Globalisation & Trade Flashcards
What is globalisation?
The economic integration of different countries through increasing freedoms in the cross-border movement of people, goods, services, and finance
What are the 3 main characteristics of globalisation?
- Increasing foreign ownership of companies
- Free trade in goods and services
- Increasing movement of labour, capital, and technology across borders
What was the value of trade in 2000 and in 2020?
2000 - $6.45 trillion
2020 - $19 trillion
Which 5 factors contributed to globalisation in the last 50 years?
- Containerisation and resulting economies of scale
- Improvements of communications technology (e.g. social media)
- Rapid growth in the number and influence of transnational corporations
- The end of the Cold War
- Deregulation of financial markets in the 1990s
What are 6 benefits of globalisation?
- Increased capital and labour mobility
- Lower prices
- Reduction in absolute poverty
- Rising incomes
- Rising education levels
- Increased economies of scale
What are 7 costs of globalisation?
- Structural unemployment from shifting sectors
- Monopoly power of multinationals
- Rapid depletion of natural resources
- Increase in global warming
- Loss of sovereignty and culture
- Rising inequality
- Easier tax avoidance
What is comparative advantage?
The theory that a country should specialise in the goods/services it can produce at the lowest opportunity cost
What is absolute advantage?
Where a country is able to produce a product using fewer factors of production than another country
What are the 4 assumptions of comparative advantage?
- Zero transport costs
- Perfect knowledge
- Easily achieved factor substitution
- Constant costs of production
What are the 4 main limitations of comparative advantage?
- Over-dependence on other countries
- Environmental damage not considered
- Uneven distribution of income
- Structural unemployment from shut-down industries
What are the 6 main advantages of international trade?
- Lower prices
- Greater variety of goods/services
- Higher quality products
- Economies of scale
- Higher economic growth
- Improved living standards
What are the 7 main drawbacks to international trade?
1.Global monopolies
2. Exposure to external shocks
3. Structural unemployment
4. Over-specialisation in developing economies
5. Loss of sovereignty and culture
6. Leakages from the circular flow of income
7. Weakened domestic industries
Which 4 factors influence the patterns of trade?
- Comparative advantage
- Impact of emerging economies
- Trade blocs and bilateral agreements
- Changes in relative exchange rates
What are the terms of trade?
The ratio of a country’s average export price to its average import price
What is the formula for terms of trade
(Index of average export prices / index of average import prices) x 100
What are the 2 causes of improvements in the terms of trade?
- Higher export prices
- Lower import prices
Which 3 factors influence the terms of trade?
- Relative inflation rates
- Relative interest rates
- Changes in exchange rates
What are the 5 main impacts of changes in terms of trade?
- Changes to the current account balance
- Changes to GDP
- Changes to unemployment levels
- Changes to international competitiveness
- Changes to living standards
What are the 2 causes of deteriorations in the terms of trade?
- Lower export prices
- Higher import prices
What are the 4 types of trading blocs?
- Free trade areas
- Customs unions
- Common markets
- Monetary unions
What is the defining trait of a single market?
Free movement of factors of production
What are the 2 features of a customs union?
- Tariff-free trade
- Common tariff rates on external imports
What are the 3 essential conditions for the establishment of a successful monetary union?
- Free movement of labour and finance
- Similar trade cycles
- Automatic fiscal transfers
