Globalisation- MM Flashcards
What are 5 ways countries can increase their international competitiveness?
1) Exchange rates
2) Control inflation
3) Strength of institutions
4) Ease of doing business
5) Quality of labour force
How do you calculate terms of trade?
Index of export prices/Index of import prices x 100
How do you know if terms of trades have improved?
Answer is over 100
What does the Marshal Lerner condition state?
A devaluation o a currency improves the BoP only if the sum of price elasticities of demand for M & X are greater than one
What does a J-curve look like?
J shape leaning to the right, starts under x-axis, ends above.
What are the labels for a J-curve diagram?
y-axis= BoP
Pos y-axis= Surplus
Neg y-axis= Deficit
X-axis= Time
What is globalisation?
The process of interaction & integration among people, companies and governments worldwide (made the world a smaller place)
What is one of the main consequences of globalisation?
Significant increase in the volume of goods being traded internationally (M&X)
What are 5 causes of globaliation?
1) Improved transport
2) Improved technology
3) Firms exploiting economies of scale
4) Reduced trade barriers
5) Growth of global financial system
Explain improved transport as a cause of globalisation
Air & sea transport in particular, alongside container invention (containerisation)
Explain improved technology as a cause of globalisation
Growth of the internet & electronic meetings (e.g. zoom). Enabled growth of global media increasing info available across the globe, in turn increasing mobility of labour (migration)
Explain firms exploiting economies of scale as a cause of globalisation
Enables huge growth in quantity & power of multinational companies (helped by tech and transport)
Explain reduced trade barriers as a cause of globalisation
Growth of trading blocks such as EU, eliminating internal trade barriers
Explain growth of global financial system as a cause of globalisation
Making capital more mobile than before- increasing mobility of capital
What are 7 consequences of globalisation?
1) Greater trade in goods & services between world’s economies
2) Greater transfer of financial capital between the world’s economies & greater FDI
3) Greater transfer of technology
4) Greater specialisation- outsourcing & offshoring
5) Greater labour migration
6) Development of global brands
7) Inclusion of more economies in the global trading system
What are 2 reasons globalisation is good for developed countries?
1) Most MNC’s come from there, meaning profits & income flow back to them
2) Inward migration, providing cheap labour
What is a reason that globalisation is good for emerging countries?
MNC’s have moved in, creating jobs, causing higher income, more development, large scale industrialisation & more choice for consumers
What is a reason globalisation is good for developing countries?
Same as emerging, but more focus on improving infrastructure, higher standard of living, significant ↓ in absolute poverty rather than industrialisation
What are 3 reasons globalisation is bad for developed countries?
1) Traditional jobs & industries have disappeared
2) More inequality
3) Immigration puts pressure on public services & reduces wage levels
What are 3 reasons globalisation is bad for emerging countries?
1) Their traditional lifestyle & identity gets lost
2) Environment suffers badly
3) Brain drain- brightest & best young people leave the country
What are reasons globalisation is bad for developing countries?
Same way as emerging but worse, as they have less power, more likely MNC’s abandon due to this
In what way are the causes & consequences of globalisation linked?
Many ways, all interlinked
What is international competitiveness?
A country ensuring that they’re making things people want to buy, and selling them at prices they’re happy to pay
What are 2 ways to judge international competitiveness?
1) Price factors
2) Non-price factors
What are 3 price factor measures?
1) Relative unit labour costs- cost of labour to generate output ↓ = ↑ compet
2) Relative productivity- ↑ prod.= ↑ compet.
3) Relative X prices- X-rate ↓= cheaper X= ↑ compet.
What are 4 non-price factor measures?
1) Design- Are the country’s products what people want?
2) Quality- Are products well made & work properly?
3) Reliability- Do the products keep working
4) Availability- Is it easy to buy the products?
What are 6 influences on international competitiveness?
1) Real X-rates & relative inflation rates
2) Productivity
3) (Non) wage costs
4) Labour market efficiency
5) R&D
6) Regulation
How do you work out real X rates?
Nominal X-rate x PL in a country/PL abroad
What are 2 positives of ↑ international competitiveness?
1) Cheaper X= higher demand for them= ↑ AD, economic growth & employment & help correct current account deficits
2) Falling compet. can worsen BoP as I ↑ and X ↓ & unemployment ↑ - prevents this
What are 3 downsides to international competitiveness?
1) If they have a current account surplus, cheaper exports will worsen this
2) If a country is over-reliant on X, it is vulnerable to shocks
3) Focus on competitiveness can lead to other problems e.g. uncertainty created & neglecting the environment
What is a key feature of globalisation?
Growth of multinational companies (MNC’s)
What are 7 benefits of globalisation to economies
1) Encourages specialisation
2) Producers benefit from econ. of scale
3) ↓ producation costs
4) ↑ world GDP
5) Improve standards of living & ↓ poverty
6) ↑ Growth & employment
7) ↑ competition
What are 3 drawbacks of globalisation to economies?
1) ↑ price of goods & services
2) Economic dependency- insatbility of economies
3) Global imbalances of BoP’s
What are 3 positives of MNC’s?
1) ↑ FDI= ↑ jobs, skills & wealth
2) Benefit from econ. of scale
3) ↑ living standards by ↑ employment
What are 6 negatives of MNC’s?
1) Exploit workers
2) Force local firms out of business
3) Can withdraw profits from a country & put them in another with lower tax rates
4) Can ↓ choice & ↑ prices
5) Can influence government policies selfishly
6) Gvnmts may ↓ corporate tax levels to keep/attract MNC’s
What is absolute advantage?
When a country produces a commodity with the best quality and at a faster rate than another
What is comparative advantage?
When a country has the potential to produce a particular product better than any other country
What is absolute advantage about?
Producing at a lower cost
What is comparative advantage about?
Produce at a lower opportunity cost
What does the theory of comparative advantage suggest?
Countries can gain an international trade advantage when they focus on producing goods that produce the lowest opportunity costs as compared to other countries
What does comparative advantage link to?
Specialisation
What are 3 evaluation points of comparative advantage?
1) Still vital now- justifies globalisation, countries have higher material outcomes by producing only goods where they have a comparative advantage
2) Becoming less important though- secent events highlighting weakness of comparative advantage as the basis for international trade
3) Verdict- Relevance of comparative advantage varies according to the type of product- Strategically important=less influence of comparative advantage
