International Economics Flashcards
What are characteristics of globalisation ?
1- Increased international trade
2-Global supply chains
3-Labour migration
4-Transnational brands
Factors contributing to globalisation in the last 50 years
1- Containerisation (The real prices/costs of ocean and air shipping have come down due to containerisation)
2- Technological advances (Lowers the cost of communicating information, e-commerce & payment systems have changed )
3- Differences in tax systems (Some countries have adjusted their corporate tax rates in a bid to attract inflows of foreign direct investment - FDI )
4- Trade deals (Overall, import tariffs have fallen – but we have seen a rise in non-tariff barriers such as import quotas, domestic subsidies and tougher regulations )
What are the benefits of globalisation ?
1- Cheaper goods and services for consumers
2- More competition in consumer markets
3- Reduction in absolute poverty rates
4- Gains from specialisation of factors of production
5- Rapid transfer of ideas stimulates innovation
6- Gains from improved labour mobility
What are the economic and social costs of globalisation ?
1- Trade imbalances
2- Dominant TNCs leading to less cultural diversity
3- Corporate tax avoidance
4- External costs from unsustainable growth
5- Growing relative poverty
6- Brain drain effect
What is absolute advantage?
Occurs when a county can produce a product using fewer resources than another nation.
What are the causes of de-globalisation /
1-Protectionism: Governments implement protectionist measures such as tariffs, quotas, and trade barriers.
2-Economic shocks: Economic downturns and recessions lead countries to focus more on domestic priorities.
3-Changing trade agreements
4-Enviromantal concerns: globalisation increases pollution and creates problems for the environment.
5-Health crisis: Global health crises, such as pandemics disrupt travel, trade, and supply chains.
6-Economic nationalism: policies to protect domestic industries and jobs, even if it means reducing international trade.
What is comparative advantage?
When the relative opportunity cost of production for a good or service is lower than in another country.
What are the assumptions of the comparative advantage model ?
1-constant returns to scale.
2-Factor mobility between industries.
3-No trade barriers such as import tariffs and quotas.
4-Low transportation costs to get products to market
5-No externalities from production and/or consumption
What are the factors affecting the comparative advantage model ?
1-Quantity and quality of natural resources available
2-Demographics – factors such as an ageing population, net migration, levels of women’s participation in the labour force.
3-Rates of capital investment including infrastructure spending.
4-Investment in research which can drive business innovation
5-Fluctuations in the exchange rate which then affect prices of both exports and imports.
6-Import controls such as import tariffs, export subsidies and quotas.
7-Non-price competitiveness of producers – such as product design, innovation, reliability, branding.
What is the “pattern of trade”?
A country’s pattern of trade refers to the mix of goods and services that it imports and exports in international trade. (main definition needed) - rest is a brief extra information)
It also refers to the mix / range of which counties that are most important for a nation in their trade relationships – for example, the UK and the EU.
It reflects the specialisation and comparative advantage that a country has in producing certain products.
Some countries have a highly diversified export base with the capability and capacity to export a very wide range of products
Others are heavily reliant on a narrow base of exports or might be highly reliant on trade with just one or a few other countries.
What is the impact of emerging economies on patterns of trade ?
These countries often become major exporters of manufactured goods and services, altering the dynamics of global trade. They can both compete with and complement established economies.
What is the impact of changes in relative exchange rates on patterns of trade ?
Exchange rates determine the value of one country’s currency in terms of another’s. A depreciation of a country’s currency can make its exports cheaper and more competitive on the international market, leading to increased exports. Conversely, a stronger currency can reduce exports and increase imports.
What is the impact of growth of trading blocs on patterns of trade ?
In trading blocs countries can agree to remove tariffs and trade barriers which would promote trade between the countries.
What is the impact of comparative advantage on patterns of trade ?
countries should specialize in the production of goods and services in which they have a lower opportunity cost compared to other countries. Countries tend to export goods and services in which they have a comparative advantage and import those in which they have a comparative disadvantage.
what is the calculation for the terms of trade ?
TOT= price index of exports / price index of imports x100
What are the factors influencing a country’s terms of trade?
1- PED impacts the terms of trade. The more inelastic the demand for exports than imports, the more favourable the terms of trade, since the country can demand higher prices for exports.
2- appreciation in the country’s exchange rate results in an improvement in the terms of trade, since this results in an increase in export prices and a decrease in the price of imports.
3-A country with a higher population demands more imports, so they are likely to have a relatively worse terms of trade compared to a country with a smaller population.
4-Globalistaion has meant that price of manufactured goods has fallen more
than services. This means that the terms of trade of countries, such as the UK which export more services and import more manufactured goods, has improved.
