Theme 4 Flashcards
Define globalisation
The increases interdependence of economies through trade
3 characteristics of globalisation
Increased trade as a % of global gdp, increased fdi, increased migration
3 characteristics of demand-globalisation
Increased trade barriers like tariffs, falling trade as a percentage of global GDP,
Less migration
How does trade liberalisation lead to globalisation
Trade liberalisation means lesser tariffs, quotas etc so cheaper to export and import therefore more trade occurs
How does reduced transport and commas costs increase globalisation
These are a cost of production so if these aspects are reduced then world supply increases, it becomes costs effective to sell good from further away rather than distribute domestically, also means production can be made in various places and transported to an assembly point. Comms improvements means it is easier to manage a global workforce as well as a market and selling globally without having a physical presence in the country
How do TNCs cause globalisation
The profit motive drives TNCs to look for opportunities to reduce costs and increases revenues internationally. As they search for new markets to sell in, search for more efficient production locations and search for resources
3 benefits of globalisation
Increased world output, through comparative advantage. Reduction in absolute poverty by giving countries access to inflows of money. Facilitation of the transfer of knowledge and technology. Improved quality and choice for consumers.
Identify 3 disadvantages of globalisation
Externalities from transport and increased production, inequalities between and within countries, vulnerability to external shocks, structural unemployment, exploitation
Why has there been a backlash at globalisation recently
Concerns about global warming, habitat destruction and resource depletion as an impact on some of the worlds most prominent eco systems.
Does globalisation Benefit the world
Globalisation comes in tandem Ipswich reductions in poverty, increases in life expectancy and tech levels in local economies and better standards of living
3 benefits of fdi to a host country
Transfer of tech (capital) and knowledge (human capital), provides employ,rent and income - boosts AD in the short run and LRAS through investment in productive potential. Provides tax revenue .
3 disadvantages of fdi tohost country
Exploitation of workers: low wage poor working conditions. Bringing in overseas managers rather than employing locals. Environmental damage if government ‘turn a blind’ eye to activities. May have been given taxes incentives so not contributing to tax revenue. May be footloose, so able to leave quickly without bestowing any benefits..
What are global supply chains
When sequences in the production process can take place in different countries e.g. the pencil vid on yt
what is meant by the pattern of trade
the pattern of trade describes what is being traded and with whom
who are the UK’s main trading partners
US 19.7% exports 8% imports, Germany, France and Netherlands
give 3 reasons why the pattern of trade has changed in the last 50 years
1 emerging economies 2 trade liberalisation and trade blocs 3 ex-communist countries.
what impact does the rapid growth of economies such as China and India have on the patterns of trade in the global economy.
1 china is now the worlds biggest trader.
2 both countries use export led growth as a way to expand and consequently this has meant both countries trade with countries all over the world and are exporting and importing more.
3 therefore affects the pattern of trade as the question of ‘who’ is trading has changed - significant amounts of trade in manufactured goods has moved to china and some services are now provided by India - this may be because these countries have developed a comparative advantage n different types of goods and services showing that this theory is not static and comparative advantage can change over time.
how may other countries react to china and India having a large impact on the pattern of trade
other countries might see opportunities to sell raw materials to China e.g. many african countries have sold more metals and materials to china to help with their industrialisation. ALSO some countries may find their growth threatening and may then apply trade barriers with these countries to try and protect their own domestic industries from competition or develop their own trade blocs to counter the threat from china.
define terms of trade
terms of trade show the rate at which a countries’ exports can be swapped for imports
what is the formula for calculating the terms of trade between two countries
terms of trade= index of export prices/ index of import prices
identify 3 facts about the wto e.g. how many countries are members
164 member states, formed in 1995 replacing GATT, has about 600 staff
what is the main role of the wto
aims to reduce trade barriers, monitor member countries, teach new member countries how to promote free trade and resolve trade disputes amongst member countries
what is meant by a trading bloc
a group of countries, usually geographically close who have removed trade barriers amongst themselves (FTA), possibly common external barriers (customs union), sometimes free movement of all factors of production ( common market) and occasionally have the same currency and share a central bank (currency union).
3 examples of trading blocs
NAFTA, ASEAN, EU,
distinguish between a free trade area and a customs union with examples
free trade area does not have a common external tariff, an example is NAFTA, but a customs union does like EU
how has the growth in the number of trade blocs affected the WTO
it means that countries are organising their own bi-lateral and multilateral agreements rather than going through the WTO, may also create issues for the WTO if countries outside the trade bloc complain about the trade behaviour of countries within the bloc, e.g. because of trade diversion issues.
define trade creation
trade creation is when the removal of a trade barrier leads to an increase in trade
define trade diversion
trade diversion is when a country moves from trading with a low cost country to a higher cost country as a result of the removal of a tariff?? not good def
what is meant by bi-lateral trade agreements
when two countries negotiate a trade deal between themselves rather than going through the WTO which would be a multi-lateral trade agreement
Why might a country prefer to negotiate its own bi-lateral trade agreement rather than adopt a free trade agreement negotiated through the WTO
it is quicker and the agreement can be tailored to the needs and objectives of the two countries involved rather than having to consider the need so multiple parties
define tariff
tariff is a tax on imports, paif by the company wanting to sell goods and services into an economy that is not their own and is received by the government of the host country
define quota
a maximum number of goods that can be imported, once the maximum has been reached, the firm may be penalised with a tariff or other restriction if they go above it.
define non tariff barrier
a non tariff barrier (NTB) is something that makes trade more costly or difficult, but which is not a tariff. For example, health and safety regulation on imported goods, domestic subsidies, or government procurement policies that favour domestic firms.
define voluntary export restraint agreements
like a quota but it is self imposed by the exporting country rather than the importing one - they do this in order to avoid worse tariffs or quotas.
explain the benefits of removing tariffs
when the tariff is removed the price to consumers falls and the consumption of this good will increase which will lead to an increase in consumer surplus and welfare.
define protectionism
when a government imposes trade restrictions on another country
identify and explain 4 reasons why a country uses protectionist policies, use an example where possible
to protect domestic jobs from structural unemployment e.g. protecting jobs in the domestic car industry by subsidising domestic producers.
to generate government revenue e.g. for developing countries this could be an important source of tax revenue to invest in supply side policies.
To protect Infant industries e.g. the computer industry in Brazil was protected whilst this industry grew to a size where economies of scale could be achieved such that this company could withstand international competition.
strategic products such as food are often protected as the country may need to remain self sufficient in case of war.
what is a fixed exchange rate system
when the value of a currency in terms of another currency is fixed against the target currency e.g. pounds sterling could be fixed against the euro at rate of £1 = €1.2
why might a country want to fix its exchange rate
sometimes to stabilise the currency if it has been volatile. also, fixing your currency against a major trading partner provides firms with predictability in planning and forecasting income flows between countries e.g. Bretton Woods system. In the case of the euro, accession countries, (those who are trying to join the EU) must fix their currencies against the Euro to show that the economies are sufficiently converged.
what is meant by devaluation or a revaluation
a devaluation is where a government deliberately reduces the exchange rate in either a managed or a fixed exchange rate system. A revaluation is the opposite, where a government deliberately increases the exchange rate in a managed or fixed exchange rate system
what is a floating exchange rate system
one where the exchange rate is determined purely by the supply and demand of that currency on the international market.
4 factors that would increase the demand for £ sterling
1 increase in exports 2 increase in interest rates 3 speculation that the currency will appreciate 4 an increase in foreign tourists e.g. 2012 olympics
4 factors that would increase the supply of £ sterling
1 increase in imports 2 decrease in interest rates 3 speculation the money will fall 4 increase in UK tourism abroad
what can cause an exchange rate to appreciate
anything that causes an increase in demand for a currency or a decrease in supply and vice versa for depreciation.
what is the difference between devaluation and a depreciation
depreciation - currency falls in value in a floating ER system, or because of a fall in demand/ rise in supply of the currency on the free market. Devaluation -
deliberate downward adjustment of the value of a country’s money relative to another currency
what is the PPP theory of ER’s
it suggests that the value of a currency adjusts so that the same product costs the same in every market which it is sold. The nominal ER adjusts so that relative prices between countries are equal.
hot money definition
stocks of money that are moved around the globe in search of the best relative ER or return
adv and dis of floating ER system
adv: floating exchange rate should adjust so that there is always a zero balance on the balance of payments, should also help an economy adjust to external shocks e.g. if country has a high inflation rate, then the ER should adjust to restore competitiveness, also monetary policy is free to serve the interests of the domestic economy rather than to maintain a fixed or managed exchange rate
adv and dis of a fixed exchange rate
- creates stability and predictability so businesses can plan income flows with more certainty. - many companies spend vast amounts of money ‘hedging’ or insuring themselves against adverse currency movements
what is a managed exchange rate
when a combination of free market forces and intervention take place.
how can the government and/or central bank influence exchange rates
Unlike the UK, many countries’ central banks (CB) are not independent of the government and can therefore instruct the CB to buy and sell their own currency on the free market, but also buy and sell reserves of other currencies that it has stocks of and can therefore de/revaluate
what is FDI
foreign direct investment - when an overseas company invests in fixed capital in another country. e.g. setting up a factory in another country, in recent years it can also mean buying shares (over 10%) in an overseas company so that they have management influence.
how does the ER affect FDI
a weaker or lower ER may make a country more attractive as a target for attracting FDI. It means that the investors money can go further and purchase more capital than if the currency is strong - however there are many other factors that are as, if not more, important in determining FDI.
