Theme 3, 3.1 Globalisation Flashcards
1
Q
Define Purchasing Power Parity
A
Figures that are calculated to reflect purchasing power of incomes. ( aren’t distorted by exchange rates).
2
Q
Define Industrialised economies
A
Benefit from the increase in productivity that occurs when many people move from the agricultural industry (primary) to manufacturing (secondary).
3
Q
Define Technology center / technology transfer
A
Occurs when MNCs locate in developing countries. The company trains people in skills needed in new tech. When employees move they provide training.
4
Q
Define Open economy
A
Exports and imports are a big part of GDP. Capital movement in and out the country, as well as tech transfer.
5
Q
Define Index numbers
A
Show relative changes so that we can make easy comparisons.
6
Q
Index number calculation
A
Value to be converted / value of base x 100
7
Q
Index number of inflation calculation
A
<
< ( current year price X weight )
/
<
< ( Base year price x weight)
8
Q
Define Current prices
A
Apply to data, given the price levels at that year.
9
Q
Define Real value
A
Money with the effect of inflation.
10
Q
Define Constant Prices
A
A base year is selected and from then on output is measured in comparison to this base year. Isn’t distorted by inflation.
11
Q
Define Nominal Value
A
Value at current prices
12
Q
Convert nominal to constant prices.
A
Nominal value x 100 / Price index = real value
13
Q
Define Trade Barriers
A
Make trade harder. Tariffs put tax on imports. Quotas limit how much product can be imported.
14
Q
Define Tariff
A
Put a tax on imports. This reduces the amount of trade taking place.
15
Q
Define Quota
A
Set a ceiling on imports of specific products. This reduces the amount of trade taking place.
16
Q
Define GATT
A
Governments have been involved in global trade liberalisation since the 1940s when the General Agreement on Tariffs and Trade (GATT) was set up.
17
Q
Define WTO
A
GATT was expanded to become the WTO in 1994. This was important: the great majority of governments agreed to reduce tariffs on manufactured goods to the point where they would have relatively little impact on import prices. This in turn greatly Increased opportunities for exporters.
18
Q
Define Trade liberalisation
A
Refers to the process of limiting and reducing barriers to trade so that the economies involved move closer to free trade. (i.e. no trade impediments at all).
19
Q
Define Specialisation
A
The process where in a company or individual decides to focus on a specific type of production.
20
Q
Define Competitive Advantage
A
Factors that allow a company or country to produce goods or services better or more cheaply than its rivals.
21
Q
Define Interdependence
A
Where two or more parties ( individuals, businesses, companies, etc.) depend upon each other for the exchange of goods and the fulfilment of their necessities.
22
Q
Define Structural Change
A
Involves reallocation of resources. Less is produced of goods and services that face falling demand: output of those for which demand is increasing rises. Technological change, and international competition, play a part in this.
23
Q
Define Globalisation
A
The interdependence of other countries. More economic integration.
24
Q
Define FDI
A
(Foreign Direct Investment) A foreign investment into a firm/ economy, into tangible assets
25
Define MNC
(multinational Corporation) Company that has facilities and assets in at least 2 countries.
26
Define reshoring.
When some manufacturing processes that took place outside their economy is brought back into their economy.
27
28
Define Intermediate goods
Manufactured inputs for a production process ( Cloth for clothes)
29
Define Supply Chain
Sequence of processes required to make a product. One or more firms can be Involved.
30
Define Digital Data
Information that is distributed electronically
31
Define Division of labour
When the production of an item is broken down into many standardised, repetitive tasks that are simple to complete.
32
Define Absolute Advantage
A country gains if they are able to produce more of an item than a rival country using the same or fewer resources.
33
Define Comparative Advantage
Two countries will gain this when they specialise in the production of the good or service where they have been the least opportunity cost. They then trade which results in an increase in total output and income earned. Trade which results in an increase in total output and income earned.
34
Define commodity
Raw materials that are traded in bulk. They are homogenous, not branded and cannot be identified who produced them
35
Define Ease of doing business
The range of factors that make a business easier to start and run.
36
Define Joint ventures.
This is when two companies from different countries collaborate on a common project. This often helps MNCs to set up in foreign markets.
37
Define Trade Diversion
Consequences of becoming a trade bloc.
38
Define Trade Creation
Increase in economic welfare when you join a trade bloc. Done by fewer trade barriers leading to more specialisation and trade.
39
Define Import controls
Regulations that create barriers to trade.
40
Define Tariffs
Taxes in imported products.
41
Define Non-tariff barriers
Non-tariff Barriers (NTBs) may include any policy measures other than tariffs that can impact trade flows e.g. the government can set safety standards on exporters that will increase their production costs.
42
Define Quotas
Restrictions on volume of imports.
43
Define Common External Tariff (CET)
A set of tariffs that applies to all imports from outside the EU into the EU countries.
44
Define Common Agricultural Policy (CAP)
A policy that helps EU farmers from foreign competition. Sets prices on products, lists volumes, subsidies.
45
Define Free Trade Areas
Groups of countries form together and have no trade barriers. Doesn't have a common trade policy with non-members.
46
Define customs Union.
Internal free trade but has common trade policies for the rest of the world.
47
Define Common Markets
Internal free trade and have a single unified trade policy for members to trade with the rest of the world. Additionally, there is free movement of people. Firms can invest into other member countries.
48
Define Single Markets.
There are no trade barriers to movement of goods, services, labour ( people), and capital between members. Almost a single economy.
49
Define ASEAN
Association of South East Nations (1967).
50
Define NAFTA
North Atlantic Free Trade Area (Canada, US, Mexico).
51
Define Protectionism
Controlling of imports to protect domestic products from foreign competition.
52
Define Dumping
Exporting at a price lower than the cost of production.
53
Define Infant Industries
Industries that have some prospect of becoming successful.In short term, some aid is given.
54
Define Non-tariff barriers
Non-tariff Barriers (NTBs) may include any policy measures other than tariffs that can impact trade flows.
55
Define Leakages
Outflow of capital, funding etc to other countries.
56
Define Subsidy
Financial or other incentive to encourage investment.
57
Define Safety Standards
Can be used to protect domestic industries (often used in the food industry) but to protect consumers.
58
Define Bilateral trade agreements
Refers to trade between just two countries.
59
Define Multilateral trade
Refers to the way in which many economies export to a range of countries. WTO rules and free trade agreements are all based on multilateral trade.
60
Define G20
It is a forum for discussion of difficult international issues relating to economic stability. It proved very helpful at the time of the 2008-9 financial crisis.
61
Define Balance of Payments
All economies construct a balance of payments that records all international payments.
62
Define Visibles
Tangible goods sold.
63
Define Invisibles
Non-tangible goods such as services. money, etc.
64
Define Current Account
It is a record of all economic transactions between a country and the rest of the world.
65
Define Capital Account
Includes the effects of debt forgiveness, sale/transfer of patents, copyrights, franchises, leases and other transferable contracts across borders.
66
Define Appreciation
Increase in the value of the currency.
67
Define Depreciation
Decrease in the value of the currency.
68
Define WTO
Researches trade issues, formulates rules and supervises trade negotiations that lead to agreements between member governments.
69
Define UN
Concerned with peace and security, economic development, food security, employment law, refugees, health and a whole range of collaborative ventures, such as UNICEF, UNESCO.
70
Define IMF
Is concerned with monetary stability in the world economy. They provide advice to governments and loads for countries with balance of payments deficit that are causing currencies to depreciate very sharply.
71
Define The World Bank
It encourages development in the poorer economies of the Third World, providing finance and policy advice.
72
Define FDI
Investment in a business from a person from another country usually in assets.
73
Inflation and currency
when import prices rise, inflation accelerates.
74
Define Strong currency
Buys more of any foreign currency.
75
Define Weak currency
Buys less of any foreign currency.
76
Which 2 Asian countries have become leading economies thanks to globalisation?
India and China
77
How has the UK's economy changed since the advent of globalisation?
It has shifted from producing goods to offering services.
78
What is free trade?
This occurs when countries trade with no protectionist measures such as tariffs, quotas and red tape.
79
Why have developing countries gained an advantage in the production of manufactured goods.
These countries have fewer regulation and lower labour costs, meaning it is cheaper to produce goods there, hence lower prices.
80
Define absolute advantage
This is where country A can produce more units of output than country B with the same factor inputs.
81
Define comparative advantage
This is when country A can produce the same units of output than country B but with a lower opportunity cost.
82
List a few advantages of free trade
1. Greater economic growth
83
List a few advantages of specialisation?
1. Greater world output
2.Higher standard of living for developing economies
3.Increased supply of goods to choose from
84
What is Foreign Direct Investment?
This is the flow of capital from one country to another
85
Why is FDI good for a developing economy?
It creates jobs and encourages investment in technology
86
What is trade creation?
When a country consumes more imports from a low cost producer.
87
What happens to the countries that aren't a member of a specific trading bloc?
They will face tariffs and other protectionist measures when trying to trade with members of a trading bloc
88
How do tariffs affect imports?
They reduce imports, because the price of imports become more expensive due to the introduction of tax.
89
What is a quota?
A limit of the quantity of imports allowed into a country
90
How do quotas affect consumer surplus?
They reduce consumer surplus, because the price of these imports increases given a restriction on their output.
91
What are voluntary export restraints?
It's an agreement between 2 countries to limit the account of goods they export to each other.
92
Why does protectionism usually lead to higher prices?
Protectionist measures distort the market and reduce competition, so domestic firms have no incentive to cut costs and reduce prices.
93
Why are tariffs regressive?
They impact low-income families.
94
What does the G20 comprise of?
The 20 largest economies in the world.
95
What is the role of the World Trade Organisation (TWO)?
To promote free trade.
96
What is the role of the World Bank and the IFM?
To ensure financial and economic stability.
97
What is the difference between the World Bank and the IFM?
The World Bank can loan funds to member countries in order to reduce poverty and promote economic stability, whereas the IFM promotes monetary cooperation between member nations.
98
***What is a bilateral trade agreement?***
An agreement between 2 countries to favour each others' goods and services.
99
What is the Eurozone an example of?
A monetary Union
100
What does being a member of a monetary union entail?
All members share the same currency and follow the same monetary policies.
101
List a few advantages of a monetary union.
1. Currency is less prone to speculative shocks, reducing uncertainty.
2.Less red tape when travelling between member countries, thus increasing efficiency.
102
What is the major disadvantage of being part of a monetary union.
Member have to follow the same policies, so in times of economic distress they can't alter them at the expense of other member countries.
103
Which year did China become the world's second largest economy?
2011
104
What factors contributed to China's growth in the 1990's?
Mass privatisation ( which increased productivity) and the increase in Foreign Direct Investment
105
Economic growth of China over recent decades
-Increased food production dramatically
-Lifted an estimate 800ml people out of poverty
-Developed its new own technologies .g. for solar power
-Benefitted from technology transfer, facilitated by extensive FDI.
- Developed a more powerful global presence
-Grown faster than the other BRIC countries.
106
Growing economic power of:
Asia (China and India)
Since WW2, global trade has increased significantly. The increasing number of trading blocs, the rise of emerging markets such as China and India and greater participation from previously communist nations has led to a change in the pattern of trade. The deindustrialisation of countries such as the UK has meant the manufacturing sector has declined. This means that production of manufactured goods has shifted to other countries, such as China, whilst the UK now focuses more on services.
This has led to the industrialisation of China and India. Their share of world trade has
increased and the volume of manufactured goods that they export has increased.
107
Growing economic power of:
Asia (China and India)
Between 1995 and 2005, India’s share of textiles and clothing fell from 35% in 1995 to 16% in 2005. Instead, India’s manufacturing sector seems to produce more engineered goods than clothing and textiles.
This has resulted in UK manufacturers selling fewer manufactured goods abroad. China and India are important for African infrastructure. They have invested in their infrastructure in exchange for natural resources.
108
Growing economic power of:
Asia (China and India)
For a long time, China has been running a trade surplus with the US. Since 2006, the US trade deficit has narrowed with China, and China has reduced their trade surplus, too. China has planned this change from export-led growth to growth fuelled by domestic
consumption. Both China’s and India’s share in agriculture, mining and fuel has declined.
Both countries are important in the Euro area, with trade and financial relations. China is a main import source, whilst both are important for capital.
109
Growing economic power of:
Asia (China and India)
China and India have been investing in infrastructure. Examples of physical infrastructure include transport, energy, water and telecommunications. Higher supply costs delay businesses and it reduces the mobility of labour.
For example, India’s poor irrigation system makes it difficult to sustain food grain production if there is low rainfall. It hurts the poorest communities and it leads to rising food prices. There are also regular power cuts.
The lack of a continuous supply of electricity affects transport, communication and healthcare. It is estimated that $400 billion needs to be invested in power to meet the development goals.
110
Growing economic power of:
Asia (China and India)
The Asian Infrastructure Investment Bank (AIIB) is led by China and it funds Asian energy, transport and infrastructure. The UK is one of the founding members, along with Germany,
Australia and South Korea. The UK’s involvement should give British firms an opportunity to invest in fast growing economies.
Infrastructure development is a top priority for the Chinese government. From the late 1990s to 2005, 100 million Chinese people benefited from improved power and telecommunications. Employment can be boosted with improved roads, railways and airport constructions. However, some remote areas still have non-mechanised means of
transport.
111
Growing economic power of:
Asia (China and India)
Some economists argue that the development gap between China and other emerging economies is due to its focus on infrastructure projects. China invested 9% of their GDP in infrastructure in the 1990s and 2000s, whilst most emerging economies only invested around 2%-5% of GDP.
China has the first and only high speed Maglev train system in the world between the city centre in Shanghai and its international airport.
Some economists might argue that is it
unnecessary to build more airports, since there are already almost 200 airports in China and about 80% of people live within 100km of an airport in China. There is an opportunity cost
of not investing funds elsewhere.
112
Growing economic power in Africa
Africa has been a top recipient of Chinese aid. By the end of 2009, it received 45.7% of China’s cumulative foreign aid. It is important as a policy instrument for China with
engagement with Africa.
Africa’s saving rate is around 17%, whilst the average for middle income countries is around 31%. This makes it more expensive for the African public and private sectors to get funds since they have higher borrowing costs. This impedes capital investment.
113
Growing economic power in Africa
The population can impact the growth and development of a country. There is a link between keeping birth rates down and fighting hunger, poverty and environmental damage.
Rapid population growth has complicated efforts to reduce poverty and eliminate hunger in Africa. The current population of 1.1 billion is expected to double by 2050, which is not
sustainable.
Primary products are raw materials in industries such as agriculture, mining and forestry. Mining accounts for just over 60% of South Africa’s exports. Their ability to pay foreign debts and for imports relies on this.
114
Benefits of economic growth for consumers
-The average consumer
income increases as more
people are in employment
and wages increase.
-Consumers feel more
confident in the economy,
which increases
consumption and leads to
higher living standards.
115
Costs of economic growth for consumers
-Economic growth does
not benefit everyone
equally. Those on low and
fixed incomes might feel
worse off if there is high
inflation and inequality
could increase.
-There is likely to be higher
demand-pull inflation,
due to higher levels of
consumer spending.
-Consumers could face
more shoe leather costs,
which means they have to
spend more time and
effort finding the best
deal while prices are
rising.
-The benefits of more
consumption might not
last after the first few
units, due to the law of
diminishing returns,
which states that the utility consumers derive from consuming a good
diminishes as more of the
good is consumed.
116
Benefits of economic growth for firms
-Firms could face more
menu costs as a result of
higher inflation. This
means they have to keep
changing their prices to
meet inflation.
-Firms supplying inferior
goods are likely to see a
fall in sales.
117
costs of economic growth for firms
-Firms might make more
profits, which might in
turn increase investment.
This is also driven by
higher levels of business
confidence.
-Higher levels of
investment could develop
new technologies to
improve productivity and
lower average costs in the
long run.
-As firms grow, they can
take advantages of the
benefits of economies of
scale.
-If there is more economic
growth in export markets,
firms might face more
competition, which will
make them more productive and efficient, but it will also give them
more sales opportunities.
118
Benefits of economic growth for government
Governments might
increase their spending
on healthcare if the
consumption of demerit
goods increases.
119
Costs of economic growth for government
The government budget
might improve, since
fewer people require
welfare payments and
more people will be
paying tax.
120
Benefits of economic growth for Current and future living standards
High levels of growth
could lead to damage to
the environment in the
long run, due to increase
negative externalities
from the consumption
and production of some
goods and services.
121
Costs of economic growth for Current and future living standards
-As consumer incomes
increase, some people
might show more concern
about the environment.
-Also, economic growth
could lead to the
development of
technology to produce
goods and services more
greenly.
-Higher average wages
mean consumers can
enjoy more goods and
services of a higher
quality.
-Public services improve,
since governments have
higher tax revenues, so
they can afford to spend
on improving services.
This could increase life
expectancy and education
levels.
122
Growing economies: Rising incomes
Rising incomes could lift individuals out of poverty, particularly in developing
countries. In China, it is estimated that half a billion people have been lifted out of poverty due to the average 10% growth rate. However, increases in income might not be evenly distributed across a population, and there could be rising inequality as
a result.
123
Growing economies: Conversion of nominal to real values
Real values are adjusted for inflation. For example, real GDP is the value of GDP
adjusted for inflation. For example, if the economy grew by 4% since last year, but
inflation was 2%, real economic growth was 2%.
Nominal values are not adjusted for inflation. Real GDP is the value of GDP without being adjusted for inflation. In the above example, nominal economic growth is 4%.
This is misleading, because it can make GDP appear higher than it really is.
Real and nominal values are applied to data using constant and current prices.
Constant prices consider inflation, whilst current prices do not.
124
Growing economies: Calculating and interpreting index numbers
Index numbers are used to make comparisons between years, and to measure the magnitude of change over time. A base year is used and is then compared to other years. For example, if the year 2015 is the base year, the value given to it is 100.
If inflation has risen by 5% between 2015 and 2018, the index number for 2018 will be 105.
125
Trade and Growth: Increasing trade liberalisation
-Free trade is the act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations. World GDP can be increased using free trade, since output increases when countries specialise. Therefore, living standards might increase and there could be more economic growth.
-Since WW2, global trade has increased significantly. The increasing number of
trading blocs, the rise of emerging markets such as China and India and greater participation from previously communist nations has led to a change in the pattern of trade.
-Trading blocs have led to trade creation between members, since there is free trade within the bloc. However, trade has been diverted from outside the bloc, since protectionist barriers are often imposed on countries who are not members.
-The WTO promotes world trade through reducing trade barriers and policing existing agreements. It also settles trade disputes, by acting as the judge, and organises trade negotiations.
-Every member of the WTO must follow the rules. Those who break the rules face trade sanctions. In addition to trade in goods, the WTO covers the trade in services and intellectual property rights.
126
Trade and Growth: The role of specialisation and increasing specialisation by country
There has been a recent growth in the exports of manufactured goods from
developing countries to developed countries. This is because developing countries have gained an advantage in the production of manufactured goods, due to their lower labour costs, so production shifted abroad.
The deindustrialisation of countries such as the UK has meant the manufacturing
sector has declined. This means that production of manufactured goods has shifted to other countries, such as China, whilst the UK now focuses more on services, such as finance.
This has led to the industrialisation of China and India. Their share of world trade has and the volume of manufactured goods that they export has increased.
However, since China’s population is now ageing, their wage competitiveness has fallen. This is also due to the rise of the middle class in China, who demand higher wages and consume more.
127
