of the derogations and are authorised under the WTO.
Definition of World Trade Organisation (WTO)
Permits the existence of trade blocs, provided that they result in lower protection against outside countries than existed before the creation of the trade bloc.
What is a Free Trade Agreement
Barriers
