Globalisation and Free Trade Flashcards
Globalisation
- Definition
- Causes
- A process of deeper integration between countries.
Causes:
- Trading Blocs
- MNCs
- WTO
- Greater factor mobility
- Transportation and communication improvements
Multi-National Corporation (MNC)
A commercial enterprise that operates substantial facilities or does business in more than one country.
Outsourcing
A practice used by companies to reduce costs by transferring portions of work to outside suppliers instead of completing it internally.
Offshoring
The practice of locating some of a company’s processes or services overseas, in order to take advantage of lower costs.
Containerisation
Use of containers has lowered cost of shipping bring price of imported goods closer to those produced locally, making markets more contestable in international sense.
Protectionist Policies
- definition
- e.g. x3
Government policies that attempt to impose restrictions on the trade in goods and services.
- tariffs = tax on imports
- quotas = import quantity control
- import license
- export subsidies (illegal under WTO)
Marginal Propensity To Import
Measures the responsiveness of import expenditure to a change in disposable income.
Impacts prior to Brexit
- Low confidence = low investment e.g.infrastructure and training = low long-run growth
- Uncertainty = stockpiling (resources/inputs and products) = SR growth (GDP 0.5% growth 2019 Q1, manufactoring 0.7% growth March)
- Speculators sell pound = sudden depreciation in sterling
Effects of Brexit
- Benefits
- Drawbacks
Benefits
- Protects declining industries = -U and +GDP
- Balanced BoP
- Ability to make own trade agreements (no trade diversion or trade wars (EU based)) EV: less bargaining power
- Sell sufficient; not exposed to external shocks e.g.war
Drawbacks
- +Mp = +CoP / -CS / -disposible income
- comparative advantage is distorted = -specialisation = [-EoS (productive), -SNP (dynamic)] = resources used less efficiently = -world output an consumption
- -competition (less contestible in international sense) = -quaility and +price (allocative), +cost (productive and X), investment (dynamic)
- -factor mobility = -job creation and -SL ALSO -technology transfer = -LRAS
- -FDI from MNCs
- no european agricultural policy (subsidy per hectare) = agricultural decline
Benefits of the EU / free trade
- More competition = [+quality (dynamic), +choice; -prices (allocative) and -costs (productive and X)]
- Specialisation in comp. ad = [+SNP (dynamic), +EoS (productive)] = better allocation of resources = +world output and consumption
- Less dependent on demestic industries = price stability
- +FDI from MNCs
- Cheaper resources = -CoP
- Cheaper goods = +disposible income
- +D and +ouput in some industries
- Factor mobility = +supply L and +job creation
- Technology transfers = +LRAS
- +Bagining power for trade agreements
Drawbacks of the EU / free trade
- -D in some (inefficient) industries = industry decline = -RNO and +structural unemployment
- -tariff revenue
- BoP current account imbalance e.g. UK +M and -X
- -cultural identity
- specialisation = overdependence in one industry
- external shocks
- trade diversion: distorts comparative ad i.e. UK stopped trade with low-cost producer New Zeland
- retaliation with non-EU countries = trade war
- Dumping
World Trade Organisation
- Definitions/role
- Aim/benefits
- Rules
- Criticisms
Oversees and regulates the international trade environment- Promote free trade- Rules:
- Most-favoured-nation: members cannot discriminate between trading partners within the group.
- National treatment: domestic and imported products treated equally once entered into the market - Benefit from an increase in free trade- Criticisms:
Too powerful (can change laws and regulations)
System bias to rich countries and small countries have less negotiation power
Trade Creation
When a free trade agreement causes production to shifts from a high-cost domestic producer to a low cost exporter.
Trade Diversion
When tariff agreements cause imports to switch from a low-cost exporter to a higher cost exporter.
Comparative Advantage Theory
Countries should specialise in the producing goods and services for which they have a lower opportunity cost and then engage in trade, as long as a respectable exchange rate is found. This then means consumption can take place beyond the respective countries PPF’s.
