Trade, Financial Flows and Foreign Investment Flashcards
What is free trade?
when there are limited artificial barriers imposed by the government upon the glow of goods/services across international borders
What is absolute and comparative advantage?
Absolute Advantage - when a country can produce more output with the same resources as another country
Comparative Advantage - when a country as a lower opportunity cost when producing a good, meaning they make the most efficient use of resources
What are some advantages of free trade?
Consumers & firms have a greater variety of goods & services to choose from, increasing living standards and providing opportunities for efficiency/differentiation
It allows countries to specialise and achieve economies of scale
Improved international competitiveness as firms are able to adopt new technologies and engage in innovation
Increased GDP as output increases across a domestic economy
What are some disadvantages of free trade?
There may be an increase in unemployment as inefficient domestic firms struggle to compete with importing industries
It may be difficult to establish new businesses, with the tight competition among domestic & international firms making it impossible to establish a competitive edge
International firms may dump surplus production on a single, domestic market, shutting out domestic firms
Negative externalities may occur, including environmental degradation and the exploitation of labour in developing countries
Adopting a narrow export base will increase dependence on other nations, creating issues of security and self-sufficiency in case of international incidents
Who are the WTO?
The WTO is a trade organisation and orchestrator of the world’s largest multilateral trade agreements
The WTO promotes trade liberalisation and acts as a mediator for trade disputes
In 2017 the WTO implemented the Trade Facilitation Agreement with the aim of improving the efficiency, effectiveness and fairness of agencies that oversee trade in developing countries - estimates of the economic benefits of this new agreement vary from $68 billion to $1 trillion per year
What is the IMF?
An international agency that oversees the stability of the global financial system
It aims to;
promote international monetary cooperation & exchange rate stability
facilitate the expansion of international trade
provide help to member states experiencing balance of payments difficulties
The IMF sources its funds from a pool of advanced economies’ contributions, which are then loaned to countries experiencing short-term financial problems
In 2020, the IMF agreed to double loan levels from its emergency facilities, allowing it to provide over US$100 billion in financing to low-income countries; an unprecedented 102 of the IMF’s 189 member countries sought financial assistance
Who are the World Bank?
Aims to promote economic development in developing countries through influencing macroeconomic and microeconomic policy
The World Bank assists developing countries by providing;
development assistance (foreign aid) and loans
support for long-term investment projects
dispute settlement in investment projects
The World Bank’s two major goals to be achieved by 2030 are;
reducing the rate of extreme poverty to less than 3% globally
reducing inequality by fostering income growth for the world’s bottom 40%
What is the conditionality principle?
Both the IMF & World Bank require government to implement specific structural reforms in order to receive assistance - the conditionality principle
Often needing economies to open up for free trade, the conditionality principle can be seen as undermining a nation’s sovereignty and autonomy
Who are the UN?
The UN provides the global standard for development to ensure know country is left behind, known as the 2030 Sustainable Development Goals
Examples of these goals include halving the number of people living in extreme poverty and achieving gender equality
The UN has overseen a reduction in the amount of people living off less than US$1 a day from 29-15% from 1990-2015
Who are the OECD?
An intergovernmental organisation with 38 member states which engages in research, consultation and coordination of economic issues
The OECD aims to:
coordinate macroeconomic policy among member states
promote sustainable economic growth and development
contribute to global economic development through providing specialised advice to member states
The OECD publishes regular reports, such as the OECD Economic Outlook, and conducts regular studies, such as the 2018 OECD Pensions Outlook
Who are the G20?
An organisation made up of the 20 largest economies in the world
G20 members account for 85% of the world economy, 75% of global trade and 6% of the world’s population
It was established following the 2008 GFC, amid claims that the G7 was not representative of the global economy
The G20 aims to
coordinate fiscal stimulus around the world
improve supervision of the global financial system
discuss key issues in the global economy
Who are the G7?
A forum representing the 7 largest economies in the world
Since the 1970s, the G7 has been the unofficial forum for coordinating global macroeconomic policy
Lately, the significance of the G7 has declined, with a shift in the global balance of power towards emerging economies such as China
The G7’s share of global GDP has shrunk from 68% in 1992 to 46% in 2018
What is a trading bloc?
where countries enter preferential trade agreements, establishing free trade between themselves and external tariffs on imports for the rest of the world
What are monetary unions?
where groups of countries share a common currency and monetary policy, creating an increasingly integrated regional market
What are free trade agreements?
formal agreements between countries to reduce trade barriers such as tariffs - they can be bilateral (AUSFTA) or multilateral (WTO)
