Globalisation and trade

Question 1

What is globalisation?

Answer 1

process by which world’s economies are becoming more closely integrated

Question 2

What is foreign direct investment?

Answer 2

investment undertaken in one country by companies based in other countries

Question 3

What are the three main reasons for foreign direct investment?

Answer 3

• market seeking, ie want to sell in that market so produce there too
• resource seeking, eg use of oil, gas, skilled labour or cheap labour
• efficiency seeking

Question 4

State four positive effects of foreign direct investment?

Answer 4

• increased employment
• increased tax revenue
• increased capital or technology
• therefore increased economic growth

Question 5

Why might positive effects of foreign direct investment be diluted?

Answer 5

• profits repatriated
• may have to give tax concessions to attract the investment
• technology may not be disseminated more widely

Question 6

Define transnational company.

Answer 6

company whose production is carried out in more than one country

Question 7

What is the WTO?

Answer 7

World Trade Organisation, a multilateral body responsible for overseeing conduct of international trade

Question 8

Give five key reasons for the increase in globalisation.

Answer 8

• better transportation
• better communication (internet)
• reduced trade barriers
• deregulation of financial markets
• migration

Question 9

What is deindustrialisation?

Answer 9

process where structure of economic activity shifts from manufacturing towards service sector

Question 10

What is sustainable development?

Answer 10

development that meets present needs without compromising ability of future generations to meet future needs

Question 11

What is the key negative impact of globalisation on the environment?

Answer 11

Increased transportation so more emissions of greenhouse gases so climate change

Question 12

Define absolute advantage.

Answer 12

ability to produce a good more efficiently, eg with less labour

Question 13

Define comparative advantage.

Answer 13

ability to produce a good relatively more efficiently, ie at lower opportunity cost

Question 14

What is the law of comparative advantage?

Answer 14

There are gains from trade arising when countries (or individuals) specialise in production of goods or services in which they have comparative advantage.

Question 15

What does a trading possibilities curve show?

Answer 15

consumption possibilities (basically a combined production possibility frontier) under free trade conditions, eg agricultural goods versus manufactured goods

Question 16

What is the main risk of a country specialising in certain goods and services?

Answer 16

inability to produce other goods and services so reliant on other countries, which may be an issue due to war, tariffs, etc (particularly if reliant on eg food or energy imports)

Question 17

Define the terms of trade.

Answer 17

ratio of index of export prices to index of import prices

Question 18

If terms of trade for a country decrease, is this good or bad for the country and why?

Answer 18

bad, as will need to export more goods to acquire same volume of imports

Question 19

Does decrease in terms of trade always mean country worse off?

Answer 19

No, as could have increased volume of exports by more than decrease in terms of trade.

Question 20

Will demand for basic food tend to be elastic or inelastic?

Answer 20

inelastic

Question 21

Will demand for raw materials tend to be elastic or inelastic?

Answer 21

elastic (tends to move with economic cycle)

Question 22

What did Heckscher and Ohlin say that comparative advantage for a country depended on?

Answer 22

its relative endowments of factors of production, eg had comparative advantage in labour-intensive product if it has abundant labour relative to another

Question 23

What % of world exports were from China in 1982 and in 2020?

Answer 23

1982: 1%
2020: 12%

Question 24

In 2019, what % of UK exported goods went to (a) EU and (b) USA?

Answer 24

Exported goods to EU: 46%
Exported goods to USA: 17%

Question 25

In 2019, what % of UK exported services went to (a) EU and (b) USA?

Answer 25

Exported goods to EU: 37%
Exported goods to USA: 26%

Question 26

Define emerging economies.

Answer 26

economies that have experienced rapid economic growth with some industrialisation and characteristics of developed markets