Macroeconomics 4.1 and 4.3- Trade and Globalisation Flashcards
What is international trade?
The exchange of goods and services between countries
It involves importing and exporting products and services across national borders.
What are the advantages of international trade for developed countries?
- Wider choice for consumers
- Lower prices
- Increased competition
- Efficiency improvements
- Increased specialisation
- Access to larger markets
- Economies of scale
Developed countries often benefit from access to a variety of goods and services at competitive prices.
What are the disadvantages of international trade for developing countries?
- Vulnerability to global market fluctuations
- Dependence on developed countries
- Potential exploitation of labour
- Environmental degradation
Developing countries may struggle with the challenges posed by international competitiveness.
Why do countries want to trade internationally?
- To access a wider variety of goods
- To benefit from lower prices
- To increase competition and efficiency
- To achieve economies of scale
International trade allows countries to specialize in what they produce best.
What factors influence the extent of a country’s engagement in international trade?
- Economic policies
- Exchange rates
- Trade agreements
- Geographic location
- Political stability
These factors can either facilitate or hinder a country’s ability to engage in international trade.
Name three Low-Income Countries (LICs).
- Afghanistan
- Haiti
- Ethiopia
LICs are often characterized by lower economic development and higher poverty rates.
Name three middle-income countries or newly emerging economies.
- India
- Brazil
- Mexico
These countries are in transition and often experience rapid economic growth.
Name three High-Income Countries (HICs).
- United States
- Germany
- Japan
HICs generally have high standards of living and advanced technological infrastructure.
Name three trading blocs that influence trading across the world.
- European Union (EU)
- North American Free Trade Agreement (NAFTA)
- Association of Southeast Asian Nations (ASEAN)
Trading blocs facilitate trade between member countries by reducing tariffs and trade barriers.
What is globalisation?
The process that integrates economies, societies, and cultures through communication, trade, and travel
Globalisation involves the movement of goods, services, and capital across borders.
What is absolute advantage?
The ability of a country to produce a good more efficiently than another country
A country has an absolute advantage if it can produce more of a good with the same resources.
What is comparative advantage?
The ability of a country to produce a good at a lower opportunity cost than another country
This principle explains why countries benefit from trade even if one country has an absolute advantage in both products.
What is the Marshall-Lerner condition?
A condition stating that a devaluation will improve a country’s trade balance if the sum of the price elasticities of demand for imports and exports is greater than one
This condition is important for understanding the effects of currency fluctuations on trade.
What is the J-curve in economics?
A graphical representation of how a country’s trade balance responds to a devaluation of its currency over time
Initially, a devaluation may worsen the trade balance before improving it.
What is the terms of trade?
The ratio of export prices to import prices
Changes in the terms of trade can affect a country’s economic welfare and trade balance.
What are the benefits of globalisation?
- Increased trade and investment
- Access to a larger market
- Greater specialisation
- Economic growth
Globalisation can lead to efficiencies and lower prices for consumers.
What are the drawbacks of globalisation?
- Increased inequality
- Exploitation of workers
- Environmental concerns
- Loss of local cultures
Critics argue that globalisation can have negative social and environmental impacts.
What is the impact of the performance of emerging economies on other economies?
Emerging economies can influence global markets, investment flows, and trade patterns
Their growth can create new opportunities and challenges for developed and developing countries.
What are the assumptions underlying the principle of comparative advantage?
- Simplified model
- Homogenous goods
- Constant returns to scale
- Perfect factor mobility
- No trade barriers
- Transport and storage costs are not included
These assumptions help to simplify the analysis of trade patterns.
What is meant by ‘deindustrialisation’?
The decline of industrial activity in a region or economy
This often leads to job losses and economic shifts towards the service sector.
What is meant by ‘MNCs’?
Multinational Corporations that operate in multiple countries
MNCs can influence global trade patterns and local economies significantly.
What model did Heckscher and Ohlin propose regarding international trade?
The ability to specialise and benefit from trade depends on the abundance of factors of production as a whole, not just raw materials.
What determines a country’s comparative advantage according to Heckscher-Ohlin?
If a country is rich in capital but poor in labour, the comparative advantage lies in the production of goods requiring high levels of capital.
What are the benefits of globalisation?
- Free trade
- Greater specialisation
- Inward investment
- Movement of labour
What are the drawbacks of globalisation?
- Inequality
- Environmental impact
- Structural unemployment
What is the role of MNCs in globalisation?
MNCs play a significant role in shaping global trade and investment patterns by investing in infrastructure and bringing FDI to developing countries.
What are characteristics of an MNC?
- Operates in multiple countries
- Centralised head office
- Controls a significant portion of resources
What are the positive roles of MNCs?
MNCs can enhance economic growth, create jobs, and improve technology transfer.
What are the negative roles of MNCs?
MNCs can contribute to inequality, exploit local resources, and undermine local businesses.
What is deglobalisation?
Deglobalisation refers to the process of diminishing interdependence and integration between countries.
What significant event marked the end of a long period of rapid globalisation?
The financial crisis of 2008-09.
What are some fundamental forces explaining the shift to deglobalisation?
- China’s emergence as a global superpower
- Vulnerabilities in complex global supply chains
- Slow growth in western economies since the financial crisis
True or False: Geopolitical shocks are always economic shocks.
False.
What has the war in Ukraine contributed to?
It has led to an energy crisis in Europe and increased geopolitical tensions.
What is a significant consequence of rising international tensions?
Weakening of cross-border capital flows and investment.
What has been the US’s strategy since Donald Trump’s administration regarding China?
To reduce reliance on high-end Chinese technology and manufactured goods.
What is the impact of deindustrialisation in Europe and the US?
It has created a coalition of ‘left behind’ workers and industry leaders concerned about unfair competition.
What does the term ‘strategic products’ refer to?
Products that are considered crucial for national security and economic stability.
True or False: Globalisation is dead.
False-whilst there has been a shift to reduced trade led by Donald Trump, the economic and political connections between countries are still significant and influence the flow of money, goods and labour across the world.
What continues to be struck despite the slowdown of globalisation?
Trade deals, such as the African Continental Free Trade Area.
