Globalization and Trade Flashcards
Definition of Globalization
When world economy’s
become increasingly interdependent and related to each other.
4 Causes of Globalization
- Trade liberalization (reducing barriers to allow for comparative advantage trading)
- Growth of MNC’s
- Technological advancement
- Mobility of labour and capital
4 Pros of globalization
- Lower prices (from efficiancy/competiion
- Greater employment
- Opening and deregulating of financial markets
4 Cons of Globalization
- Growing Inequality
- Unemployment
- Environmental Damage
- Overspecialization (risk of shocks)
how does globalization cause inequality (4 points)
- Widening Income gaps
- Uneven economics growth
- Exploitation of Labour
- Dominance of MNC’s (monopsony)
what is absolute advantage
A country can produce more goods and services than another for the same factor inputs
what is comparative advantage theory
a country should specialize in producing goods and services in which they have a lower opportunity cost in than other countries
On a straight line PPF how can you tell which country has the comparative advantage
the country with the shallower gradient has the comparative advantage in the X-axis good
the country with the steeper gradient has the comparative advantage in the y-axis good
3 reasons to specialize in production
- Export led growth and FDI
- Lower prices (increase international competition
- Lower prices for consumers
3 reasons why a country may have comparative advantage
- Quantity/Quality of FOP’s
- Tech and investment
- Geographically strategic location
What is a pattern of Trade
How goods and services flow between countries and who trades in them
4 reasons for Patterns of Trade
- comparative advantage
- Trading blocs
- Protectionism
- Transport costs/Geolocation
3 Assumptions in comparative trade theory
- Perfect info
- low transport costs
- No EOS/Innovation
what is Free Trade
Trade of Goods and services without restrictions
three Pros of Free Trade
- Higher Profits for Firms (EOS)
- Exploit Comparative Advantage
- Greater diffusion of ideas
4 Cons of Free Trade
- Overspecialization
- Domestic unemployment
- Current account Deficits
- Unfair Trade Practices
what is protectionism
the practice of impleading free trade in order to protect domestic interest
5 Types of Protectionism
- Exchange rate devaluation
- Tarrif
- Quota
- Domestic Subsidies
- Embargos
4 main Pros for Protectionism
as well as 2 other reasons that are less ‘main’
- Protect infant/sunset industries
- protect against dumping
- protect domestic employment
- reduce CA deficit
- Avoid overspecialization
- To rase revenue in a developing economy
On a free trade diagram how is it shown that world supply is more efficient than domestic supply
MC (world) = 0
MC (domestic) >0
4 disadvantages of Tariffs
Market Distortion (deadweight losses)
Production inefficiency
Retaliation
Regressive
2 evaluation points when implementing tariffs
- is supply and demand elastic or inelastic?
- size of the tariff?
what is an import quota
Quantity limit placed of the number of imports
what are the cons of an import quota
- reduce consumer surplus + deadweight welfare loss
- reduction in efficiency of supply
retaliation
what is a trade subsidy
a subsidy given to domestic firms in order to sell at a lower price to therefore increase international competitiveness
2 Key facts about the WTO
- 166 members
- 98% of all trade
3 functions of the WTO
- set/enforce free trade rules
- resolve disputes
- provide negotiation forum for deals and trade liberalization
What is international competitiveness
A country’s ability to sell goods and services on the international market whilst increasing standard of living of their citizens
3 factors affecting international competitiveness
Price / non price competition
Ability to Attract FOP’s / FDI
ability for EOS
2 determinants of Price/nonprice competition
Unit labour costs/flexibility/skills
Productive efficiency
4 determinants of the ability to attract FDI/FOP’s and for EOS
Regulation
Taxes
innovation/FDI rate
economics stability
what do policys to improve international competitiveness focus on
Non price/price competitiveness
Attracting FDI/FOP’s
Ability for EOS
What area would policy’s to improve international competitiveness affect
Supply-side
Examples of policy’s to improve international competitiveness
- Infrastructure spending
- Education spending
- Tax incentives
- Deregulation
3 Reasons why and economy may focus on international competitiveness
- Rebalance Economy
- Export led Growth
- Promote investment
2 key evaluation points about effectiveness of policy’s to improve international competitiveness
- Relative concept (if other countries are also investing the same amount then you will merely remain competitive)
- Opportunity cost
