Paper 1- Theme 4.1- Globalisation Flashcards
1
Q
Define protectionism
Key aim of protectionism
A
- any attempt by a country to impose restrictions on trade of goods and services
- main aim is to protect domestic business from overseas competition
2
Q
Types of protectionism
A
- tariffs
- import quotas
- domestic subsidies
- government legislation
3
Q
Reasons for protectionism
A
- protect employment in domestic industries
- protect new declining, fledging and infant industries (government may need to protect them while they develop)
- protection of strategic industries (in future will be profitable)
- protect culture
- respond to recession
- respond to trade deficits - lead to weaker exchange rate
4
Q
arguments against protectionism
A
- higher prices for consumers, increased poverty
- retaliation from other countries
- –> widespread protectionism increase costs of exporting
- inefficiency in production and allocation of government resources may damage economy for sake of saving jobs
5
Q
Define tariff
A
tariff is a duty that raises the price of imported goods to make domestic products more appealing
6
Q
Pros and cons of tariff
A
PROS:
- create revenue of imported goods
- protects declining, infant and fledgling industries from foreign comp.
CONS:
- imported more expensive for consumers (lower $OL)
- firms may become reliant on tariff and so won’t drive for efficiency
- quality of domestic products may be lower than imports
- damage international relationships (possible trade war)
7
Q
Define a quota
A
annual limit on the quantity or value of imports allowed into a country to be sold
8
Q
Pros and cons of quotas
A
PROS:
- protect domestic suppliers & their workers
- government receive more tax capital as employment rate is higher
- prevent dumping
CONS:
- limit consumer choice
- because supply decrease, foreign products become more expensive
- restricting competition means less renovation and improvements in the industry
9
Q
Define government legislation
A
rules and laws set out by government in order to protect the businesses, environment and health
10
Q
Define domestic subsidies
A
-sum of money given by the government to the producers of a certain product or in a certain industry
11
Q
pros are cons of domestic subsidies
A
PROS:
- encourage domestic production as unit costs lowered
- improve a country’s balance of payments as increases exports (due to being able to lower the prices but maintain the same profitability)
- help inefficient firms by stimulating demand for them
CONS:
- finance has to come from somewhere else (e.g. possibility higher tax)
- other factors affect what consumers buy, not just lower price
- artificial inflation of competitiveness, reduces inefficiency
- reliance
12
Q
define dumping
A
when firms sell their excess products in foreign markets significantly below prices in the home market, causing other producers to struggle
13
Q
define an embargo
A
official ban of any commercial trade with another country
14
Q
Define a trade bloc
A
a group of countries from specific regions that form an agreement to promote and allow free trade
15
Q
Positives to businesses of joining a trade bloc
A
- beneficial pressures of widespread competition in the trade bloc (pressures to be efficient)
- increased specialisation of countries due to access to different services across borders
- —> higher quality products at lower cost
- smaller countries get a say in global trade agreements about how their businesses are affected
- free movement of labour (access to workforce) and goods (ease of travel)
- —> lower distribution costs
- external tariff walls to the trade bloc protect businesses from worldwide competition
- larger market to sell to
- economies of scale in production, if all countries have same
16
Q
Negatives to businesses of joining a trade bloc
A
- increased competition due to freer trade
- increased dependence on other countries performance
- countries outside of trade bloc may impose retaliation tariffs
- domestic businesses can be exploited by large MNCS within the trade bloc
- rules to govern the market may be bureaucratic (slow growth), or may not be suited to your business
- common regulation may restrict trade growth
- immigration - impact on welfare state–> migrants draining resources of health care, education
17
Q
different types of trade blocs
A
single market
free trade area
customs union
18
Q
Describe the rules of a free trade area
A
- no tariff between members
- no external tariff
- increase trade of goods and services between each other
- free to negotiate own trade deals with non member countries
19
Q
Describe the rules of a customs union
A
- no tariff between members
- common external tariff
- trade deals with non members apply for all countries in the union
- no customs border checks of goods
20
Q
Describe the rules of a single market
A
- no tariff between members
- common external tariff
- common rules and regulations
- freedom of moving goods and people
- sometimes common currency
(more strict then customs union)
21
Q
Key information about the EU
A
- combination of a single market and a customs union trade bloc with 27 countries
- labour, goods and capital allowed to move freely (no custom checks or customer duties)
- sets large amounts on employee and customer rights that give businesses a “level playing field”
22
Q
How to join the EU
A
Copenhagen criteria
- must have a functioning economy that can cope with large pressures from the EU
- be able to guarantee democracy, the rule of law and respect for human rights
- ability to meet needs of what a member must do
23
Q
Key information on the ASEAN trade bloc
A
- free trade area of 10 countries e.g. Thailand, Singapore, Philippines
- very high economic growth
- access to each countries workforce and consumer base
- very dependent on China, also India and South Korea
24
Q
Key features of the NAFTA
A
-worlds largest Free trade area with 3 member countries
- tariffs eliminated- therefore lower costs of imports and exports
- increased GDP of all countries
- put lots of Mexican farmers out of business
- bigger markets for businesses to operate in
25
BRICS
```
Brazil
Russia
India
China
South Africa
```
world's leading emerging economies
26
MINT
Mexico
Indonesia
Nigeria
Turkey
nations that are the net new great emerging markets
27
define international trade
exchange of capital, goods and services across international borders
28
export =
import =
export = goods and services a firm produces in home market that they sell in foreign market
import = goods and services brought in, from another country
29
benefits of international trade
- access rapidly growing markets
- expand target market
- reduced cost of and increased quality of supply resources
- knowledge and skills transfer over borders
- drive for low prices as market more competitive
- can extend product life cycle
- build relationships and reduce conflict or political unrest
30
drawbacks of international trade
- transport costs
- vulnerable to exchange rate changes (uncertainty)
- may be restricted by trade blocs or protectionism
- domestic markets may struggle to compete with large foreign competitors, and dumping
- market research would be costly, to determine which strategy of EEG model to use
31
define business growth
process of improving some measure of a firm's sucess
-e.g. sales volume, market share, total sales revenue,
32
define competitive advantage
a feature of a business that allows it to perform more successfully than others in a market
33
# define specialisation
why are some countries better at producing certain products compared to other countries
• when a country focuses their resources on goods and services that they are relatively the best at producing
(they are more productively efficient
_ e.g Brazil - coffee
- better access to necessary resourses
- higher efficiency and lower cost of unit
- infrastructure needed is present
34
why is specialisation useful in international trade
- lowest cost per unit (produce more at lower cost)
- creates competitive advantage for business (sustainable way to stay ahead of competitors)
- barrier to stop others entering market
- less developed nations can focus on export fewer range of products with lower cost and higher output
- specialising in high tech and high knowledge goods or services, increases revenue
- whole global economic output increases
35
how does specialisation link with competitive advantage
- using countries unique skills in workforce, can become more efficient, can improve quality
- lower costs, lower prices
- opportunities with EoS, with larger global market
- increased competition leads to drive for lower prices
36
law of comparative advantage
both countries will benefit, when they both specialise and trade with each other
37
define FDI
foreign direct investment
- capital spent by MNCs into a host economy in order to set up operations or acquiring tangible assets (e.g. takeovers)
38
define inward FDI
capital invested into local economy by foreign MNCs
39
define outward FDI
capital invested from domestic firm into foreign country, in order to expand its operations
40
how businesses can grow through FDI
- mergers, takeovers or partnerships with foreign firms to enter new market
- offshoring production to country with lower costs (develops competitive advantage, therefore can grow sustainably)
41
strategies to attract FDI
- lower corporation tax
- invest in high quality infrastructure
- trade agreements
- tax reliefs or subsidies
- creation of special economic zones (SEZ) - where business and trade laws are different from the rest of the country
42
define globalisation
process in which the world's economies becoming increasingly inter-connected and inter-dependent
43
list the factors contributing to increased globalisation of a country
* reduction of international trade barriers (trade liberalisation)
* political change
* reduced cost of transport and communication
* increased significance of MNCs
* increased FDI (investment flows)
* migration within and between economies
* growth of global labour force
* structural change
- deeper specialisation of labour (components come from more countries)
44
define trade liberalisation
trade liberalisation = removal of restrictions or barriers to free exchange of goods between nation
45
pros and cons of trade liberalisation
pros:
- increased EoS
- take advantage of law of comparative advantage by trading with other specialising economies
- greater competition - strive for lower costs and higher quality
- consumers benefit from wider range of p/s at lower prices
- companies can diversify and spread risk
- domestic economy receive more inward FDI
cons:
- domestic firms less protected from MNCs
- infant industries may not be able to develop and lost to foreign competition
- wasted opportunity - if strategic industry is taken over and grows massively
- dumping may occur (a country has excess stock so sells below cost on global market, causes other producers to struggle
- lose income from tarrif
46
how has political change contributed to increasing globalisation
- countries allowed more businesses to be owned privately
- joining trade blocs
- trade liberalisation due to new rulings (e.g in Indonesia)
- political stability establishes FDI
47
how has transport and communication cost decreased
transport:
- large cargo ship reduced in cost (containerisation)
- oil become cheaper
- -----> less cancelling out of benefits of comparative advantage
communication
- internet
- mobile phone
- mobile network
- ----> provides cheap marketing with global reach for all business to compete with
48
how has communication cost decreasing contributed to increasing globalisation
- people can order via telephone and get delivered to different country
- easy, instantaneous, global communication
49
how has the growing significance of MNCs contributed to increasing globalisation
MNC = operate in more than one country, selling and producing the same or similar products with an HQ in one country
- develop infrastructure in less developed nations
- knowledge and skills transfer across nations
- provide foreign direct investment
- sales and profits flow across borders
50
what is increased investment flows
how has increased investment flows contributed to increasing globalisation
investment flows are the inward and outward FDI (e.g. mergers, takeovers, offshoring)
- links countries together in trade further, increases communication and profit flows
51
how has growth of the global labour force contributed to increasing globalisation
- MNCs offshoring to take advantage of high skilled low cost labour (e.g. in India)
- larger pool of talent, more high skilled workers---> technological advancements
- cheaper labour, reduce operating costs ---> more capital to spend on FDI
52
how has increased migration contributed to increasing globalisation
high skilled migrants can get jobs in quaternary sector, help with technological advancements in transport and communication -----> further globalisation
53
# define structural change
how has it contributed to increasing globalisation
when a country's economy shifts the way it functions and operates, from between primary, secondary, tertiary and quaternary
- countries rely on others to supply specialised goods/services that they cant produce
- industrialisation of a country enters it into the export and import market
- further technological advancements in quaternary sector
—-> further globalisation
54
injection =
income entering country
55
withdrawal =
capital leaving country
56
define intellectual property as a barrier to trade
prevents other firms copying, producing and selling your product, service or brand
57
benefits of the European Monetary Union
- no exchange rate changes --> prices and costs don't change
| - higher price transparency as across EU currency is same
58
drawbacks of the European Monetary Union
- lose power to set monetary policy (interest rates) --> all countries have different economies
- lose sovereignty
59
benefits of leaving EU
- negotiate new trade deals with EU countries and emerging countries (adapt to UK's ideal trade)
- no longer have to pay large sum to EU or abide to expensive EU policies
- ---> more capital available to spend on welfare state,
- Europe needs the UK, so trade deals should form easily
- greater control over fiscal, monetary, environmental and competition policy (more sovereignty)
60
drawbacks of leaving EU
- multinationals might reconsider FDI as may have located in trade bloc to avoid tariff
- lose tariff free access to a huge goods market
- UK businesses face more price competition, as no external tariffs
- relationship with European countries may be damaged, harder to construct beneficial trade deals
- bureaucratic costs for UK creating and adapting to new laws
- end of free movement of labour so skill shortages increase
