MACRO International economy Flashcards
Define globalisation
The growing integration of the world’s economy making countries more interdependent and integrated
FACTORS CAUSING THE SPEED OF GLOBALISATION
Transport improvements
• Improved containerisation
• Cheaper
a Technical economies of scale
• Improved infrastructure - roads, rail, bridges, ports, airports
Technological change
• Internet, instant info, transparent, comparable a Low cost entry to world markets helps poorer countries compete
• Improved international communication- reduces diseconomies of scale
More regions with political stability
• Independent countries emerging with more democratic political structures
• Less international tensions between big economies
• Cold War
a Reduction in trade barriers
• WTO aid in free trade
a Growth of trading blocs
• NAFTA, EU, ASEAN, Mercosur, Comesa, EAC
a Growth of MNCs
• Both supply and demand side
• Global financial systems
• Allows more international capital flows
a easier for FDI
Arguments for globalisation
o Lower prices
• Larger markets, more competition =›increased efficiencies=›lower costs=›lower prices for
consumers
a more choice and better quality for consumers
• Cheaper raw materials for firms=>lower costs and prices =›more profits a Benefits of trade
• Larger markets=>more sales/growth for firms
• Export-led multipliers=>boost AD=›/t growth
• Job creation
• Growth=>more output=>incr in D for labour as L is a derived demand=›incr in SOL
• Increase in Yd=>incr in C => AD and boosts AD (positive mult) =>/† growth
• Increased tax revs =›better services or reduce deficit
Arguments against globalisation
• Greater inequality
• Uneven gains - rich richer, poor poorer
• Income and wealth benefits not trickling down=>civil unrest and backlash eg G20 demos
• Higher structural unemployment
• Domestic firms struggle to compete=> cut staff, relocate, go bankrupt eg Dyson, Burberry, Car manufacturers?
• A huge number relocate back to home economy especially during downturn or recession
• Environmental impacts
• Moving manufacturing to newly developed countries moves pollution
• Environmental dumping in areas where regulations are slack
• Degrades natural habitat eg Rainforests
• Short term gains in employment and economic growth over
Long term costs - less benefits to future generations so unsustainable growth?
Trade imbalances
a Economies with huge surpluses (China) V economies with huge deficits (USA)-trade wars
O Greater vulnerability to shocks
• Interdependence/interlinked processes means a down turn in one can impact others eg banking crisis 2008 -effects on MEOs severe
• Reduced competition and choice
• Firms merge to create global monopolies and oligopolies with global brands - raise price and reduce welfare in both developed and developing countries’ consumers eg
‘McDonaldisation’ or ‘Coca-colonisation’
CONSEQUENCES of globalisation for DEVELOPED ECONOMIES LIKE THE UK
a Increased foreign competition
• Better choice and lower prices for consumers at home
• Some domestic firms cannot compete
• Faster growing customer base
• Faster expansion in emerging economies with more potential means more sales more quickly a Producers achieve greater economies of scale
• Spread the FC over a larger output and reduce unit costs - productively efficient
• More price competitive
• More mergers and joint ventures
• Movement of tertiary sector
• Software engineering and mobile services like call centres to India
• Diversifying from manufacturing to tertiary sector
Alter comparative advantage
•Outsourcing to low cost economies
• Effects on employment and tax revenues a Increases ability for firms to recruit from wider labour market
-Increased quantity and quality of workers
-Increased labour productivity
-Lower wage rates lowers costs
-Brain drain effect
5.CONSEQUENCES of globalisation for - DEVELOPING ECONOMIES LIKE BRICS
o Effect of FDI
• Job creation
• Infrastructure improvements
• Tax revenues
a Exploitation of LEDCS (less economic developed economy)
• Wage rates of local labour (v Fair Trade)
• Working conditions poor/dangerous
o Destroys environment -rain forests, dirty industries eg Unilever
a Power of global brands
• Marketing can destroy local brands
• Political influence on local govts
• Forced to open up markets
• Free trade v protecting infant/strategic industries
EVALUATION-IMPACT of globalisation ON DEVELOPING COUNTRIES
Some countries gain more than others
• Stronger govts G20 V LEDC
• Equitable govts eg Nigeria v Norway
• Clear comparative advantages -extent of natural resources not equal
• Wealth inequalities
O Rich get richer, poor stay relatively poor
• Regionality inequalities
• Eg China - East coast is wealthy not middle
• Eg South Africa - World Cup- effect around S Africa
• Eg London 2012 - effect on the North if any?
D Eg impact of Rio World Cup on surrounding poverty?
What is a MNC
• An organisation which operates in more than one country
MNCs - BENEFITS
a Huge FDI
• Capital investment
• Infrastructure investment
D
Spread technology
• Increase labour productivity
Encourage international trade
• Widen international links
D
Job creation
• Improves SOL
• Increases C-boost AD (positive mult) and short term growth
D
Increase migration of labour
a Increase in number of workforce=›ingc in LRAS D Fills skill gaps => insc quality of labour=> insc LRAS
Share benefits with host country
• Raise standards of living o Better choice of consumer goods
D
Infrastructure projects
O MNCs instigate or manage building of roads etc to help set up
Economies of scale - lower costs
• More output for a world market=> lower unit costs=>lower prices
• Increased tax revenues for host a (More jobs =›more Yd=>more C=> more VAT
• More people in work => more income tax for govt
MNCS -DRAWBACKS
a Enforce own cultures onto local communities
• Costly for host if many incentives/tax breaks expected
• Grants or tax avoidance
• Influence weaker govts to meet their needs over domestic needs
• Eg Nigeria - more land for oil v land for agriculture
• Can easily pull out - effect if region dependant on them
• Aviva- call centres Nissan now?
• Bring in own expertise
• Not allowing local labour chance in managerial roles
• Exploit local workforce
• pay and working conditions
• Exploit local environments
• Damage/pollution/rainforest destruction
• CCE-factories in India - shortage of water to villages
• Market failure
• damage to local regions not compensated for by the MNCs in developed countries
• Interconnectedness brings vulnerability
• 2008 Credit Crunch - financial interlinks
Specialisation comes with its downsides.
a Reliance on the specialised good a Primary product dependency
• Dutch disease with where a country becomes dependent on the exporting of one high value good (such as oil)
• The demand for this appreciates the currency
• Other exports become less competitive a Greater dependency on that commodity
• What if demand for that good declines?
What is absolute advantage
A country has an absolute advantage if it can produce more of a good than other countries from the same amount of resources
What is comparative advantage
When a country can produce a good at a lower opportunity cost than other countries
Benefits of trade
- Increased choice
• Access to goods/services not produced domestically
• Consumer- increased choice
• Producer-increased choice of raw materials - Lower prices
o increased global competition=>incr efficiency=>lower costs=> lower prices
a Economies of scale - UK =63 m consumers. EU=505 m consumers so huge increase on markets
• Technological transfers-incr in FDI/=>lower unit costs=›lower prices/greater output
• Good for consumer surplus/welfare a Good for firms (exports) - Drives economic growth/other MOs
Growth of export markets=›export led multiplier
(X-M) (incr in X=> incr in I=>iner in AD=>iner in RGDP=s/r growth - Improves BOP position
• incr in X =› injections into circular flow especially if
X›M=>reduction in trade deficit - Full employment
• For the UK- the domestic market is too small to provide jobs for all its citizens
• So trade =› exports =› more output =› increased demand for labour/ derived demand=>more jobs
• Increased standard of living, positive multipliers and economic growth - more goods and better quality at competitive prices
DRAWBACKS OF TRADE
• Loss of jobs in key sectors -structural unemployment
• Decline of key industries - de-industrialisation
• Over dependence on outside world - more vulnerable to shocks
• Environmental issues- dirty industries moved around to developing countries
• Exploitation of cheaper labour/weaker laws
• Tariffs unfairly impact primary sectors (developing economies)
a Gains of trade not fairly distributed (see globalisation)
