International Economy Flashcards
Globalisation
The ever increasing integration of the world’s local, regional and national economies into a single, international market
Causes of globalisation
- Technological advancements
- Trade liberalisation
- Growth of MNCs
- Capital flows
- Migration
Technological advancements (globalisation)
- Transport innovations make global shipping faster and quicker
- Communication technologies allow businesses and individuals to communicate instantly, enabling remote work and online shopping
Trade liberalisation (globalisation)
- Free trade agreements, e.g the EU Single Market, allows for the free flow of goods and services
- Organisations like the WTO promote free trade and reduce trade barriers
Growth of MNCs (globalisation)
- MNCs operate in multiple countries, spreading products, services and jobs worldwide
- MNCs require advanced supply chain networks to facilitate materials being extracted in different nations to where they are manufactured and sold
Capital flows (globalisation)
- FDI allows for other nations to invest directly into businesses or infrastructure in other countries
- Global financial markets have integrated financial markets to allow funds to move across borders in search of higher returns
Migration (globalisation)
- People can move internationally for better jobs, filling skill gaps in other countries
- Remittances are money sent back home by migrants, boosting the economies of poorer countries
Advantages of globalisation for countries
- Higher rates of economic growth as countries gain access to a much larger export market
- FDI and global trade leads to more employment opportunities and higher levels of investment
- Countries gain access to different technologies from abroad
Disadvantages of globalisation for countries
- Over-dependence on global markets can make nations extremely vulnerable to global shocks
- Small or inefficient domestic firms are likely to be outcompeted, leading to higher rates of structural unemployment domestically
- Inequality may increase as benefits are usually felt by skilled workers in urban areas
Advantages of globalisation for governments
- Higher tax revenues due to the increased economic growth can improve a governments fiscal position
- Governments gain access to global funding or aid from organisations like the IMF or world market
Disadvantages of globalisation for governments
- Governments have less economic control/ability to set independent policies
- Governments face pressure to deregulate, lowering standards to attract investors
- Exposure to global crisis is far higher
Advantages of globalisation for individuals
- More job opportunities for skilled workers
- Greater choice of goods with lower prices
- Improved living standards in developing nations
Disadvantages of globalisation for individuals
- Low skilled workers may face structural unemployment as they are outcompeted by nations with lower costs
- Developing nations are incentivised to exploit workers with extremely low pay
Absolute advantage
When a country can produce a good or service using fewer resources at a lower cost than another country
Comparative advantage
- When a country can produce a good or service at a lower opportunity cost than another country
- This mans they give up producing less of another good than another country, using the same resources
Specialisation and comparative advantage
- In order to maximise economic welfare a country should specialise in producing the good with the lowest opportunity cost
- The countries can then trade, both ending up with more goods than if they tried to produce both themselves
Free trade
The act of trading between nations without protectionist barriers
Advantages of free trade
- Countries can exploit their comparative advantage, leading to higher output using fewer resources
- Global markets are highly competitive, lowering costs of production and decreasing prices for consumers
- Specialisation allows countries to exploit economies of scale to lower their average costs
Disadvantages of free trade
- Job losses in comparatively inefficient domestic industries
- Worsening inequalities as wealthier sectors of the economy benefit more
- Environmental damage as free trade encourages countries to exploit natural resources more rapidly
Impact of comparative advantage on global trade
Developing countries with low labour costs have gained a comparative advantage in manufacturing, shifting production away from developed nations
Impact of UK deindustrialisation on its trade
The decline in UK manufacturing has shifted focus to exporting services
What recent economic shift has occurred in China?
China’s ageing population and growing middle class has reduced wage competitiveness and lead to increased domestic consumption instead of low wage manufacturing
Impact of the fall of communism on world trade
More countries, especially developing nations, are now participating in world trade
Trade creation
When a country consumes more imports from a low cost producer and less from a high cost producer
