Globalisation Flashcards
Globalisation
Refers to the increased integration between countries economically, socially and culturally
Key characteristic of globalisation
Increased trade as a proportion of GDP,
Increased FDI
Increased capital flows between countries
Increased movement of people between countries
Causes of globalisation
Decreasing transport costs (economies of scale), a reduction in world trade barriers, decrease in costs of communication, growth of trade blocs, increased importance of global companies or transnational companies (offshoring)
Impacts of globalisation on individual counties
If produce more of what they have a comparative advantage in, there would be higher output and increased standard of living.
However, countries that don’t have a competitive advantage may see an increase in imports, worsening the balance of payments.
Impacts of globalisation on governments
Tax revenue will increase, which can be used on public services such as health. However, some TNCs may engage in tax avoidance
Impacts of globalisation on producers
Produce on a larger scale and so will benefit from economies of scale and higher profits, technological advances. Possible increased productivity
However local producers who are uncompetitive may be forced out of business
Absolute advantage
Implies that a country can produce more of one product that another with the same amount of resources
Comparative advantage
a country with an comparative advantage can produce a good with a lower opportunity cost than that of another country
the law of comparative advantage
constant return to scale, no transport costs, no trade barriers, externalities ignored, perfect mobility of factors of production between different uses
opportunity cost
the next best alternative which has been foregone when a choice is made
terms of trade
measure the price of a country’s exports relative to the price of its imports.
limitations of the law of comparative advantage
free trade not necessarily fair trade (monopsony power force producers to accept low prices), based on unrealistic assumptions, if the opp. costs were the same then there would be no benefit from specialisation and trade.
advantages of specialisation and trade
economies of scale, reduction in power of domestic monopolies, lower prices and increased choice, higher living standards and increased employment
disadvantages of specialisation and trade
deficit on the trade in goods and services balance if a country’s goods and services are uncompetitive, TNCs may become global monopolies, practice of dumbing (when a product is sold in a foreign country for less than the cost of making the product)- local producers may go bankrupt and the country could eventually become dependent on imports- decreasing employment
