Macroeconomics: Globalisation and trade Flashcards
What is globalisation?
The interconnectedness and interdependence between countries.
What are the key characteristics of globalisation?
Increasing overseas trade.
More money flowing between economies e.g. UK investing more in the EU.
Increase foreign direct investment (infrastructure).
Deeper specialisation of labour (make products at a cheaper price).
Creation of global supply chains (interconnected) and new trade and investment routes.
More global brands.
Increased labour migration (opportunity cost).
Transnational brands.
What is a hub economy?
A country/city that serves as a central point for business, trade, finance, communication, and transportation. e.g. Dubai
Japan has a lower trade openness than Singapore as the economy is larger.
What are the key factors driving globalisation?
Containerisation-( how big the containers are- more products getting exported- purchasing economies of scale).
Technological advances- lowers cost of transmitting as economies can communicate easier.
Differences in tax systems- countries e.g. Ireland have lower corporation tax so businesses are set up there.
Tariffs have fallen- rise in non-tariff barriers e.g. import tariffs.
What are transnational businesses?
TNCs base their manufacturing, assembly, research and retail operations in several countries. e.g. Nike, Apple, Netflix.
Set up in emerging countries.
Why are TNCs a key driver of globalisation?
Relocating manufacturing to countries with relatively lower unit labour costs in order to increase their supernormal profits and equity returns for shareholders.
Labour costs are rising in emerging countries so some TNCs are reshoring manufacturing e.g. TikTok.
Countries are becoming more interconnected.
What are the economic benefits of globalisation?
Cheaper goods and services for consumers.
More competition in consumer markets (more competitive, monopolistic markets).
Reduction in absolute poverty rates (TNCs reduce unemployment due to lower labour costs in those countries).
Gains from specialisation of factors of production.
Rapid transfer of ideas stimulates innovation.
Gains from labour mobility.
Trade can help drive economic growth.
Encourages both producers and consumers to reap benefits from division of labour and harnessing economies of scale.
What are the economic and social costs of globalisation?
Countries are losing educated people - lose opportunity to innovate - brain drain.
Increases inequality- gains are unequal.
Threats to the global commons (irreversible damage to ecosystems, land degradation, deforestation).
Macroeconomic fragility- external shocks in one region can spread to others.
Trade imbalances- leads to more import tariffs and quotas and a move towards managed exchange rates- de-globalisation.
Structural unemployment from out-sourcing of manufacturing to lower-cost countries and a rise in imports.
Corporation tax avoidance.
What is de-globalisation?
A process in which countries/regions become less integrated with the global economy. e.g. UK exiting the EU reduces the flow of goods and services.
What are the causes of de-globalisation?
Protectionism e.g. tariffs, quotas and trade barriers to shield domestic industries from foreign competition. e.g. UK introduced a temporary import tariff on agricultural products.
Economic shocks e.g. Pandemic reduced reliance on global trade and investment.
Changing trade agreements.
Environmental concerns- policies that prioritise local production and reduce carbon footprint.
Health crises e.g. pandemics disrupts travel, trade, and supply chains.
Economic nationalism- policies to protect domestic industries and jobs.
What is corporation tax in Ireland?
12.5% which is half compared to other countries.
What is are MNCs?
Multi-national corporations- a company that has business operations in at least one country other than its home country and generates revenue outside of its home country.
e.g. McDonald’s, Coco-cola.
Host country suffers because they are missing out on tax revenue.
What are the reasons for the growth of MNCs?
Operate closer to target international markets.
Gaining access to lower costs of products.
Avoids protectionism.
