Globalisation And International Trade Flashcards
Intro
Globalisation definition, macro econ performance definnition
Globalisation has largely been of benefit- ‘played its paprt in teh success of uk econ’- as one of most open econ in world
Yet does experience negative consequences of globalisation too- problems it may also have created’
Main three themes globalisation sucess essay
Impact onn exports, gdp growth, current account bop
Impact on structural econ change and equity
Impact on inflation
Globalisation definition
Greater international interdependence
More free movement of the factors of production
Macroeconomic performance
Can be assessed in terms of macroeconomic objectives
Bop balanced equilibrium, growth gdp, full employment, equity, low stable inflation
Impact of globalisation on exports, gdp growth, current account bop benefit
Globalisation decreases barriers to trade- remove tarrifs, exchange controls, deregulation of financial services sector-
Former membership of eu lead to inward investment from foreign multinationals, growth financial services sector, aeronautical products, pharmaceuticals
Fdi- nissan car batery plant- boost exports of ehiccles
Foreign investment invest exports financial servcs
All boost gdp growth, employment, positive impact of 63 wuaters of uninterupetd growth 1993-2008
Growth financial services huge increase in hot money flows in uk econ money markets, expanding bank lending and fuelling consumer credit bom
Increasinng consumer spending incentivising a rise in investment and property bom (increase constructuonq
Impact on exports gdp growth bop- cons
Growth in consumer credit and high mpm- persistent and increasing defifitc ion current account bop despite significant increase exports
Lathough since brexit and partial retreat from gobalisation, exporys fallen 14% yet imports have not reduced
Our dependence on financial services ssector and globailsation- ‘has made it likely that econ problems in one part ofthe world will spreadto other parts’
Overall- largely enefitcial, but more need for checks
Impact on sturctural econ change and equity- benefits
Gloablisation as previously stated has seen growth indsutry, financial services, retailing- due to availability of cheap imports such as clothing and manufactured consumer goods
‘Developed nations have benefitted from low cost manufatured imports’ ‘seek new comparative adv in high tech and service sector activities
Impact on structural econ change and equity- cons
Decline of laour intensive manufacturing sector- due to ower cost labour abroad-led to icreasing structural unemployment
Decreased wages of lower skilled workers- less unionised as servcie sector fragmented so cant bargain higher wages
Increased demand of skilled labour leading to greater inequality- financial services, law (mergers)
Overall- net increase jobs but increasing inequality and structural unemployment
Impact on inflation- globalisation benefits
Developed nations have benefitted from low cost manufactured imptrs
Clothing consumer manufactured goods, food- decrease pressure on cost push inflation- positive income effect
High growth, low inflation years since 1990s- signs of global8siation
Impact of globalisation on inflation - con
Occassional peaks cost push inflation due to increasing demand for oil and comities- as seen with ukraine, oil gas and food increased- interdependent market s marke more likely
Overall impact lower prices adv but more vulnerable
Globalisation conc
Overall largely beneficial- growth econ, lower inflation, icnrease jobs
Buut are more vulnerable to supply side shcooks- ukraine and credit crunch- check sneeded
And bop andequity worsen- due to structural econ change, move manufacturing overseas
Absolute adv
Comp adv
Uncontested superiority of a country or business to produce a particular good better
Exists were a country using a given resource input is able to produce mroe than other countries with the same input
Country with absolute adv is more technically efficient
Eg well educated workforce- uk legal financial seervcies
Adam smith on absolute adv
Used principle to promote the beneifts of international trade- arguing taht countries should specialise in the production of those gs technically more efficient, exports their supluses and imports thsoe gs in which other countries have an absolute advantage- world output increases
It is possibel for a country to have an absolute adv to be more technically efifcent in the production of most gs- eg between developed and less developed cuntries
Comparative adv
A country can produce a gs with a lower opp cost than other countries
Has to give up less to produce the gs
May still benefit the countries to specialise in the production of particular gs even i fdont have absolute adv and tehn trade internationally- exporst surplus of gs in which specialise and import dont
Countries should specialise in the production of gs in which they have comparatie adv
Countries may partially specilaise (produce multiple gs at diff levels- more realistic ie uk ewith food- mostly export but import some too
R
Whose tyheory was comparative advantage
Ricardo
Benefits of comparative advantage
Global resources can be used more efficiciently when countries speiclise in producing these gs in which they have a comparative advantage- efficiencies obtained by imports from countriess where opp cost lower
Global specialisation international trade should increase both allocative and productive effciiency
Competition to dynamic efficiency- greater innovation, hiigher quality and technology transfer
Consumers benefit lower prices, greater cchoice
Withot trade some fines may not be able to fuly exploit econ of scale- minimsie av costs
No trade- countries self sufficient and benefits lost
Benefits of free trade
International specialisation leads to increasing output of gs- promoting econ growth and increasing living standards- comp adv
Greater variety gs- more choice for consumers- exotic fruits
Ecinomic growth0 exports to foriegn markets increase soutput more jobs and higher income- exports net inkection, positive multiplier
Home firms exposed to more comp- lower prices, greater market orientation , technical efficiency, innoation
Technology transfer- spread pf omporved technologyu
Home firms may find cheapoer input savings aborad- improt raw materials, compoet parts
Income effect of cheaper imports for consuemrs- eg cheaper food, clothing electrical goods- spend mroe entertainment or lsiere domestically
As countries trade more and become mro einterdependent to avoid war
Disadv free trade
Job losses- esp labour inntensive manufactures indisteis in developed countru- against biden semi conductor, trump steel and solar panels
Greater international interpdependence- countries can become dependent ie food fuel- make bvulberable in war or cnoflict- russian gas
Interntional specialisation can also make vulnerable should demand or price for priduct fall- if specicalise one thing- kenya tea and coffe, agricultural when crop failure
Free trade not always level playing field esp with exploitation or dumping (prodcue a lot excess sell at cheap price- eu accused japan dumping cheaper printers on euprean markey, china steel throgh not enviornmental way
High exchange rate may also disadv higher effcicent production
Increased co2 emissons from transportation
Exploitation of labour in countries where not monitored as closely
Diff ruglate wto- self interest ect
Consumer surplus
Lower price than willing to pay so demand is higheer
Producer surplus
Higehr price than wiling to pay for
In an open econ impact on consumer and producer suprlus
Welfare tranfer from producer to consumer- b welfare gain for consumers without domestic
Gain consumer grester producer
Sturctural econ change, ie mroe to work as deliery drivers
Fall in price- prdocuer surplus for domestic lower
Consumers win and domestic producer lose
Net welfare gain c
Main areas globalisation seen
Natural boundries of gs
Greater movement labour between countries- eu free movement, or via visas- barriers to entry legal barriers through visas
Greater movement of capital (finance to purchase cautal) betwene country- rmeoval exchange controls mean more finance can be spread- ie uk pension firm can buy shares chinese company
Greater sharing of technology and intellect- ie patents, although s asian dyson
Causes globalisation
More trade gs
Trade liberalisation and greadual removal of barriers to trade
Increased number multinationals companies
Increased foriegn ownership of firms
Eilimination of exchange controls
Innovation in info and communication technology
Causes of globalisation- more trade gs - examples
Tourism- eastern bloc
Financial services- derviatives, shares in domestic stock market
Entertainment services- online
Education international uni
Telecomms lots natural monopoluy now internat
Causes of globalisation- trade liberalisation and gradual removal of bariers to trade
Dismantaling tarrifs on iimports
Quotas-limits q of imports
Complex customs procedure- eu none- tmelyu
Comm technology systems- us diff catalytic convrtgor
Causes globalisation- increased no multinat
Vompanies with oepration in more than one coutry
Eg macdonalds, toyota, alphabet
Causes globalisation- increased foriegn ownership of firm
Firm expands by takeover or merger
Bmw mini,
Jl tartar over landrover
Mars over hotel chocolate
Causes of globalisation- elimination exchnage ocntrol
Increased fnancal capital spread
Fund investment- ie nissan battery plant in somerset
Causes of globalisation- innovation in information and comm tech
Easier to communicate internationally
Zoom, emails ect
Effects of globalisation- prices
Decrease prices- specilisation, greater comp, move to low cost countries- clothes india andpakistan
But in some gs where supplu not perfectly elastic high anounts waste
Real econ growth in china and other econ has increased demand for commodities such as oil, ematlas ect
Effects of globalisation - consumer choice
Wider variety- exotic furit, hliday destinations
But homogenisation of many gs- macodnalds- reduces cultural diversity
Effects of globalisation- income
Raises world gdp and av income per capita esp higher skilled pwrkers-it finance law
Specialisationa nd trade more productive
Relatively closed econ, not embrace globalisation- cuba and nk seen growth rates fall
But
Low skilled workers may lose jobs- structural unemp
New firms in service sector often fraggmented less unionised and lower rpaid
Lower wages in agricuture due to ledcs
Effects of globalisation- employment and unemp
Increase world gdp and increase level s of emp
But accelerated shock may create structural econ loss- labour intensive makret may move where cheaper, less developed ecn larger transfer of worker from rural to urban areas- increase real income higher material living standardss
Income distribution - effects globalisatio n
Anti globablisation argue that increase inequality
Real income risen yet fallen in many other parts war (sudan), climate change, lack education (esp war
Uk rise income inequality- unklilled labour,s turctural econ change, higher paid in skilled
Technological innovation disproportionaly enefit skilled worker
Multinationals/transnationals
Firms with physical operations in more than one country ie macdonalds google
When set up in another country (fdi)- build plants/factory, open retail outlet, purchase majority shareholder- mondelex international/kraft over cadbury
Vertical integration
Diff stages of production process taking place in diff countries
Bp oil rig refinery petrol station
Horizontally initegrated
Perform the same basic oeprations in each of the country in whcih they operate
Ie tesco- stores uk ireland eyripe
May specialise in capital goods industry and may not be h ousehold name siemnas
Reasons for multinat status
Locations close to target markets- avoid transport costs, greater market orientation
Locate close to sources of raw materials /corperations- eg oil mining
Take advantage of low cost production facilities or geographical characteristics- flat land
Take advantage of cheap labour- dyson malaysia
Take advantage of skilled labour- pharma near uni cambridge, recruit from uni
Low corporation tax in host country- increase retained profit- ireland alogabet
Expanding markets/prodction may lead to econ of scale, decreasing ac, decrease unit cost, decrease prices, increase profit margins
Longer term survival of company due to spread of markets- spreading risk may maintain when recession in one country
By setting up prodcution in target market, transport costs, import tarffis and quotas may be avoided- nissan in uk avoid eu external tarrif
Benefits multinat
Many gov forom developed and less d wish multinat as provide employment
Expirts increase injection positive multiplier
Technology transfer- multinat introduce new ideas
Train and educate local worjers- nissan ne greater standard of life than fordm engineers trained up to meet requirements, boost overall rpductivity
Direct inward investment from multinat- nissan battery plant sunderland for new electric model gov contribute
Problems multinat
Regulatory capture
Lack social responsibility
Job displacement
Trojan horse effect
Tax avoidance
Regulatroy capture- multinsat
Multinat may pressure gov to legilsate in their favor
Mondeliex internat campaign against sugar tax and more labelling
Lack social responsibility- multinat
Double standards
May be indirectly subcontractorsor directly
Primark- exploitation of labour
Pollute enviroemnt- bp shell, oil spill in gulf of mexico
Tax avoidance via transfer polucy- anaxon
Job displacement- multinat
Some multinat have no loyalty to host country and may close operations very rapidly when econ climate changes
Hoover dijon fr to glasgow
Uk offer large grants and financial incentive to entice fdi yet some opp cost- not spent on domestic firm
trojan horse effect- multinat
Over reliance on multinat by a host country displace or crowd out domestic market
Leave host econ vulenerable if multinat switch countries- ie chepaer labour
Tax avoidance- multinat
Through transfer price agreenents
Buy and sell between nat office- ie london opp more profitable and dublin office sells it
Unethical as using country public goods yet not contributing
Min coroporation tax (2021) 15% g20
Capital flows- bop lt
When multinat bring finance from their country of origin and invest in greenfield sit ein host country ie nissan factory ne, net injections multiplier
Direct investment recorded in financial account of bop
Once operation starts make profit, post tax profits may be reptairated to country of origin/offshore and recorded as an outflow/invisable import in current account bop
Eu now rules of origin limits opp to evade tax and compenent parts sold to a tranfer company and sold tax free ie vw 1970 sbraxil
Current account largely benefit multinat direct investment
Uk net investment aborad with inward investment being higher outward investment- gnp via net property income from abroad- pisitive impact
But reversed in recent years
Hot money flows on bop
Removal of foreign exchange controls by most developed econ and improve in info tecnology means huge sums of money can be moved between firm centres
Multinat and foriegn may have large cashflow suplus at avrious times over the year
Money can vbe invested in moving moneymarkets around world within 24 hours
Move these cash suplus where can achieve highest rate of return in interest rates and excess rates- hot money flows seculation
Rapid extremely volatile, may destablis eindustyr
Britain exit erm in 1992 can be attributed to massive hot money flows out of uk as speculators sould pind sterling believing to be devalued
Organic growth
Icnrease operations and sale rev to increase net assets of business
Inorganic growth
Ie takeover and merger
May be cheaper to take over when share prices low and weak change rate
Quicker
Existing customer base
Vertical and horizontal already
Conglomerate integration
Take over unrelated business
Ie sony- emi music records but electrical equipment
Main objectives/benefit of ffirms expansing
If firms ethical in way operate and look after interests of all stakeholders positive immage, boost slaes, increasel likely survival
But free market friedman- main objective of private sector business should be to max profit of shareholders
If fiems seek to min costs and max sales more efficient allocation of resources, increase innovation, decrease prices- max welfare gain society in lt
Not the job of businesses to look after intersts of society and social responsiblities distract from primary role- could lead to waster of resources
Free makret role of gov to put laws in place to prevent market failure to avoid exploitation of factors of production
Uet even most effective regulatiures to do not protect stakeholders efforts - ie after thiadamide incident more rigerous testing
Environmental protection may not be major concern
Methods of protectionism
Tarrif
Qupta
Subsidies to domestic prdocuers that export
Complex admin procedures imports
Complex or non uniform systems
Trade embargo
Boluntary export agreement
