Topic 1: Globalisation Flashcards
international economic integration
the liberalisation of trade between countries
the global economy
consists of all the countries in the world that produce g/s and contribute to GWP
globalisation
the process of increasing integration between economies around the world due to increased trade, capital flows and technological change
protection
any artificial advantage given by countries governments to domestic industries to protect them from international competition
reasons for protection
- protection of domestic employment
- to protect infant industries
- dumping
- defence
protection - dumping
when a country exports a product at a price that is lower in the foreign importing market than the price in the exporter’s domestic market
methods of protection
- tariff
- subsidy
- quota
- local content rules
- export incentives
methods of protection - tariff
a tax on imports. has the effect of raising the price of imported goods so that local producers are more competitive
methods of protection - subsidy
cash payment made to local producers to increase supply
methods of protection - quotas
a quantitative restriction on certain imported goods
methods of protection - local content rules
when the government enforces that a certain % of the product must be manufactured in Australia
methods of protection - export incentives
these attempt to reduce the costs of production for exporters by allowing a tax deduction for expenditure in developing export markets
gross world product
the total output of the world economy
globalisation: trade in goods and services
globalisation has led to higher world output. Aus exports have nearly doubled over the last decade - bilateral and regional trade agreements - AUSFTA, APEC.
Trade in G/S has increased from 38% of global output in 1990 to 50% in 2018
globalisation: financial flows
globalisation has increased the flow of debt, bonds, equity, shares, currency, hedging, superannuation. forex - forex daily turnover increased from $4 trillion in 2010 to $6.6 trillion in 2020 - 40% increase in trading volume in a decade
globalisation - investment and TNCs
easing capital controls and financial deregulation caused FDI’s in 2015 to increase to 6x their level in 1995
globalisation - technology, transport and communication
intro of 5g networks is set to increase global gdp as it facilitates faster mobile connectivity and continues to drive gains in productivity and efficiency. in 2016, mobile technologies generated 4.4% of GDP globally, estimated to grow to 4.9% in 2020
globalisation - international division of labour, migration
specialisation of labour skills. According to world bank, 3% of world population had migrated to work in different countries
globalisation - international and regional business cycles
research by RBA shows that 63% of changes in output in Aus has been due to changes in interest rate growth levels and inflation from G7 countries
Factors that strengthen the international business cycle
- trade flows: reduced trade barriers
- financial flows : deregulation, forex
- investment flows: increased TNCs and FDIs
- technology: improved transport and communication
- global interest rates: contagion
Factors that weaken the international business cycle
- domestic interest rates: contagion
- government fiscal policies: taxes decrease spending
- exchange rates: fluctuations can be unfavourable
- structural factors: influence competitiveness of the economy
free trade
occurs when there are limited artificial barriers imposed by the government upon the flow of g/s across international borders
absolute advantage
when a country can produce more output with the same resources as another country
comparative advantage
when a country has a lower opportunity cost when producing a good (based on the David Ricardo’s theory of comparative advantage)
advantages of free trade
specialisation - economies of scale, lower unit costs, more output/ increased competition/ exchange of knowledge and ideas/more efficient allocation of resources/greater incentive to increase international competitiveness/ higher world output/ greater variety for consumers/ increased living standards due to increased choice and purchasing power
disadvantages of free trade
new businesses struggle/ structural unemployment in less efficient firms/ negative externalities/ more dependence on imports due to lack of diversification/ dumping
WTO
trade liberalism, stability of trade relations. TFA, 2017, aims to improve efficiency, effectiveness and fairness of agencies that oversee trade. economic benefit of 68 billion - 1 trillion. Doha round - reduce agricultural subsidies in advanced economies and grant developing economies greater market access
IMF
ensure global financial stability. IMF injected $250 billion into global economy after GFC. usually require governments to implement structural reform which can be seen as undermining national sovereignty and autonomy
World Bank
boost development of poorer countries. helps by providing foreign aid and loans, support for long term investment projects and dispute settlements in investment projects. Major goals are to reduce extreme poverty to <3% and reduce inequality by fostering growth for the bottom 40%
United Nations
Designed to maintain international peace and security, fights climate change, gives humanitarian aid, -protects human rights and promotes democracy Sustainable Development Goals (SDGs) - Decent work and economic growth Reduced inequalities Gender equality Quality education
OECD
It makes policy recommendations to improve the economic performance of its member nations
Engages in research, consultation and coordination of economic issues
- Promote sustainable economic growth and development
- Maintain financial stability
- Contribute to global economic development
G20
Members account for 85% of world economy, 75% of global trade, and 66% of world population
Aim to
- Coordinate fiscal stimulus
- Improve supervision of global financial system
- Discuss key issues in the global economy
Trading Bloc
When a group of countries join together to a formal trade relationship excluding other countries
E.g. The European Union
countries enter preferential trade agreements - free trade between themselves and external tariffs on imports from the rest of the world
Monetary Union
Members adopt a common currency and are run by a central bank. The central bank implements one monetary policy, or one interest rate
North American Free Trade Agreement (NAFTA)
- multilateral free trade agreement consisting of Canada, Mexico and the USA mainly based on eliminating agricultural protection and tariffs.
- US + Canada: opportunity to increase international competitiveness by exploiting lower production costs in Mexico
- Mexico: greater access for its exports to the larger markets
- consumers have benefited from lower prices and US corporations from the lower costs. NAFTA accounts for 13% of global merchandise trade
Japan-Australia Economic Partnership Agreement (JAEPA)
Around 98% of Australian merchandise exports to Japan will receive preferential access or enter duty free
Reduction or elimination of tariffs on agricultural commodities - 38.5% tariff on Aus beef will be halved over 15 years
Elimination of 15% tariff on Australian wine by April 2021
Removal of tariffs on Japanese goods such as cars, electronics and white-goods
Aus law firms have greater access to Japanese legal market
Regional Comprehensive Economic Partnership (RCEP)
Includes ASEAN and their FTA partners - Australia, China, Japan, NZ and South Korea
World’s largest FTA covering 30% of the global economy
Standardises trade rules across countries
Countries in the agreement account for 58% of Australia’s two-way trade and 67% of exports
Biggest trade bloc in history
Expected to eliminate ~90% of tariffs on imports between its signatories over 20 years
Dr Patricia Ranald (Australian Institute of International Affairs) “RCEP has limited gains from trade and ignores labor, human rights and environmental stability issues)
European Union (EU)
Political and economic union comprised of 27 member states, primarily located in europe
Policies aim to ensure the free movement of goods, people, services and capital within the union
EU’s Common Agricultural Policy subsidies absorbed 38% of its Budget in 2016
17% of the world market for exports - larger than China or US
APEC (Asia-Pacific Economic Cooperation)
Intergovernmental forum comprised of 21 member economies, promoting free trade through the asia pacific region
One of the highest level multilateral blocs and exerts significant global influence
Promotes balanced, inclusive, sustainable, innovative and secure growth by accelerating regional economic integration
Even though APEC members account for approximately 40% of the world population they account for 60% of world GDP and 47% of world trade.
Target of “free trade” by 2020 under the Bogor Declaration but tariff levels within countries have dropped from 20% to 13% in 1994 - 2016
Association of Southeast Nations (ASEAN)
Regional intergovernmental organisation made up of 10 southeast asian countries which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational and socio cultural integration among its members
Aus and NZ joined in 2010 (ASEAN-Australia-New Zealand Free Trade Area) - ASEAN nations committing to eliminating tariffs on 96% of Australian exports to the region
This is the largest preferential trade agreement that Australia has concluded representing 20% of Australia’s trade in goods/services.
Advantages of Multilateral Trade Agreements
Levels the playing field as all signatories treat each other equally
Increases trade for every participant
Standardised commerce regulations for all trade partners which saves companies legal costs
Allows countries to negotiate trade deals with more than one country at a time
Makes emerging markets stronger to help developed economies over time, middle class population increases
Disadvantages of Multilateral Trade Agreements
Complex, difficult and time consuming to negotiate
Public often misunderstands them
Some companies and regions suffer when trade borders disappear
Gives competitive advantage to giant multinationals and small businesses cannot compete
Advantages of Bilateral Trade Agreements
Opens markets to successful industries
Increases trade between the two members
Consumers benefit from lower costs
Easier to negotiate than multilateral agreements
Disadvantages of Bilateral Trade Agreements
Less successful companies go out of business
May trigger competing bilateral agreements
Economic growth
increase in GDP over time. A quantitative measure of the performance of an economy
economic development
structural changes needed for growth to occur in an economy and to sustain increase in living standards. A qualitative measure of the performance of an economy
distribution of income and wealth
Richest 1% own 44% of the world’s wealth
Number of billionaires it took to equal the wealth of the world’s poorest 50% fell from 380 to 26 between 2009 and 2019
distribution of income
comparison of annual incomes, which are direct returns from the factors of production of citizens
distribution of wealth
the comparison of asset ownership of citizens
Income and quality of life indicators
GNI measure the sum of value added by all resident producers in the economy plus primary income from foreign sources, on a purchasing parity basis
Human Development Report in 2016 “inequalities in income influence inequalities in other dimensions of well being”
HDI: scale of 0 to 1 taking into account life expectancy, education levels and gross national income per capita
Environmental sustainability
Advanced economies have created most of the existing global environmental problems including pollution and energy use due to high rates of production and consumption
Emerging economies deplete the environment in the pursuit of higher economic growth
OECD report predicts by 2050, the world economy will be 4x bigger than it is today, using 80% more energy
The international business cycle
GFC exposed the issue of financial contagion. Due to the globalised nature of the US, foreign banks and investors experienced spill-over effects and there was worldwide panic in financial markets
Advanced economies contracted by 3.4% and the world economy experienced a recession
Trade, investment and transnational corporations
Rapid increases in trade, investment and TNCs
Created a global web of production facilities and supply chains, connecting economies
TNCs are criticised for taking advantage of poorer countries by lower labour costs and natural resources, as well as for exploiting global tax laws
In 2019, Apple was accused of labour violations in China. Apple denies most allegations but acknowledged that they exceeded the number of contract workers allowed by Chinese Law and agreed to compensate workers
Effects of globalisation
Increased opportunities for economies of scale, specialisation, and taking advantage of lower input costs
Increased technological innovation due to increased competition internationally, which has stimulated productivity levels
Financial Contagion - when financial crises can be transmitted quickly
Increased income inequality and the emigration of skilled labour from developing countries to advanced economies
According to the IMF, income inequality has increased by 0.45% per year over the past 3 decades
Easing trade restrictions have lowered prices which can improve living standards
Increased negative externalities such as environmental degradation and exploitation of the labour forces of developing nations
advanced economies
High income levels, average per capita income over US 30,000 p.a.
slower growth in recent decades
Market based economies, services
e.g. usa and australia
emerging economies
Income levels vary but fast growth in income levels
Strongest growth rate in the world and favourable prospects
Industrialising, manufacturing
e.g. China
India
developing economies
Low-income levels, around half of population in absolute poverty
Moderate growth rates but population growth also high
Heavily reliant on agriculture and (in more extreme cases) foreign aid
e.g. egypt and cambodia
global factors causing differences between economies
global trade system - favours advanced economies and fta are dominated by advanced economies. e.g. failure of doha round
Global Financial Architecture - high foreign debt burdens, investment into emerging economies
Global Technology Flows
domestic factors causing differences between economies
economic resources - lack of natural resources, labour supply and quality, lack of infrastructure and capital, poverty cycles
institutional factors - political instability and corruption
