The Global Economy Flashcards
What are the two reasons country trade?
- Scarce resources
- Specialisation
What is the nature of trade in relation to TNC’s?
Growth of TNC’s leading to an increase of “intra trade” - movements of factors of production and growth of global production
What is promotes trade?
- New technology - reducing costs
- Governments removing trade barriers
- Trade organisations
What is the composition of trade?
Trade is changing due to growth in commodities and services with advanced economies contributing to 65% of world trade
Why has international financial flows increased since the 1980’s?
- Growth in trade
- Deregulation of financial systems
- Floating of exchange rates
- Technology advances
- FOREX
What is an advantage and disadvantage of FOREX market?
- Able to obtain funds for investment
- Causes speculation and ‘herd mentality’ leading to volatility
How does technology, transport and communication lead to globalisation?
- Technology drives investment leading to spread of technological innovation around the globe
- Technology allows for businesses to compete in overseas markets with easier global communication
- Technology leads to an improvement of transport infrastructure which increases output
How does the international division of labour and migration lead to globalisation?
The division of labour refers to workers specialising in small tasks rather than an entire job - leading to increased productivity, reduced costs and lower prices. 3% of the world has migrated leading to movement of businesses and people.
Factors that strengthen the international business cycle
- Trade flows
- Investment flows
- TNC’s
- Technology
- Global interest rates
- Commodity prices
- International organisations
Factors that weaken the international business cycle
- Domestic interest rates
- Government fiscal policy
- Other domestic policies
- Exchange rate
- Structural factors
- Regional factors
Advantages of free trade
- Comparative advantage
- Specialisation - economies of scale
- International competitiveness
- Technological innovation and capital investment
- Higher living standards
Disadvantages of free trade
- Less international competitiveness
- Discouraging new industries with no protection from importers
- Can lead to dumping, unemployment and lower environmental standards
What is the role of international organisations?
- Manage stability
- Assist economies experiencing difficulties
- Develop global standards
- Establish rules
- Resolve disputes
What is the role of the WTO?
Implement and advance global free trade agreements and resolve trade disputes
What is the role of the IMF?
Maintain international financial stability supporting free trade and the movement of finance and capital globally
What is the role of the World Bank?
To reduce poverty and support developing nations
What is the role of the UN?
Broad agenda that maintains international peace and security
What is the role of the OECD?
To achieve sustainable economic growth and development of member countries
What is the influence of government economic forums?
Coordinating policies with major economies during times of crises’s. Their aim is to enable nations to discuss global economic issues with attention to stability and growth.
- The G7 coordinate global macroeconomic policy
- The G20 coordinate key issues relating to global economic stability
Why do countries form trading blocs, monetary unions and trade agreements?
Countries form these agreements and alliances to ensure they are in the best position in order to positively benefit from growing trade opportunities.
What are the main reasons for protection?
- Protect infant industries
- Prevent dumping
- Protect domestic employment
- Defence and self sufficiency
What are the economic effects of a tariff?
- Stimulates domestics production and employment
- Higher prices for consumers
- Raises revenue for the government
What are the economic effects of a quota?
- Domestic producers can compete with importers
- More resources shifted to the inefficient industry
- Higher prices for consumers
What are the economic effects of a subsidy?
- Stimulates domestic production and employment
- Diverts other resources from other sectors
- Lower prices for consumers
What are the economic effects of local content rules?
- Restricts foreign firms and their competition
- Preserves domestic industries
What are the economic effects of export incentives?
Encourages local businesses to compete in international markets and improve their market share
What are the economic effects of protectionism?
- Reduces trade, living standards, economic growth (due to the inefficient allocation of resources)
- Harder for specialisation
What are the global factors for differences between nations and why?
- Trade - trading blocs favour wealthy countries
- Financial architecture - international financial rules aren’t keeping up to date with globalisation e.g. tax havens
- Aid and assistance - reflects strategic and military considerations rather than the needs of poor
- Technology - internet availability favours wealthy nations
What are the domestic factors for differences between nations and why?
Economic resources
- Countries with an abundance of natural resources have high potential
- Access to capital and technology - poor nations can’t access
Institutional factors
- Political and economic institutions
- Economic policies - focus on either development or growth conflicts with each other
What are the effects of globalisation?
- Increased growth
- Trade and financial flows
