Theme 4 (Macro) Flashcards
What is meant by globalisation?
4.1.1
Globalisation
The ability to produce any goods (or service) anywhere in the world, using raw materials, components, capital and technology from anywhere, sell the resulting output anywhere, and place the profits anywhere.
What are the characteristics of globalisation?
4.1.1
Globalisation
- Global Branding
- Global Sourcing
- TNC’s
- Increasing foreign ownership of companies
- Increase in trade in G/S
- De-industrialisation in developed countries
- Increasing global media presence
- Increasing international interdependence of eco. agents
Give six factors which have contributed to globalisation in the last 50 years.
4.1.1
Globalisation
*Improvements in transport infrastructure and operations
*Improvements in communications technology and IT (especially the internet, allowing a global media presence)
* Trade liberalisation resulting from agreements reached by the World Trade Organisation (WTO)
* Increasing number and influence of global (transnational) companies
* The end of the Cold War, which led to the opening up of formerly closed economies in communist countries and a subsequent increase in global labour supply
* The development of international financial markets.
What are the impacts of globalisation on individual countries?
4.1.1
Globalisation
Advantages:
AD - X driven growth & inward FDI
AS - Import cheaper FOP & immigration
Disadvantages:
Prebish-singer
Infant industry argument
What are the impacts of globalisation on governments?
4.1.1
Globalisation
Advantages:
TIGERS
Tax receipts (Y, VAT & Corp)
Disadvantages:
Tax avoidance (transfer pricing)
Footloose MNC - Laffer curve “race to the bottom”
Interdependence TIGERS
What are the impacts of globalisation on producers?
4.1.1
Globalisation
Advantages:
New X markets
Access raw materials / L force
Outsource/off-shore to reduce costs
Disadvantages:
Increased competition
Over reliance on international supply chains
What are the impacts of globalisation on consumers?
4.1.1
Globalisation
Advantages:
Deflationary pressure – real Y
Choice / quality of M
Disadvantages:
Supply side shocks – lead shortages
Fakes/low quality imports
Risk of monopoly forming – higher prices
What are the impacts of globalisation on workers?
4.1.1
Globalisation
Advantages:
GDP and employment
MNC growth and employment
Disadvantages:
Marx exploitation labour
MNC monopsony buyer (diagram)
What are the impacts of globalisation on the environment?
4.1.1
Globalisation
Advantages:
Global collaboration / treaties
MNC ability invest into renewable
Disadvantages:
Movement FOP/G&S = C02
Global GDP linked increase C02
Lack regulation in industrialising LDC
What are some reasons for international trade?
(4.1.2)
Specalisation & trade
This is because some countries hold a ‘Comparative advantage’ over others, meaning they can produce more with less opportunity cost
What is absolute advantage?
(4.1.2)
Specialisation & Trade
Absolute advantage means that an economy can produce a greater total of goods for the same quantity of inputs.
What is comparative advantage?
(4.1.2)
Specialisation & Trade
Comparative advantage occurs when one country can produce a good or service at a lower opportunity cost than another
UK
100 insurance premiums (50% FOP) = 250 iphones (50% FOP)
Therefore OC 1 insurance premium = 250/100 = 2.5 iphones
China
50 insurance premiums (50% FOP) = 1,000 iphones (50% FOP)
Therefore OC 1 insurance premium = 1,000/50 = 20 iphones
Therefore UK has the comparative advantage in producing insurance premiums as it incurs a lower OC i.e. foregoes 2.5 < 20
Using a numerical/graphical example, show how international trade is beneficial even when one country may have a comparative advantage in both goods.
(4.1.2)
Specialisation & Trade
What are the assumption made in the theory of comparative advantage?
(4.1.2)
Specialisation & Trade
Constant costs of production (ignoring economies and diseconomies of scale)
That transport cost are zero
There is perfect knowledge
Factors of production can easily be switched from producing one good to producing another
What are the advantages of specialisation and trade?
(Firms)
(4.1.2)
Specalisation & Trade
Larger market to sell to = economies of scale (increase in output = reduction in average cost). Linked to:
Purchasing
Marketing
Specialisation and the division of labour
Financial
Logistical
Lower average cost can increase profit margins or allow for lower prices if the G/S is price elastic = increase in TR
What are the advantages of specialisation and trade?
(Consumer)
(4.1.2)
SPecalisation & Trade
Lower prices = increase CS
More choice avaliable
What are the disadvantages of specialisation and trade?
(4.1.2)
Specalisation & Trade
Deficit (M>X) if a country’s goods and services are uncompetitive
Danger of dumping by foreign firms, i.e. selling at below average cost = increased unemployment as imports are a leakage
Increased exposure to external shocks from inter-dependence i.e. covid and supply chains
Unbalanced development – international specialisation based on free trade means that only those industries in which the country has a comparative advantage will be developed while others remain undeveloped
Global monopolies as global (transnational) companies become larger = limits competition = harm consumers
The monopsony power of global companies may mean that low prices are paid for commodities from developing countries = restrict growth and development
What is meant by the terms of trade?
(4.1.4)
Terms Of Trade Theory
Formula = Index X prices Divided by Index M Prices multiplied by 100
Definition = Amount of imports your exports can buy
How does the terms of trade affect competitiveness of a country?
(4.1.4)
Terms Of Trade Theory
What are some factors which might affect the terms of trade?
(4.1.4)
Terms Of Trade Theory
What is the Marshall Lerner condition
(4.1.4)
Terms Of Trade Theory
states that a currency devaluation will only lead to an improvement in the balance of payments if the sum of demand elasticity for imports and exports is greater than one
What have been the trends in global manufacturing trade over the past century
(4.1.3)
Pattern of Trade
LDC used export driven growth as low incomes domestically prevented the ability of consumption to drive AD but provided a labour cost advantage globally.
As exports of manufactured goods grew more developed countries were able to deindustrialise focusing on the production of services instead.
What are trading blocs
(4.1.5)
Trading blocs and the World Trade Organisation (WTO)
Trading blocs are simply groups of countries that establish rules for trade between all participating countries
How do trading blocs result in trade diversion?
(4.1.5)
Trading blocs and the World Trade Organisation (WTO)
Trade diversion means that trade patterns are more associated to protectionist measures on non-members and removal of protectionism for members.
This distorts the normal patterns of trade associated to either absolute or comparative advantage
What are monetary unions
(4.1.5)
Trading blocs and the World Trade Organisation (WTO)
These are customs unions which adopt a single currency
What is common market
(4.1.5)
Trading blocs and the World Trade Organisation (WTO)
These have the same characteristics as customs unions but also allow the free movement of factors of production
What is a customs union
(4.1.5)
Trading blocs and the World Trade Organisation (WTO)
These have free trade internally and a common set of protectionist measures.
