Globalisation Flashcards
Characteristics of Globalisation
-Increase in trade as a proportion of global GDP
-Increased movements of capital and people between borders
-Increased global specialisation
-Increased FDI
Factors Contributing to Globalisation
-Falling transport costs
-Falling communications costs
-Lower trade barriers
-Transnational Corporations
-Increase in trading blocs
Impact of Globalisation
(Countries, govts, producers and consumers, workers, Environment)
Countries:
-Decreased inequality between nations
-Increased inequality within nations
-Comparative advantage
Governments:
-Boosted tax revenue from increased incomes and imports
-However transfer pricing
Producers:
-Lower production costs and economies of scale
Consumers:
-Wider choice and lower prices
Workers:
-Lowered wages and poor conditions in developing nations
Environment:
-External cost of pollution
Absolute and Comparative Advantage
Absolute Advantage:
When a country can produce more of a product than another nation.
Comparative Advantage:
When a country can produce a product at a lower opportunity cost compared to another nation, giving it relative advantage in producing that product.
Pros/Cons of Specialisation of Trade
Advantages:
-Efficient allocation of resources
-Higher output = higher living standards
-Lower prices and more choice
-Larger markets for firms
Disadvantages:
-Comparative advantage has unrealistic assumptions
-Prevents diversification
-Creates overdependence on imports
Influences on the Pattern of Trade
-Changes in comparative advantage (changes in productivity or resources)
-Developing economies such as China
-Trading blocs
-Changes in exchange rates
Terms of Trade
index of export prices
Terms of Trade = ________________________ x100
index of import prices
Types of Trading Blocs
Free Trade Areas: NAFTA
Trade barriers removed between member countries but can still be imposed on outsiders.
Customs Unions: EU
Trade barriers removed between member countries but a common tariff on outsiders.
Common Markets: EACM
Customs unions but also allow free movement of factors of production.
Monetary Unions: Eurozone
Customs unions which adopt a common currency.
Pros/Cons of Regional Trade Agreements
Advantages:
-Increased specialisation and trade
-Increased FDI
-Monetary unions remove currency fluctuations in trade.
Disadvantages:
-Trade diversion away from low cost producers outside the bloc
-Distorts comparative advantage
-Monetary unions have singular monetary policy for all nations
The WTO
The role of the WTO:
-Promote free trade between nations
-Settle trade disputes between members
Trade Agreements conflict with WTO objectives because they divert trade.
Reasons for Protectionism
-Protect infant industries
-Protect jobs
-Protect ageing industries
-Prevents dumping
-Protect the balance of payments
-To raise tax revenue using tariffs
Tariffs, Quotas, Subsidies and other barriers
Tariffs:
Taxes on imported goods.
Quotas:
A restriction on the amount of goods which can be imported.
Subsidies:
Grants given to domestic producers to lower their production costs, making them more competitive.
Other barriers:
Health and safety regulations and environmental standards create higher costs for the country of origin, creating a barrier to trade.
Impact of Protectionist Policies
(Consumers, Producers, Govt, Living Standards, Equality)
Consumers:
Higher prices and limited choice.
Producers:
Reduced incentive for domestic producers to improve efficiency.
Governments:
Tax revenue from tariffs but expenditure on subsidies.
Once implemented can be tricky to remove without harming domestic suppliers.
Living Standards:
Inefficient allocation of resources means that world output is lower, reducing living standards.
Equality:
Barriers can increase inequality between developed and developing countries, but can improve equality within a nation.
