Globalisation Flashcards
Characteristics of globalisation
• expansion of financial capital flows across international borders
• increasing FDI
• more global brands
• deeper specialisation of labour
• global supply chains
• higher levels of migration
Factors contributing to globalisation over last 50 years
• containerisation - reduced cost per unit of transporting goods and services
• technological advances - cuts cost of communicating information
• differences in tax systems - some nations have cut corporate taxes to stimulate FDI
• less protectionism - average import tariffs have fallen
Transnational corporations (TNCs)
• base their operations in a number of countries
• examples include Nike, Amazon, Netflix
• key drivers of globalisation - relocate manufacturing to countries with low unit labour costs
Advantages of globalisation on developing countries
• creates jobs, efficient productive methods and technology
• trade -> higher average income -> raises living standards -> less poverty
• FDI
Advantages of globalisation on developed countries
• greater access to cheap raw materials
• lower production costs for TNCs
• FDI
Advantages of globalisation for producers
• economies of scale
• lower production costs
• larger more competitive markets
Advantages of globalisation for consumers
• lower prices
• greater variety and choice of goods
• raised standards of living
• reduction in absolute poverty
Government advantage of globalisation
• increased employment -> tax revenue
• greater awareness of global issues/foreign disasters
Disadvantages of globalisation
• rising inequality/relative poverty
• external shocks can rapidly spread
• environmental problems
• trade imbalances - protectionist tensions (USA vs China)
• structural unemployment / exploitation of workers
• dominant global brands
Impact of globalisation in the UK economy
Higher consumer surplus
Impact of inward migration
Impact of inward investment
Impact it UK firms relocating to lower wag economies
What are External shocks?
Events that come from outside a domestic economy.
Can be positive or negative.
Examples of external shocks
Global Financial crisis
Covid
International trade deals
Volatile global commodity prices
Volatile currency prices
Policy changes
What is absolute advantage?
A country can supply a product using fewer resources than another nation
What is comparative advantage?
Relative opportunity cost of production for a good or service is lower in one country than another.
More productively efficient than another country.
Follows idea that countries specialise in what they are best at, leading to more efficient allocation of resources.
Why are the assumptions behind comparative advantage?
• No economics of scale
• Perfect factor mobility
• No trade barriers
• Low transport costs
• No significant externalities
• Perfect information
Advantages of specialisation and trade
• Free trade allows for increased benefits from economies of scale
• Increases market competition
• Contestability reduces prices for consumers
• More efficient allocation of scarce resources
Disadvantages of specialisation and trade
• Transport costs
• Negative externalities in consumption and production
• Risk of structural unemployment
• Inequality
• Pressure on real wages to fall
• Risks from global shocks
Factors affecting comparative advantage and patterns of trade
• Natural resources
• Demographics
• Rates of capital investment
• R and D
• Exchange rate volatility
• Import controls
• Non-price competitiveness
Impact of emerging economies on patterns of trade
• Rising incomes may lead to demand of imports
• Attract MNC activity and grow their own large companies
• Selling more medium to high value exports
• Tension between developed economies
• Currency volatility in emerging markets
Advantages of international trade
• Costs lowered
• Efficient resource allocation
• Output increased
• Higher living standards
• New ideas and skills
• Additional markets
• Competition
• Higher consumer surplus
Disadvantages of international trade
• Higher transport costs
• Currency exchanges
• Market research
• Compliance with local rules
• Overeliance on single industry
• Structual unemployment
What is terms of trade?
Measures the relative prices of a country’s exports compared to the prices of imports
How is terms of trade calculated?
Price index of exports / Price index of imports x 100
Factors influencing terms of trade
• Global prices for raw materials and commodities
• Exchange rate
• Weaker currency
• Import tariffs
• Global and domestic inflation
High TOT vs Low TOT
• Government typically wants high TOT
• Low inflation, investment, grants for businesses, £ higher, high export prices
• Low TOT good for service based economies
What are free trade areas?
No import tariffs or quotas on products from one country entering another
• European free trade association
• USMCA
What are customs unions?
• Abolish tariffs and quotas between member states
• Adopt a common external tariff on non member state imports
• European Union is a customs union
What are common (single) markets?
• Deeper form of integration compared to a customs union
• Free movement of goods and services as well as as capital and labour
• Common external tariff, as well as reduced non tariff barriers between members, such as common rules
What are the freedoms of the EU single market?
• Free trade in goods
• Mobility of labour
• Free movement of capital
• Free trade in services
What is a monetary union?
Economic integration beyond a single market
Adoption of a single currency such as the Eurozone
Advantages of joining the single currency
• Stability
• Enhances gains from single market
• Stimulate inward investment
• Increases price transparency
• Eliminates conversion costs
Disadvantages of joining the single currency
• Lost freedom to set monetary policy interest rates
• Option of currency depreciation is also lost
• Adjustment costs, such as menu costs
Conditions necessary for success of a monetary union
• Countries are highly integrated
• Flexible labour markets to cope with external shocks
• Effects of interest rate and exchange rate changes to be broadly the same between countries
• Countries need to be willing yo make fiscal transfers between each other
Roles of the World Trade Organisation in Trade liberalisation
• Conductor- set up rules that apply to international trade
• Tribunal- solve disputes between members
• Monitor- review trade policies of members
• Training- Provide training to government officials in developing countries
Arguments for protectionism
• Infant industry agreement
• Sunset industry agreement
• Diversify economy
• Raise tax revenue
• Improve trade balance
• Prevent unfair trade practices
• Protect strategic industries
• Retaliatory response
What is Import dumping?
• When firms sell their sports below costs or below normal prices in the home market
• Predatory pricing (ILLEGAL)
• Price Discrimination (LEAGAL)
What are import quotas?
Limit on the total quantity of an imported product that can be supplied to a market
Examples of non tariff barriers to trade
• Intellectual property laws (copyright)
• Technical barriers
• Preferential state procurement policies
• Domestic subsidies
• Financial protectionism
• Managed exchange rates
Arguments against protectionism
• Resource misallocation
• Threat of retaliation
• Potential for corruption
• Higher prices for domestic consumers
• Barriers to entry
