Globalisation Flashcards
why has the speed of globalisation increased
technological change (internet allows consumers to compare prices
transportation revolution
growth of Eastern European economies
trade becoming more liberated
what are the effects of globalisation
foreign competition entered markets
unemployment and deindustrialisation as MNCs move
greater economies of scale
mergers
example of foreign competition entering markets
BT operates in Europe and Asia
what does the impact of multinational corporations depend on
their willingness to accommodate to the needs of the local economy
ability of host government to regulate
multinationals may expect incentives (special tax rates, subsidies)
who is the UK’s biggest trading partner
Germany, machinery and manufactured goods
what are the effects of globalisation on developed countries
reduced price of manufactured goods (standard of living)
cleaner environments (movement of manufacturing)
unemployment as jobs outsourced
effects of globalisation on developing countries
integration in world economy (successful domestic firms)
reduced unemployment and poverty
agricultural sectors of developing countries face tariffs
what are the benefits of free international trade
specialisation leads to resources being used more efficiently
firms have access to larger markets (MES and can produce on larger scale)
allows UK to achieve full employment
absolute advantage d
where a country using a given resource input is able to produce more than other countries with the same input
comparative advantage d
where a country can produce a good with a lower input cost than other countries
what does the theory of comparative advantage indicate
global resources can be used more efficiently when countries specialise in producing the goods in which they have a comparative advantage
what does comparative advantage basically mean
the opportunity cost of producing the good is less in a country than elsewhere
evaluation of comparative advantage
assumes perfect competition assumes constant costs ignores currency fluctuations time period ignored travel costs
terms of trade (TOT) equation
(index of export prices) / (index of import prices) X 100
what does an improvement in the UK’s TOT mean
more imports are received for a given number of exports
what is the effect on the BOP of an improvement in the UK’s TOT
provided demand is elastic, foreign demand for UK exports will fall, more spent on imports as their price has fallen, increase the deficit
what is the effect on the BOP of a worsening of the TOT
BOP should improve because export prices lower and import prices higher
Marshall-Lerner condition
devaluation of a currency will lead to an overall improvement in the current account as long as the combined price elasticities of demand of exports and imports exceed one
protectionism d
the theory or practice of shielding a country’s domestic industries from foreign competition
arguments for protection
infant industry argument (industry is of importance) maintain domestic employment prevent dumping (subsidised firms selling goods below the non-subsidised price, unfair) avoid 'unfair' competition (low wages, safety)
arguments against protection
welfare loss due to economic inefficiency
retaliation
props up monopoly producers
redistributes income in favour of the protected
what are the techniques of protection
tariffs subsidies embargoes quotas administrative restrictions
example of an embargo
US and Cuba (not any more ! mum’s note)
what is the primary aim of the WTO
reduce levels of protection between trading countries
