Unit 3 Flashcards
Globalisation
An expansion of world trade in goods and services leading to greater international interdependence
What are the stages of globalisation?
Stage one - began around 1870
Stage two - began after 1945
Stage three - where we are now
Stage one of globalisation
New technologies helped improve transport and so reduce the costs of moving goods between countries. Ended in 1920s when countries started protectionism
Stage two of globalisation
Countries were keen to rebuild their economies after WW2, which led to a rapid expansion in world trade
Stage three of globalisation
Characterised by a huge increase in trade and capital flows between countries, and the mass production of goods by huge companies to gain economies of scale
What are the causes of globalisation?
Improvements in transportation
Improvements in ICT
Rising real living standards
Decline in protection
Economies of scale
How do improvements in transportation cause globalisation?
The costs of moving goods from one country to another have been reduced due to new technologies and competition
How do improvements in ICT cause globalisation?
Internet technology has made sending and communicating information very quick and very cheap
How do rising real living standards cause globalisation?
As countries become richer, their citizens demand not only more goods, but also a wider choice of products
How does a decline in protection cause globalisation?
More countries encourage trade, so there are fewer barriers to trading
How do economies of scale cause globalisation?
Technological improvements often mean that companies have to mass produce and sell to large markets, which may force them to look overseas
Multinational company
A company that has operations all over the world
Advantages of an MNC
Cheaper labour costs
A favourable tax environment
Availability of government grants
Disadvantages of an MNC
Loss of jobs
Export of technology
Dependency on imports
Loss of tax revenues
Absolute advantage
When a country is able to provide a good or service using fewer resources and at lower costs than another country
International trade
The exchange of goods and services across international boundaries
Benefits of international trade
Increases the choice for consumers
Allows firms to gain economies of scale
Increases competition, preventing monopolies
Allows individuals and firms to obtain goods that are not available in their country
Costs of international trade
Negative externalities
What are the main negative externalities?
Pollution from ‘dirty’ industries
Transport of the finished goods or parts
Air miles
Free trade
An absence of tariffs, quotas and regulations designed to reduce or prevent trade among nations
Benefits of free trade
Increases world output and wealth
Encourages efficiency in the use of resources
Increased competition encourages firms to produce new products
World Trade Organisation
Responsible for trying to increase free trade, which is advanced through a series of negotiations called ‘rounds’
What is the WTO responsible for?
The Uruguay Round:
Cuts in tariffs of around 40%
Extension of intellectual property rights
Cuts in agricultural subsidies allowing greater access to American and EU markets
An agreement to allow full access for textiles and clothing from developing countries
Protection
Where an action is taken that reduces international trade
Methods of protection
Tariff
Quota
Embargo
Regulations
Tariff
A tax placed on imports to increase the price and reduce the quantity demanded
Reasons for protection
Infant industry
Dumping
Protect jobs
Prevent negative externalities
Political
Dumping
Firms or countries may try to undercut producers by selling below the cost of production, to drive out competition, gain market share, then raise the price to get high profits
Quota
This is a physical limit on the number of goods imported into a country
Embargo
This is a ban on the import of a good or service
Regulations
Many countries try to limit imports through a variety of rules
Single market
The economies of different countries can be treated as one when a firm is considering its domestic market
The single market means:
Free movement of people
Elimination of border control
Mutual recognition of qualifications
Advantages of the single market
Competition
Free movement of labour
Specialisation and economies of scale
Higher economic growth and standards of living
Disadvantages of the single market
Job losses
Attract capital and jobs away
Multinational firms drive out local firms
Customs Union
A group of countries that have free trade between members, but a common external barrier
Advantages of a single currency
Price transparency
Transaction costs
Single monetary policy
Current account
The balance of trade in goods and services plus net investment income from overseas assets
Reasons for a balance of payments deficit
Loss of advantage in many industries
Relatively weak product innovation
Growth in people’s real income
Exchange rate
How much of one currency needs to be given up to buy one unit of another currency
Floating exchange rate
Where the prices of two currencies are decided by market forces
Fixed exchange rate
Where the central bank of a country tries to decide on the price of a currency
International competitiveness
The ability of domestic companies to compete with foreign companies
Foreign direct investment
The investment by foreign companies in the production of goods and services in another country
Benefits of globalisation to the UK
High levels of FDI
Reduction in shortages of skilled labour due to immigration
Rising productivity from foreign firms setting up in the UK and innovating
Absolute poverty
Where someone has insufficient income to live on. Usually defined as having less than $1.25 a day to live on.
Costs of globalisation to the UK
Loss of jobs and manufacturing industry due to high costs
The UK is open to risks outside the control of the government
Environmental problems are caused by the growth of air and sea transport
Harder for smaller businesses to establish themselves due to increased competition
Non-government organisations (NGOs)
Organisations that have specific purposes, and thus are very focused on particlar problems
