Theme 4 - Growing economies

Question 1

Economy

Answer 1

An economy is the state of a country or region in terms of production and consumption of goods and services and the supply of money

A country where goods/services are produced sold and bought

Question 2

Emerging economy

Answer 2

One in which the country is becoming a developed nation often driven by relativley high economic growth and rapid expansion of trade and investment

Question 3

What are bric economies?

Answer 3

• Have economic,cultural and geopolitical influence - superpowers shift overtime as some decline and others emerge
• Contain over 40% of worlds population, have cheap labour costs so many countries businesses have located manufacturing there
• China removed trade barriers = more free trade

Question 3

BRIC

Answer 3

Brazil, Russia, India, China

Question 4

MINT

Answer 4

Mexico,Indoneisa,Nigeria, Turkey
Emerging Economic Giants

Question 4

What are MINT economies?

Answer 4

• Growing population - young people entering the workforce
• Close to large markets they can export to - demand may be high - contribute to economic growth

Question 5

UK growth?

Answer 5

• Lower than emerging economies
• Growth of manufacturing sector -‘global shift’ Uk has had a decline in manufacturing sector after industrilisation move to lower labour costs and access to raw materials in lics
• CHINA is worlds largest economy and exporter of goods

Question 6

Economic growth

Answer 6

An increase in GDP -value of goods and services produced in an economy over time

Question 7

Positive impacts of economic growth

Answer 7

• Increased employment -> increased incomes-> increased demand of goods/services
• Countries pull themselves out of poverty and into middle class are those that are able to diverisfy away from agricultural products
• Overall productivity rises and incomes increase
• New and growing economies have increasing incomes
• Opportunities to increase revenue and profit for MNCS moving into new markets

Question 8

Opportunities with economic growth

Answer 8

• Enjoy relativley high rates of economic growth compared with more mature developed economies like the UK, US, Japn and EU
• Emerging economies - rapid growth of the middle class - rising disposable income that might stimulate demand for products in developed - suitable locations for international operations - location for production and or sell into the domestic market
• Positive YED -> increased sales and profit
• Foreign economies -> start selling in growing economies
• Increased demand for western (luxury) brands - opportunities
• Reduced labour costs, transportation and boost growing economies

Question 9

Implications with economic growth

Answer 9

• Negative effects on home country - decreasing jobs
• Many emerging expanding into developing
• Emerging are not straight forward - increased risk of intellectural property theft restrictions on businesses methods and competitive challenges from established domestic businesses

Question 10

What are the indicators of economic growth?

Answer 10

GDP
Literacy rates
Health
HDI
Employment rates

Question 11

GDP

Answer 11

Gross domestic product:
* Shows the total market value of goods and services produced within a nation over a period of time
* Used to measure the economic performance of a country, area or the world, is calculated in real terms

Question 12

GDP per capita

Answer 12

GDP per capita = is the measure of economic output of a country divided by the number of people in a country
* Divides gdp per country population
* Leads to fairer comparisions of economic performance of different countries see how rapidly their economies are growing
* High gdp per capita -high standard of living
* Compare growth in 2 countries

Question 13

Literacy rates

Answer 13

Literacy rates = Looks at the percentage of adults that can read and write
* % of population aged 15 and above that can read and write
* Literacy and poverty rates go hand in hand with education being less avaliable in the poorer countries
* An increasing literacy rate indicates economic growth as it suggests more of the population are educated and able to work in skilled roles
* difference in skills level among oecd countries explain 55% of the differences in economic growth
* Determines quality of workforce and customers they are selling to

Question 14

Health

Answer 14

Health = life expectancy at birth, mortality, pollution exposure and clean access to water
* WHO considers the number of indicators assessing the level of a countrys health - life expectancy,mortality, morbidity and other health factors such as sanitation
* Increasing level of health suggests the economy is growing - govt spending more on healthcare and services
* More of population is fit to work
* Important for businesses that want to invest in emerging economies - impacts the quality of the workforce

Question 15

HDI

Answer 15

HDI(human development index) = a composite index focusing on three basic measures of development: life expectancy at birth, mean years of schooling and standard of living, measured by gross national income per capita
* Higher hdi higher the level of development of the country

Question 16

Employment patterns

Answer 16

A key indicator of growth looking at employment rates, trends, labour costs and productivity as well as education qualifications and potential employees

Question 17

International trade

Answer 17

The importing and exporting of goods and services

Question 18

Exports

Answer 18

Goods and services that a firm produces in its home markets but sells in a foreign market
* Money flowing into an economy
* Used as a way to expand -> benefitting from an increased market size
* Simplest and least risky way to access markets overseas
* Extra revenue for businesses selling goods abroad

Question 18

Imports

Answer 18

Goods and services that are bought into one country from another
* Money flows out of economy -> where product came from-> extra revenue for foreign business
* Increase in the variety of goods and services avaliable to firms and consumers in a country
* Often cheaper than domestically produced goods

Question 19

Specalisation

Answer 19

When an economy or business concentrate on a specific range of products or services

Question 20

Competitive advantage

Answer 20

Something that allows a business to generate more sales or be more profitable than its rivals -> international market-> more competition
* Businesses specalise when they focus on a specific good/service
* Countries can specalise with a particular product/service

Question 21

Ads and Dis of specalisation

Answer 21

Ads:
* Lower unit costs due to eos as costs are spread over larger output
* Lower prices for consumers -competitive advantage
* Higher profit margins - lower unit costs if they dont lower selling price
* Improved effciency -> workers become highly skillef at making a particular product
* Speed of production increases and quality

Dis:
* Risk of losing sales if theres a decrease in the demand for their product and work havr sources of revenue to make up for the loss
* Increased cost of training staff - extensive training to gain skills and become specalised in making the product

Question 22

FDI

Answer 22

FDI = when a firm in one country invests in a business in another country
* Typically through mergers, takeovers, partnerships, joint ventures with a foreign business to enter new markets
* Investing firm has to have some managerial control of a business in a foreign country (doesnt count if firm just buys shares)

Question 23

Horizontal FDI

Answer 23

Where a firm invests in a foreign business that is at same stage of production process as business in home country

Question 24

Vertical FDI

Answer 24

Where a firm invests in a foreign business at different stage of production process in supply chain to original business

Question 25

Benfits of fdi

Answer 25

• Access to new markets -> increased sales, reduce firms costs, increased profitability
• Take advantage of skilled local labour in foreign country -> increase productivity
• Access to knowledge and expertise from foreign investors
• Increased economic growth and job opportunities -> increased gdp-> incomes-> taxes-> services
• Overcoming trade barriers and access to knowledge about nations

Question 26

Inward fdi

Answer 26

When a business invests in the local economy

Question 27

Outward fdi

Answer 27

When a domestic business expands its operations to a foreign country

Question 28

Globalisation

Answer 28

A process by which economies and cultures have been drawn deeper together and have become more interconnected through networks of trade and rapid spread of technology

Question 29

Ads and Dis of trade liberalisation

Answer 29

Ads:
* Any raw matericals that a firm imports will be cheaper -> lower the firms costs which could make it more competitve -> reduced prices
* Exporting goods becomes easier and cheaper -> more markets to expand into
* Consumer choice increased to include products from all over the world
* Increased international trade allows businesses to increase their market size - increased output and can benefit from economies of scale
* Freer trade helps businesses to reduce costs as imported raw materials and components can be sourced more cheaply

Dis:
* Removal of trade barriers will reduce cost of imports -> domestic businesses may be forced out as they struggle to compete-> increase of unemployment rates
* Some feel that trade liberalisation is leading to the removal of national cultures
* Some industries may be subject to dumping(sell abroad in export markets at signifcantly low prices)

Question 29

Trade liberalisation

Answer 29

The removal or reduction of barriers to trade between different countries

Question 30

Reasons for increased globalisation

Answer 30

Trade liberalisation
Political change
Reduced transport and communication costs
Increased importance of global companies
Increased fdi
Migrtation within and between economies
Growth of global labour force

Question 31

Political change

Answer 31

• Change in governance of a country can influence the countrys attitude towards trade
• Restrictions on trade made by one government may be removed by one that supports trade liberalisation
• Political agreements between countries have led to growth in trading blocs - reducing trade barriers between certain countries

Question 32

Reduced transport and communication costs

Answer 32

• Economies of scale due to innovation in conatinerisation on a large ships has reduced business costs
• Technological advancements due to internent/mobile technology have improved and made it easier for buyers and sellers to connect with one another

Question 33

Increased importance of global companies

Answer 33

• A business that operates in more than one country -> HQ in one country but other branches in other countries
• Encourages globalisation as they boost the economies of the countries they locate in by increasing employment -> more demand for products and encourage other businesses to expand into those countries -> increased pressure by countries to engage in free trade

Question 34

Increased fdi

Answer 34

• FDI is important for job and wealth creation within an economy
• Allows countries to establish themselves in countries where they may face trade barriers - fdi makes it more cost effective for firms to invest oversea
• Increases investment flow and therefore increases globalisation

Question 35

Migration within and between economies

Answer 35

• The movement of people from one location to another
• Migration has led to increased globalisation as better transportation and deregulation has allowed workers to have more flexibility when looking for work
• Movement of people may increase demand in new places and create new opportunities for businesses to sell into new markets

Question 36

Growth of global labour force

Answer 36

• The global labour force is increasing due to the growth of emerging economies such as china and india
• This has increased globalisation due to more people in work = more disposable income to spend on goods and services boosting global demand, increased supply of labour leads to falling wages which is beneficail in reducing business costs, increased levels of entrpreneurship

Question 37

Protectionism

Answer 37

When a government seeks to protect domestic industries from foreign competition

Question 37

Structucal change

Answer 37

• Relies on primary (raw materials) secondary (manufacturing) tertitary (finance/health) and quaternary (knowledge)
• As a country develops its reliance on primary and secondary falls whilst tertiary and quaternary grow = growth and more demand for foods and services
• Often matched by growth in national income
• Tertiary and quartenary are likley to be spealcised and have highly skilled staff - need to trade internationally to gain market share required to maximise economies of scale - global - global recruitment

Question 38

A tariff

Answer 38

A tax placed on imported goods from other countries
* Increases rhe price of imported goods to shift demand for that product from foreign businesses to domestic businessess

Question 39

Ads and Dis of tariffs

Answer 39

Ads:
* This can help domestic firms to grow as they face competition from foreign businesses
* An increase in govt tax revenue
* Reduces dumping by foreign markets as they cant sell below market price

Dis:
* Increases the cost of imported raw material which may affect businesses who use these goods for production/ leading to higher prices for consumers
* Reduces competition for domestic firms who may become more ineffcient and produce poor quality products for their customers
* Reduces consumer choice as imports are more expensive = cant afford them
* The lack of competition removes the incentive for firms to improve effciency and quality of their goods and services

Question 40

Import quota

Answer 40

A government imposed limit of the amount of a particular product allowed into a country in a certain time period
Restricting the amount of imports means a business faces less competition and benefit from high market share
More of the domestic demand is now met by domestic producers

Question 41

Ads and Dis of import quotas

Answer 41

Ads:
* To meet extra demand domestic businesses may need to hire more workers wgich reduces unemplotment and benefits the wider economy
* Higher prices for product may encourage new businesses to start up in the indusry
* Countries are able to easily change import quotas as market conditions change
* Foreign businesses view import quotas as less confrontational to their business interests than tariffs - exporters can still sell goods at higher prices in domestic markets

Dis:
* Quotas limit supply -> price of goods rises
* May generate tension in the relationship with trading partners
* Domestic firms may become more ineffcient overtime as the use of quotas reduces the level of competition of the business

Question 42

Government legislation

Answer 42

Governments can impose laws to restrict certain imports to protect customers and businesses e.g. imports may need to meet strict regulations in order to be allowed into a country - can use trade embargoes and trade sanctions which make trade extremley difficult and can cause realiation - anrother country may respond by restricting trade

Question 43

Ads and Dis of govt legislation

Answer 43

Ads:
* Allows domestic firms to grow as they have limited competition from businesses abroad

Dis:
* Can lead to retalisation from countries facing legislation

Question 43

Domestic subsidies

Answer 43

Sums of money provided by the government to domestic firms in a certain indusry to help lower costs of production

Question 44

Ads and Dis of domestic subsidies

Answer 44

Ads:
* Reduced production costs which can lead to offering lower prices making the businesses more competitive in internatiinal markets as their exports may be cheaper
* businesses remain competitive and this helps to protect jobs in the industry

Dis:
* Businesses may become ineffcient as they know their costs are being subsidiesed
* Subsidies cost the government money so people living in the country face higher taxes to fund the subsidies

Question 45

Trading blocs

Answer 45

A group of countries that form an agreement to reduce or eliminate protectionist measures between eachother
Joining a trade block is a key method of increasing trade liberalisation and leads to trade creation

Question 46

NAFTA/UMSCA

Answer 46

• Made up of Cananda, mexico and UNITED states
• Aim was to promote free trade between these countries but individual countries could still impose barriers on outside countries
• In 2020 it was replaced by unitedstates-mexcio-canadna-agreement USMCA
• Many usa businesses relocated their manufacturing to mexico as goods could be produced there much more cost effectivley due to lower wage on mexician worlers
• Mexico benefits from this agreement as it helped create many new industries and jobs within the country - however most benefits included north and close to the usa border - maquiladoras was a consqeuence for mexico

Question 47

Association of south east asian nations (ASEAN)

Answer 47

• ASEAN was orginarlly formed in 1967
• In feb 2023 10 countries in this free trade area including thailand, malaysia and indonesia
• It is a free trade area and also allows some free movement of labour ans capital - free trade area lowers busiensses costs increase market size and help businesses to generate eos

Question 48

EU

Answer 48

• Made up of 27 eu countries
• Is a single markey - there are no borders between member states for the movement of labour products and capital
• There is a harmonisation of standards - all countries have the same regulations about products such as regulations regarding quality or energy use
• Many eu countries are also within monetary union where all countries use a single currency the euro

Question 49

Impact of trading blocs

Answer 49

• Impact is dependent on whether the business trades in or out of the bloc
• Outside will face higher costs from protectionist measures such as tariffs and trying to meet legal requirments
• Inside block - make them less competiive trying to sell to the block decreased sales volume with countries within the bloc

Question 50

Ads and Dis of trading blocs

Answer 50

Ads:
* Removal of trade barriers leads to a surge in demand and can obtain their supplies more cheaply than before which lowers their costs and increases profit
* Fewer regulations - easier to obtain materials, labour and capital and more access to skilled workers - improve effciency and quality of production
* Access to more markets - expanding market for their products - increases sales volume, lowers costs becasue of eos, can also achieve if business regulartions and laws are harmonised
* Greater competition within blocs- firms being more effcient
* External tariff walls - a tax applied to imported goods by a grouop of countries that have formed a trade agreement protects bloc
* Infrastructure support - May gain additional support from govt to enable them to maintain their competitivness against businesses inside a bloc

Dis:
* Can become more expensivce to import products from countries not in the bloc -businesses costs increase
* Increases compeition for businesses within the bloc