Globalisation Flashcards
Four trends according to the WTO:
- The economic growth of many developing countries
- The growing integration of global production through supply chains
- The higher prices for agricultural goods and natural resources
- Increasing independence for the world economy, which causes shocks to reverberate more quickly and globally
Exports in Australia
- Contribute to around 21% of Australia’s GDP
- 22% of Australia’s workers are directly involved in trade related activities
- Iron ore, coal, natural gas, gold and bauxite are our main exports
Imports in Australia
- Large quantities of capital goods machinery, motor vehicles and consumer goods
International tourism
- Accounts for 30% of the world’s exports of commercial services
- 6th ranked export in Australia
- Highest ranked import in Australia
Foreign investment
- The Australian economy has relied on foreign investment to complement its domestic savings to help fund its economic development
- The recent mining boom would have not been possible without direct foreign investment
Immigration into Australia
- Important source of skilled labour
- Has helped to boost Australia’s population growth
How has the world economy become more integrated?
Improvements in communications, transport and the application of the internet
Patterns in global trade
Patterns in global trade
- World exports increased by a factor of 5 (500%) between 1990 and 2013
- World GDP increased by 70%
- The industrialisation of China occurred in 2002 causing it to become the world’s leading exporter in a decade
- World exports increased from 20% of world GDP in 1990 to 30% in 2013
- GDP per capita has grown by 60%
World organisations
- World trade organisation (WTO)
- International Monetary Fund (IMF)
- World bank
Trade makeup
80% goods
20% services
Countries that dominate in world trade
- China
- The Unites States
- Germany
Who is our largest exporter
China
Who is our largest importer
United States
What are the factors that affect economic transactions?
Exchange rate World economic growth Domestic economic growth Relative inflation rates Relative interest rates Productivity and cost efficiency
What is international competitiveness?
The degree to which a country can produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long term
What are the organisations that produce competitiveness reports?
- World Economic Forum (WEF)
- International Institute for Management Development (IMD)
How does the world economic forum define competitiveness?
Defines competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country
Adam Smith (international competitiveness)
- Emphasised the importance of specialisation and division of labour
What are the main factors that drive competitiveness?
- Economic performance
- Government efficiency
- Business efficiency
- Infrastructure
What are the key determinants in international competitiveness?
- Changes in labour productivity due to factors such as technology, education and training
- Changes in a country’s price level (inflation) relative to its trading partners
- Changes in a country’s wages relative to its trading partners
- Changes in the exchange rate
Real labour costs
- Reflect changes in a country’s wages relative to its productivity
- Productivity measures how much output can be produces from a given input such as labour
- Measured by dividing the total production by the number of hours worked
- An increase in productivity will increase competitiveness
Australia’s trade weighted index (TWI)
- Measures the change in the value of the Australian dollar relative to our major trading partners
- Real TWI takes into account changes in the inflation rate
- If the real TWI falls, then this implies an improvement in competiveness since the price of Australia’s exports to overseas buyers will fall
What is the purchasing power parity theory?
- The same product should sell for the same price in different countries once converted to a common exchange rate
What is globalisation?
It refers to the opening of international borders to the flows of trade, investment, immigration, information and technology
Benefits of globalisation
- Higher average incomes
- Greater innovation
- Richer cultural exchanges
- Improved standards of living around the world
Evidence of globalisation
- The value of exports as a percentage of world GDP has increased from 19% in 1980 to 30% in 2013
- Since 1980, inflows of foreign direct investment have increased by a factor of 30 (300%)
- The number of mobile phone subscriptions per 100 people has increased from 0.1 in 1990 to 92.6 in 2013
- The number of international tourist arrivals has quadrupled between 1980 and 2013
What is trade openness?
The ratio of a country’s trade to GDP
It represents a country’s level of integration with the rest of the world
Foreign direct investment after the 1980s
- Foreign direct investment expanded because international financial transactions were relatively regulated in most economies until the 1980s
- The opening up of domestic economies to foreign direct investment is an important part of modern globalisation and has seen the significant growth in the role of the multi-national firm
Liberalisation of markets to the flow of goods, services and investment
- Began after WWII
- Establishment of a number of united nations organisations, including GATT, the international monetary fund (IMF) and the world bank
WTO - promoted free and fair trade
IMF - aimed for financial security
World Bank - promoted growth in less developed countries
General agreement on tariffs and trade
- Set up in 1947
- Aim of reducing barriers to trade to increase general living standards and to promote full employment
What are the main factors facilitating globalisation?
Trade liberalisation
Advances in transport and communications
Growth of multinational corporations
General agreements on tariffs and trade
Technology and globalisation
- Transport costs and travel time have been drastically cut helping to boost the volume of merchandise trade and increase tourist travel to record numbers
- Advances in information technology and the internet have enabled the growth of trade in services
Internet users have increased form 0.1% of the population in 1990 to 30% in 2010
Multinational corporations
- Very large firms with headquarters in one country and subsidiaries in one or more other countries
- EG. General electric, Apple, Nike and Microsoft
- In 1970, there were just 7,000 MNCs, whilst today there are over 100,000 parent companies operating with around 900,000 subsidiaries
Arguments against globalisation
- Favours the richer, developed nations of the world at the expense of the less developed countries
- Global poverty has not been reduced
- Income inequality around the world appears to have increased
- Free trade results in job losses in less competitive economies
- Leads to greater environmental damage due to increased industrialisation
- Destroys cultural diversity with local markets being overrun by global brands
Arguments for globalisation
- Access to a wider variety of goods and services, lower prices, more and better paying jobs, improved health and higher overall living standards
- Over the past 30 years, the number of countries engaging in globalisation has increased
- The percentage of people living in extreme poverty has been cut in half
- Promotes efficiency and enhances national competiveness
- Leads to more jobs, higher wages and better standards of living
- Foreign direct investment helps to boost domestic production and employment and is an important source of new technologies, thus promoting higher productivity
- Creates stable, direct and long lasting links between economies
