Theme 4 Flashcards
globalisation
the process in which national economies have become increasingly integrates and interdependant
Causes of globalisation
- trade liberalisation
- trading blocs
- growth of MNCs
- technological advances
- greater mobility of labour and capital
advantages of globalisation
- lower prices
- benefits of trade
- greater employment
- larger economies of scale
- free movement of labour and capital
disadvantages of globalisation
Growing inequality
Higher structural unemployment
Environmental costs
Trade imbalances
Risk of external shocks
Less cultural diversity
absolute advantage
When a country can produce a product using fewer factors of production than another nation
comparative advantage
A country should specialise in the goods and services it can produce at the lowest opportunity cost, and then trade with another country
specialisation
When a worker, firm, region or country produces a narrow range of goods and services
advantages of specialisation and trade
-lower prices and more choice
-larger market = Eos= lower prices
-higher eco growth and living standars= higher employment(labour is derived demand)= increase gdp and growth
disadvantages of specialisation and trade
-Trade deficits: country with no CA = lower exports
-risk of dumping: FDI lower prices in domestic firm= push them out of market
-increase exposure to external shocks: In recession,demand for imports decrease= lower exports for country they trade with( cuz of inter dependent)= export rev lowers in other countries too = trade deficits and lower eco growth
patterns of trades - factors influencing it
exchange of goods/services between countries
1)Comparitive advanatge:Uk shift from manufacturing to services = lower manu jobs in uk and more manu jobs in china = industrilaisation in china and india
2)emerging economies:they shift trade by taking up larger proportion of a country inports/exports(china take up 20% of LDC economies copared to 8% for USA)
3)trading blocs and bilateral trade agreement: lead to increase trade brtween thes ecounties and decrease trade outside countries e.g Uk and EU and USA
4)relative exchange rates: Uk trade deficit with EU due to strong pound
terms of trade equation
(Weighted average of export prices) / (Weighted average of import prices) x100
terms of trade
Indicates the quantity of exports that must be sold to purchase a given level of imports
improvement and deterioration of ToT
Improvement in TOT = caused by increase export price OR decrease import price
deterioration in TOT = caused by decrease export price OR increase import price
factors influencing the ToT (short run)
change in demand/supply of exports/imports
Inflation rates: increase export prices( Imporvement in TOT)but lower export comp
Exchange rate movements:SPICED (Imporvement in TOT)
factors influencing the ToT (long run)
Incomes: rise lead to increase demand e.g tourism in greece = price for tourism incr(Cetirus paribus improvement TOT)
Productivity: decr cost and prices of exports relative to import prices(deteriation of TOT) but incr competitivness
Technology
IMPACTS:
-Elasticity of imp/exp(PED inelastic = improvment will improve current acc)(PED elastic= improvement will worsen current account)
-improvement in TOT= decr GDP and incr unemployemetn level due to inc/decr imp/exp demanded due to change in price
trading bloc
A group of countries that join together and agree to increase trade between themselves:
-reduce tariff quotas and other protecionist barriers
NAFTA, EU, ASEAN
-BIlateral/multilateral trade agreement: reduce protectionsm between 2 or more countries
Free trade area
No trade barriers
Can trade with other countries
Customs Union
No trade barriers( tariffs)
Common external barrier( accept external tariffs on non members)
Common Market
No trade barriers
Common external barrier(tariff)
Free movement of labour and capital: (EU citizens can work in any country in EU)
Monetary Union
No trade barriers
Common external barrier
Free movement of labour and capital
Common currency and central bank: 2 or more countries with single currency and ER monitored and controlled by one CB(european CB in eurozone)
E.g EU, west africa use the same IR
costs of regional trade agreement
-cant trade with other countries in other trading blocs= ruin world trade= v benifit of specialisation
-v competiton:inefficient firms driven out of market= olygopolistic market
-regional inequality ^: loss of resources due to richer countires attract more capital and labour
benefits of regional trade agreements
-Encourages specialisation: ^output accoriding to comparative adv= benifit from Eos= vprices and costs
-Firms grow larger due to larger customer market= Eos ^ overtime
-competition^=innovation and v prices= imporovement in productive and allocative efficieny
^trade= ^jobs
-protection from cheaper imports from countires outside trading bloc
-^consumer choice
WTO
International organisation that regulates world trade( replaced GATT in 1995)
- aim to bring about trade liberalisation(removal of protectiosnm) and ensure countries act according to the trade agreement theyve signed
WTO’s ideal world trade
Non-discriminatory
Free from barriers/protectionism
Predictable
Promotes fair competition
Beneficial for developing countries
Roles of WTO
-Set and enforce rules of international trade
-Resolve trade disputes
-Provide a forum for negotiating trade liberalisation
-To monitor further trade liberalisation
-Increase transparency of decision making process
-Help developing countries benefit
-Cooperate with other major economic instituions
How WTO conflicts with trading blocs
-Distort world trade as they neglect developing countries as developed ones dont trade freely with developing
-Inefficient allocation of resources
-Increased protectionism with non-member countries VS no protectionsm (averse effects on non-member states)
-WTO loses power as trading blocs become more powerful
Reasons for restrictions - protectionism
