The International Economy Flashcards
Globalisation
The process of growing economic integration of the worlds economies
Main characteristics of globalisation
Growth of international and reduction of trade barriers
International mobility of capital and labour
An increasing power of MNCs and TNCs
Consequences of globalisation - less developed nations
Exploitation of workers - low wages
Glocalisation
Forced into privatisation to qualify for IMF or world bank loans
Consequences of globalisation - more developed countries
MNCs may reduce wages and living standards
Possess little capital - developed countries allocate resources to their own advantage
Dependency of trade theory
Flows to HQ in HICs
Globalisation of the service sector
Financial services from UK shift to India e.g. call centres
Factors encouraging overseas location of call centres
Low wage costs
Reliable cheap telecommunications
24 shift employment overcomes time zone problem
English is the worlds business langauage
Absolute advantage
A country has an absolute advantage if it can produce more of a good than other countries from the same amount of resourfes
Comparative advantage
Measured in the terms of opportunity cost
The country with least has the comparative advantage
advantages of free trade
Lower prices due to reduced market contestability
Specialisation and economies of scale causing lower costs and prices
Increased competitiveness
Growth of exports industries
jobs and revenue
inflows of info increasing human capital
Disadvantages of free trade
Possible structural employment
Developing countries will struggle to have diverse economies
Assumptions of comparative advantage
Fixed and immobile factors of production
Constant returns to scale
Demand and cost conditions are stable
no import controls
Justifications of import controls
Protecting infant industries growing in developed nations
Preventing unnecessary deindustrialisation
Preventing exploitation by a foreign based monopoly
Types of import controls
Quotas
Tariffs
Export subsidise
causes of globalisation
technological advancement
growth and increase in number of TNCs
communication improvements
advantages of MNCs
employment and training
transfer of skills
boosting gDP through spending
incentive to domestic firms
consumer nd business choice
significant tax revenues from profitable
how do MNCS contribute to globalisation
FDI boosts AD
global financial flows
interconnectedness
flow of physical goods through exporting and importing
flows of info
impact of trade on allocative efficiency
comp from lower costs drives down market prices and reduces supernormal prices
impact of trade on productive efficiency
specialising and selling in larger markets increases returns to scale (Eos) lower LRAC
impact of trade on dynamic efficiency
open economies may see more innovative firms which invest in r+d and in human capital to improve productivity
dynamic gains from trade
diffusion of knowledge and technology
Eos
comp and inno
productive firms
cheaper and more productive input goods into countries supply chain
importance of trade to developing countries
a source of foreign currency to balance payments (trade surplus = greater reserves)
financing imports e.g. capital equipment
rising employment
injecting demand into circulation flow
costs of trade
air and sea pollution
neg externalities
risk of structural unemployment
rising inequality - uneven gains from trade
pressure on wages and working conditions
risk of global external shocks
