Globalisation - Why do countries trade

Question 1

What is globalisation

Answer 1

Globalisation refers to the process of how national economies are becoming increasingly interdependent and integrated, resulting in a greater flow of labour, capital and trade between different countries

Question 2

Describe some causes of globalisation(4)

Answer 2

Growth of Free Trade and removal of trade barriers - exported goods are more competitive

Technology - The development of technology such as the internet has helped improve communication and made it easier to connect to all corners of the world, as well as advertising

Transport - Improved transport has helped to make trade cheaper and made it easier for labour to move between countries

Rising real living standards - as countries become richer their citizens demand more and a wider range of goods - this increased consumer demand has greatly stimulated world trade

Question 3

What are multinational companies and give an example(2)

Answer 3

A business that has its headquarters in one country, but has operations in a range of other countries

e.g. Ford

Question 4

What are the benefits of multinational companies(4)

Answer 4

Economies of Scale - global production enables greater efficiency and lower prices for consumers.

Foreign Direct Investment - multinationals have invested in developing countries creating jobs and providing foreign capital.

Able to take advantage of the different strengths of many countries(e.g. availibility of natural materials) and lower costs and prices

Able to take advantage of cheaper labour costs and lower prices

Question 5

What are some costs of multinational companies(5)

Answer 5

Their financial power has squeezed out many local firms as they cannot compete with their low prices

Though they invest in developing countries they return the profit to their home countries and have been accused of exploiting low wages in developing countries.

They take the benefit of weaker environmental laws in developing countries, causing more pollution

Loss of jobs when MNC relocates to another country
-also loss of tax revenue

Question 6

What is FDI(2)

Answer 6

Foreign direct investment

When a foreign firm invests in another country. This could involve building a factory. E.g. Nissan plant in England

Question 7

What is specialisation

Answer 7

Being better than another country at providing a good or service, in terms of the quantity of output and lower cost

Question 8

What is absolute advantage

Answer 8

This occurs when one country can produce a good with fewer resources than another

Question 9

Explain the possible negative externalities associated with trade(2)

Answer 9

Pollution from when manufacturing is moved to countries with lower environmental standards

Transport of the finished goods or parts to other countries

Question 10

What is free trade

Answer 10

An absence of tariffs, quotas and regulations designed to reduce or prevent trade among nations

Question 11

Describe arguments for trade(7)

Answer 11

Economies of Scale
-firms can specialise in certain goods and benefit from economies of scale and lower average costs

Gives the consumers more choice and lower average prices

Increased Competition.

• With more trade, domestic firms will face more competition from abroad, therefore there will be more incentives to cut costs and increase efficiency
• It may prevent domestic monopolies from charging too high prices.

Trade causes global economic growth

Question 12

Describe some arguments for restricting trade(6)

Answer 12

If developing countries have industries that are relatively new, then at the moment these industries would struggle against international competition
-Therefore they need protection while they develop their industries

Helps countries diversify into new economies(especially developing countries)

Protection against dumping

Protect the environment
-countries with strict pollution controls may find consumers import the goods from other countries where legislation is lax and pollution allowed

Question 13

What are the benefits of free trade(4)

Answer 13

More choice of goods at the lowest price possible

Increased competition encourages firms to innovate and produce new products

Exports of goods and services will increase economic growth and provide employment

Increased world output and wealth

Question 14

What is the WTO and what is its role(3)

Answer 14

World Trade Organisation

Responsible for trying to promote and regulate free trade by lowering and removing trade barriers and trade agreements between countries
-sometimes keep trade barriers to protect consumers

Question 15

Describe the reasons for protectionism(3)

Answer 15

Protects domestic industries and allows them to develop.

Protectionism can help countries diversify into new industries. (Important for developing countries)

Raise revenue

Question 16

Describe the 2 forms of protectionism(3+2)

Answer 16

Tariffs

• This is a type of tax on imports
• It increases the cost and discourages domestic consumers from buying imports as they cost more

Quotas
-A limit on the amount of a good that comes in (e.g.
quota of 100,000 cars imported from Japan)

Question 17

Evaluate the methods of protection

Answer 17

May lead to retaliation - if one country imposes trade barriers, other countries may do the same, resulting in higher prices, lower quality and less choice

Question 18

What is an import

Answer 18

A good brought into a country from abroad for sale

Question 19

What is an export

Answer 19

Sending goods into another country for sale

Question 20

What are some of UK’s main exports(5)

Answer 20

Gems and precious metals

Pharmaceuticals

Oil

Machinery

Vehicles

Question 21

What are some of UK’s main imports(5)

Answer 21

Machinery

Vehicles

Electronic equipment

Oil

Pharmaceuticals

Question 22

Describe the potential impacts of China and India on patterns of world trade(3+2+3+2)

Answer 22

China and India are able to produce labour intensive manufactured goods at a relatively low cost due to their lower wages

• This makes it difficult for manufacturing companies in the west.
• The developed world may need to specialise in manufacturers which are less labour intensive, but involve greater value added.

Increased demand for raw materials may push up prices
-raising costs and inflation in the global economy

Potential Export Markets

• Economic growth in India and China create a new market for Western exports and services
• The UK may also benefit from its specialisation in services and education which are attractive to Chinese and Indian consumers.

Opportunities for inward investment
-Western multinationals may see India and China has good opportunities for investment, to take advantage of low labour costs - more manufacturing production may shift to these new economies.