The International Economy Flashcards
(51 cards)
What is globalisation
Globalisation is the ever increasing integration of the world’s local, regional and
national economies into a single, international market
what does globalisation involve
the free trade of goods/services
the free movement of capital and labour
the free interchange of technology and intellectual capital
what does the spread of globalisation cause
-more trade between nations and more transfers of capital including FDI (foreign direct investment)
brands developed globally and labour has been divided between several countries
there is more migration and more countries participate in global trade e.g. china and India
countries have also become more interdependent -> so the performance of their own country depends on the performance of others
factors that contribute to globalisation
trade in goods:
developing countries acquire capital and knowledge to manufacture goods -> the efficient forms of transport make it easier and cheaper to transfer goods across international borders -> some developing countries have cost advantage of cheap labour -> so MNC’s (multi-national companies) move their production abroad
-> causes developed countries to trade with developing countries so they can access the same manufactured goods
trade in services:
e.g. the trade in tourism, call centre services and software production has increased from developing countries to developed countries
trade liberalisation:
the growing strength and influence of organisations such as the world trade organisation (WTO), which advocates free trade, has contributed to the decline in trade barriers.
Multinational corporations (MNCS):
own or control the production of goods or services in multiple countries -> they have used marketing to become global and by growing, they have been able to take advantage of economies of scale e.g. risk bearing -> lower cost of production
International financial flows:
For example, the flow of capital and FDI across international borders has
increased.
China and Malaysia have financed their growth with capital flows.
Also, the foreign ownership of firms has increased.
There has been more
investment in factories abroad.
The removal of capital controls has facilitated this increase.
Communications and IT
The spread of IT has resulted in it becoming easier and cheaper to communicate, which has led to the world being more interconnected.
There
are better transport links and the transfer of information has been made easier.
This is sometimes referred to as the ‘death of distance’.
Containerisation:
This has resulted in it becoming cheaper to ship goods across the world.
This
causes prices to fall, which helps make the market more competitive.
Containerisation means that goods are distributed in standard sized
containers,
so it is easier to load and cheaper to distribute using rail and sea
transport.
This helps to meet world demand.
Cargo can be moved twenty
times as fast as before, economies of scale can be exploited and less labour is
required.
However, it is mainly MNCs which have been able to exploit this, and it could
result in some structural unemployment.
what are the consequences of globalisation on individual countries
trade imbalances between countries -> e.g. US runs a large current account deficit with China, who has a large current account surplus
imbalances and inequalities in consumers and countries accesses to health, education and markets
within individual countries, there could be income and wealth inequalities if the benefits and costs of globalisation are not evenly spread e.g. china where the rural and urban areas have vastly different levels of income and living standards
arguments about cultural diversity being lost. However, some argue that spread of culture has been positive and has help improved the quality of life
what are the consequences of globalisation on governments
some governments might lose their sovereignty due to the increase in international treaties
having to abide by the rules of being a member of an organisation if joined to one e.g. EU
what are the consequences of globalisation on producers and consumers
Consumers and producers can earn the benefits of specialisation and economies of
scale as firms become larger
Firms operate in a more competitive environment, which encourages them to lower their average costs and become more efficient.
Producers can also make their average costs lower by switching production to places with cheaper labour. -> the spread of technology has resulted in firms being able to employ the most advanced machines and production methods
what are the consequences of globalisation on workers
Workers can take advantage of job opportunities across the globe, rather than just in
their home country.
However, there could be structural unemployment. For example, in the UK after the
collapse of the ship building and mining industries, there was a lot of structural
unemployment. This is because it was more efficient for manufacturing to occur
abroad, so production shifted to lower labour cost nations.
When production shifts to lower labour cost countries, the creation of jobs could be
seen as either beneficial or harmful.
On one hand, MNCs could be exploiting their
labour and providing poor working conditions in, for example, sweatshops.
On the
other hand, working in a sweatshop might provide a higher, more stable income
than any alternatives, such as agriculture.
what are the consequences of globalisation on the environment
Although industrialisation and increased consumer living standards might lead to
more pollution through increased production and increased car use, consumers
might show more concern towards the environment as their average incomes
increase.
Some of the negative impacts on the environment could include deforestation,
water scarcity and land degradation
what is an absolute advantage
A country has absolute advantage in the production of a good or service if it can produce it
using fewer resources and at a lower cost than another country
what is an comparative advantage
Comparative advantage occurs when a country can produce a good or service at a lower
opportunity cost than another country.
This means they have to give up producing less of
another good than another country, using the same resources.
what are the benefits of free trade
Countries can exploit their comparative advantage, which leads to a higher output
using fewer resources and increases world GDP. This improves living standards.
Free trade increases economic efficiency by establishing a competitive market. This
lowers the cost of production and increases output.
By freely trading goods, there is trade creation because there are fewer barriers. This
means there is more consumption and large increases in economic welfare.
More exports could lead to higher rates of economic growth.
Specialising means countries can exploit economies of scale, which will lower their
average costs.
costs of free trade
Free trade has resulted in some job losses, since countries with lower labour costs
have entered the market.
Free trade might have contributed to some environmental damage. This is especially
from the increase in manufacturing.
Growth of trading blocs and bilateral trading agreements
Impact of emerging economies
Changes in relative exchange rates
what is Protectionism
Protectionism is the act of guarding a country’s industries from foreign competition.
what are the Methods of protectionism and their impact
Tariffs are taxes on imports to a country.
It could lead to retaliation, so exports might
decrease.
The impact of tariffs is that the quantity demanded of domestic goods increases,
whilst the quantity demanded of imports decreases.
draw the diagram for imposing a tariff
in this document -https://www.physicsandmathstutor.com/pdf-pages/?pdf=https%3A%2F%2Fpmt.physicsandmathstutor.com%2Fdownload%2FEconomics%2FA-level%2FNotes%2FAQA%2FMacroeconomics%2F6-The-International-Economy%2Fb)%2520Trade.pdf
what is a quota
A quota limits the quantity of a foreign produced good that is sold on the domestic market.
It sets a physical limit on a specific good imported in a set amount of time.
It leads to a rise
in the price of the good for domestic consumers, so they become worse off.
Export subsidies
This is a form of government intervention to encourage goods to be exported rather than
sold on the domestic market.
The government might use direct payments, tax relief, or
provide cheap access to credit.
what are Embargoes
This is the complete ban on trade with a particular country. It is usually politically motivated.
Excessive administrative burdens (‘red tape’)
Excessive administration increases the cost of trading, and hence discourages imports.
It makes it difficult to trade with countries imposing red tape, and is particularly harmful for
developing countries which are unable to access these markets.
the causes of countries adopting protectionist policies
If a country employed several protectionist measures, then a trade deficit would
reduce. This is because they will be importing less due to tariffs and quotas on
imports.
Infant industries might need protecting. These are industries which are relatively
new and receive support. Protectionism is usually short term until the industry
develops, at which point the industry can trade freely.
Protectionism could be used to correct market failure. It can deal with demerit goods
and protect society from them.
Governments might employ protectionist measures to improve the current account
deficit.
Governments might want to protect domestic jobs.
It imposes an extra cost on exporters, which could lower output and damage the
economy
Tariffs are regressive and are most damaging to those on low and fixed incomes.
There is a risk of retaliation from other countries, so countries might become hostile.
Protectionism could lead to government failure.
