Theme 4 - A Global Perspective [INCOMPLETE - MAJORITY] Flashcards
What is globalisation
- growing interdependence of countries and the rapid rate of change it brings about
- movement towards free trade of goods and services, labour and capital, and free interchange of technology and intellectual capital
What are the factors contributing to globalisation
- improvements in transport infrastructure and operations
- improvements in IT and communication
- trade liberalisation (reducing protectionism)
- international financial markets
- TNCs
What is the impact of globalisation on consumers
- more choice
- lower prices => comparative advantage
- rise in prices => increased incomes so high demand leading to inflation
- consumers worried about loss of culture
What is the impact of globalisation on workers
- increased levels of both employment and unemployment => large scale job losses in western world in manufacturing sectors as jobs have been transferred to cheaper countries
- increased migration => lower wages
- international competition reduces wages for low skilled workers in developed countries
- wages for high skilled workers increases => inequality
- TNCs provide training and create jobs
What is the impact of globalisation on producers
- reduced global risk as there are more markets in other countries
- exploit comparative advantage
- access to larger markets
- increased competition => some firms cannot compete
What is the impact of globalisation on the government
- higher taxes but also tax avoidance
- corruption through TNCs bribing and lobbying government
What is the impact of globalisation on the environment
- increased demand for raw materials
- more emissions
- world could work together to tackle climate change
What is the impact of globalisation on economic growth
- increased investment => injection into economy
- introduction of world class management techniques and technology
- trade increases
- political instability
- comparative cost advantages will change over time so companies may leave when it is no longer advantageous
What is the theory of absolute and comparative advantage
- comparative advantage stats countries find specialisation mutually advantageous if the opportunity costs of production are different
- if opportunity costs is same, there will be no gain from trade
- comparative advantage exists when a country is able to produce a good more cheaply relative to other goods produces
- absolute advantage exists when a country can produce a good more cheaply in absolute terms than another country
What are the assumptions and limitations of the comparative and absolute advantage theory
- assumes there are no transport costs
- assumes costs are constants => no economies of scale
- goods assumed to be homogenous
- factors of production assumed to be perfectly mobile
- trade taking place depends on terms of trade between the countries
What are the advantages of the comparative and absolute advantage theory
- shows how world output can be increased
- countries can benefit from economies of scale => reducing costs and global prices
- countries can utilise FoPs they have access to which others do not
- consumers have greater choice => increased welfare
- greater competition => incentive to innovate
What are the disadvantages of the comparative and absolute advantage theory
- over dependence on countries
- can cause structural unemployment as jobs lost to foreign firms
- environmental will suffer
- loss of sovereignty
- loss of culture
What are factors influencing the pattern of trade
- comparative advantage
- emerging economies
- trading blocks and bilateral agreements
- relative exchange rates
How does comparative advantage influence the pattern of trade
- countries will trade where there is a comparative advantage to trading
- change in comparative advantage will affect trade pattern
- recent growth in exports of manufactured goods from developed to developing countries as they received advantage due to low costs
- deindustrialisation of developed countries means manufacturing sector decline and shifted to other countries
- led to industrialisation of developing countries and their share of world trade has risen
How do emerging economies influence the pattern of trade
- countries grow at different rates and need to import more goods than before as well as export to pay for this
- emerging economies shift trade pattern by taking up larger proportion of country’s imports and exports than previously, e.g. China
- international trade arguably more important for developing countries than developed => contributed towards 20% of LDC economies to 8% of US
- collapse of communism meant more countries participating in world trade