the nation in the world Flashcards
what is meant by the open economy?
focus n the world as a whole not a singular economy of countries
what are we looking at…
when output and inputs can cross national boundaries:
- how can we measure extent of globalisation
- why do we trade
- how to deal with migration
- how to deal with international capital flow
what is FDI
foreign direct investment
put money abroad in order to make a profit
how can you measure extent of globalisation?
- share of trade (export + import / GDP) openess of economy means should be near 50%
- reduction in trade costs (tariffs, protections and policies)
what is the trend with measure of globalisation?
as share of trade goes up reduction in costs goes down
why has there been 2 globalisation periods?
- 1870 until first world war
- after second world war until now
what is mercantilism?
part of why we trade
policy designed to maximise exports of a nations exporting more than it imports and discourage import tariffs
economic theory that trade generates wealth
often seen as outdated now
lead to smuggling to get around tariffs
reduced less powerful countries making any money as no one would import
what did adman smith believe in terms of why we trade?
- tarde is mutualy beneficial for al that compete
- specialisation depends on absolute advantage in porducuticity
- division of labour can improve productivity
- when you trade countries benefit benefit when producing absolute advantage as need less input
- if this is the case then some countries are doomed due to no abolsute advantage
what did david ricardo believe in terms of why we trade?
- any country regardless of absolute advantage can still trade to improve welfare
- ## comparative advantage = refers to economies ability to produce goods and services at a lower opporutiy costs than that of trade partners
difference between absolute advantage and comparative?
A - which trade you are more cost and productisation efficient
C - how much more efficient
what did Hecksher Ohlin believe on why we trade?
- relative abundance of input endowments determines comparative advantages and so the trade pattern which determines comparative adbateg and trade patten
e. g. labour abundant country will specialise in labour intensive products
what is meant by facts endowments?
amount of land, labour, capital and entrepenueship that a country possess
what is leontiffs paradox as to why we trade?
- looked at testing hecksher ohlin theory
- countries with higher capital per worker has a llower capital / labour ration in exports than imports
- e.g. us has abidance of capital and export labout intensive goods and imports capital
what is the new trade theory?
1970s
way to explain why even if a good or service is produced in our country we end up with comparable product from other countries
predict international trade patterns
those countries with advantages will dominate market takes of monopolistic (similar product but not the same)
what are the two key concepts in the new trade theory?
- network effect: value of good increases as the number of indicidusals using it increase (bandwagon effect), gives customer higher utility
- economies of scale: situation where there are costs saving gained by early entry into market or increased production capacity, lowering cost per unit so can afford to enter markets with similar products
