Module 5 Flashcards
WTO
The World Trade Organisation (WTO) formed in 1995 plays a significant role in the global economy, being the first international organisation with powers to enforce trade agreements globally. Since 1995, just under 600 disputes have been brought to the WTO and over 350 rulings have been issued. Although the WTO has proven effective in resolving disputes between smaller economies, it has been less effective in resolving disputes between the larger economies such as the United States and European union.
However, the WTO is criticised for favouring the rich and ‘neglecting’ the poor. For example, poor countries do not even have enough trade personnel to participate in all the negotiations or to even have a permanent representative at the WTO. The result is that important decisions are made without any representative to stand for the interests for poor countries. Further, the WTO has a provision known as the Most Favoured Nation (MNF) provision which postulates that if a preference is given to one member instead of being extended to all member countries.
EU
The Eu is a customs and monetary union (for countries in the Eurozone), trading blocs and multilateral agreement consisting of most European countries. The creation of a single European market through common trade and migration polices has allowed for increased efficiency in the allocation of recourses in this region. The single currency of the Euro managed by the European central bank, reducing transaction costs in an increasingly integrated regional market.
NAFTA
North American Free Trade Agreement
US-CANADA, MEXICO trade agreement UCMTA
APEC
Asia-Pacific Economic Cooperation
What is the global economy?
The global economy refers to the integration between economies of the world. It consists of the sum of economic activity of individual countries, and the interactions between them. This integration has increased in recent years, along the process of globalisation. The global economy links the economies of individual countries to each other. Economies do not operate in isolation (Changes in a single economy can have ripple effects on other economies).
What is GDP?
Gross World Product (GWP) is the total value of goods/services that are produced worldwide (income) over a period of time (e.g. a year) measured in $USD for consistency. This is used to measure the overall trend of growth or decline for the global economy.
GDP at Purchasing Power Parity (PPP) is the total value of gross product over a period, adjusted for national variations in price and different t exchange trades. Purchasing power parity is where currencies are converted to be on ‘on-par’ so prices can be compared accurately.
Define globalisation
Globalisation refers to the integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity
Define trade in goods and services.
It is the measure of how goods and services produced in an economy are consumed in other economies around the world.
Gross World Product (GWP)
Gross World Product (GWP) refers to the sum of total output of goods and services by all economies in the world over a period of time
Speculators
Speculators are investors who buy or sell financial assets with the aim of marking profits from short-term price movements. They are often criticised for creating excessive volatility in financial markets.
IMF
International Monetary Fund (IMF) is an interntaional agency that consists of 189 member and oversees the stabilityof the global financial system. The major functions of the IMF are to ensure stabilityof exchange rates, exchange rate adjustement and covertibility
In response to 2008-9 financial crisis, IMF injected $250b into global economy to stimulate economic activity; also suspended loan repayments for some developing nations experiencing debt problems.
In response to the initial onset of Covid-19 , the IMF doubled its emergency credit financing lines to meet the need for an estimated US$100 billion in debt relief and financial stabilisation measures, following requests from over 100 by May 2020. The IMF also established a new short-term liquidity line aimed at providing one-off payments and interest-free loans to assist developing and emerging economies in designing policy Responses to COVID-19.
FDI
Foreign Direct Investment (FDI) refers to the movement of funds between economies for the purpose of establishing a new company or buying a substantial proportion of shares in an existing company (10 percent or more). FDI is generally considered to be a long-term investment and investor normally tends to play a role in the management of the business.
TNCs
Transnational Corportaions (TNCs) are global companies that dominate global product and factor markets. TNCs have production facilities in at least two countries and are owned by residents of at least two countries.
Migration
Migration is the movemen of people between countries on a permanent or long-term basis, usually for 12 months or longer
International division of labour
International division of labour is how the tasks in the production processes are allocated to different people in different countries around the world.
Business cycle
Business cycle refers to the fluctuations in thelevel of economic growth due to either domestic or international factors
Gross domestic product
Gross domestic product (GDP) is the total market value of all final goods an d services producedin an economy over a period of time
International business cycle
International business cycle refers to fluctuations in the level of economic activity in the global economy over time
Regional Business Cycles
Regional business cycles are the fluctutaions in the level of economic activity in a geographical region. of the global economy over time
Growth of world trade
The grrowth of world trade is an important indicator of the extent of globalization during the period of rapid globalisation in the decades to 2010, trade grew at a much faster rate than world economic growth. in the 2010s, trade grew at close to the same level as overall growth.
Pattern and direction of trade
The pattern and dirrection fo world trade has changed to reflectthe increasingimportanceof advanced technology and serves and the growth of the Asia Specific Region.
Technology, transport and communication
Technology, transport and communication have driven increased economic integration by facilitating linkages between business, individuals and national in the global economy
The international division of labour
Globalisation has contributed to the international division of labour as migration of workers to countries where jobs are plentiful or better paid, also because of the shiftof businesses between economies in searchof themost efficnet and cost effective labour.
Interntaional and regional businesss cycle
refers to the extent to which economies tend to experience a similar pattern of boom, downturn and recovery at similar times.
Trade Diversion
Where trade is diverted without any increase in trade
Trade Creation
Where international trade results in gains in living standards through increased trade
Productivity
ouput per unit of input
HDI
Economic development can be measured by the Human Development Index (HDI. HDI is measured one sale of 0-1; the higher the score the more economically developed a nation is. In 2019, Norway has the highest HDI at 0.95 and Higher the lowest at 0.38. Australia was ranked sixth with 0.94. HDI considers:
- life expectancy: indicative of the health and nutrition standards in a country, which are critical for a country’s economic and social wellbeing. If health levels are low, the quality of labour resources are also lower and hence less productive.
- Education levels: refer to the development of the skills of the workforce, which determine the future development t potential, innovation, and productive capacity of an economy.
- GNI per capita: shows citizen access to goods and services, and the extent of potential damaged in an economy. It also offers insight into living standards in an economy, as higher incomes generally support higher living standards.
Ricardo’s theory of Comparative advantage
The principle of comparative advantage starts that even if one country can produce all its goods more efficiently than another country, trade will still benefit both countries if they specialise in the production of the good in which they are comparatively more efficient.
Factor endowments- each country has resources it is naturally abundant in, and skills which are (buy comparison) of superior quality to other economies. This theory is referred to as having an advantage over another economy. The two types of advantage include:
- absolute advantage: occurs when a country can produce a greater quantity of output using the same fixed resources. For example, country A can produce 3 coats with a given amount of wool and country B can produce 5 coats with the given amount of wool. Here country B has absolute advantage.
- comparative advantage: occurs when an economy can produce a good at the lowest opportunity cost – i.e. more efficiently
The theory of comparative advantage forms the basis for the reason why free trade is so effective in supporting global economic growth. Producing and exporting goods/services which an economy has comparative advantage in allows the economies of scale and high efficiency levels, meaning the more goods can be produced at a lower price. When economies can specialise a product, they hold comparative advantage in and trade with the rest of the world to acquire products they are inefficient at producing, global output increases overall, boosting global economies growth.
Opportunity cost
Represents the alternative use of resources. Often referred to. as the ‘real” cost, it is represents the cost of satisfying one want over an alternative want. this is also known as economic cost.
Free trade
is a situation where there are no artifivcal barriers to trade imposed by governments for the purpose of shielding domestic producers from foreign competitors.
Protection
Protection refers to government polices that give domestic producers an artificial advantage over foreign competitors such as tariffs on imported goods.