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Macro > Y2 - International economies > Flashcards

Y2 - International economies Flashcards

1
Q

Define globalisation

A

The increased integration between countries; economically, socially and culturally

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2
Q

What are the characteristics of globalisation?

A
  • More trade
  • More FDI
  • More capital flows
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3
Q

Define FDI

A

When a company in one country establishes operations in another country and acquires physical assets/stakes in overseas countries

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4
Q

Define capital flows

A

The movement of money between countries due to investment flows in/out of countries around the world

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5
Q

What are the causes of globalisation?

A
  • Lower transport costs
  • Less communication costs (internet)
  • Less trade barriers
  • More trading blocs
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6
Q

What are the negative impacts of globalisation?

A
  • Country with no competitive advantage = relies on imports = deterioration of current account of BoP
  • Also more inequality
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7
Q

Define transfer pricing

A

When a TNC manages accounting of transactions to show highest profits in countries with lowest corporation tax

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8
Q

What are the impacts of globalisation (6 groups)

A
  • Country = more trade
  • Governments = more corporation tax (but transfer pricing)
  • Producers = economies of scale and more competition (but must remain competitive)
  • Consumers = lower prices/more choice (higher surplus)
  • Workers = more opportunities (but more inequality)
  • Environment = more pollution (negative externalities)
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9
Q

Define absolute advantage

A

When a country can produce more of a product than another country with the same amount of resources
- Can be influenced by specialisation/skill of labour/capital

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10
Q

Define comparative advantage

A

When a country can produce more of a product at a lower opportunity cost than another country (relative advantage at producing product)
- Countries should specialise in comparative advantage, regardless of absolute advantage

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11
Q

What are comparative advantage law assumptions?

A
  • Constant returns to scale (PPF straight line)
  • No transport costs
  • No trade barriers
  • Perfect mobility of FoP
  • All externalities are ignored
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12
Q

What are the limitations of the law of comparative advantage?

A
  • Free trade not necessarily fair trade (rich countries exploit monopsony power- Based on unrealistic assumptions
  • If opportunity costs the same = no benefit from specialisation and trade
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13
Q

What are the advantages of specialisation and trade?

A
  • Higher living standards
  • Lower prices and more choice
  • Economies of scale
  • Domestic monopolies have less output
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14
Q

What are the disadvantages of specialisation and trade?

A
  • If a country is uncompetitive = trade deficit
  • Dumping = surplus is dumber (problem for domestic firms)
  • Unemployment
  • Unbalanced development - also sometimes no diversity of economy
  • TNCs become global monopolies
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15
Q

What are some problems for developing countries?

A
  • Infant industries unable to compete
  • Monopsony power of firms in developed countries = producers have to accept lower prices
  • Declining terms of trade if dependant on primary products
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16
Q

Define sectoral imbalance

A

An imbalance in the 3 main economy sectors (primary, secondary, tertiary)

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17
Q

What are the factors influencing patterns of trade?

A
  • Comparative advantage
  • Trading blocs
  • Relative exchange rate
  • More importance of emerging economies as trading partners
  • Growth in exports of manufactured goods
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18
Q

Define terms of trade

A

Measure the price of a country’s exports relative to the price of its imports

CALCULATION = index of export prices/index of import prices x100

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19
Q

What are the factors influencing terms of trade?

A
  • Rate of inflation (relative to other countries)
  • Productivity (relative to other countries)
  • Tariffs
  • Exchange rate
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20
Q

Define trading bloc

A

Groups of countries that agree to reduce or eliminate trade barriers between themselves

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21
Q

What are the 4 types of trading bloc?

A
  1. Free Trade Area (barriers removed between members, but individually against non-members) = NAFTA
  2. Customs Union (free trade and common external tariff) = EU
  3. Common market (same as CU + FoP free movement) = ECC
  4. Monetary union (same currency) = Eurozone
22
Q

What are the disadvantages of regional trade agreements?

A
  • Trade diversion (away from low-cost producers outside bloc)
  • Distorts comparative advantage
23
Q

What are the advantages of regional trade agreements?

A
  • Trade creation
  • More FDI
  • Higher economic power
24
Q

Define trade diversion

A

Occurs when trade is diverted from a more efficient exporter towards a less efficient producer

25
Q

Define trade creation

A

Occurs when trade is created as a result of the formation of a trading bloc between different countries

26
Q

What are conflicts between WTO and RTAs?

A
  • RTAs restrict trade with non-members = conflicts WTO

- But both want to promote free trade

27
Q

What are the types of trade barriers?

A
  • Tariffs
  • Quotas
  • Subsidies to domestic producers
  • Non-tariff barriers
28
Q

Define tariffs

A

A tax imposed on goods

- Artificially raises price of imported goods

29
Q

Define quotas

A

Limits on the quantity of a product imported

- Price to domestic consumers increases and domestic output rises

30
Q

What are examples of non-tariff barriers?

A
  • Health/safety regulations
  • Environmental regulations
  • Bureaucracy
31
Q

What are reasons for resitricting free trade?

A
  • Correct deficit
  • Prevent dumping
  • Increase employment
  • Limit TNCs monopoly power
  • Protect infant industries/limit monopsony power
32
Q

Define balance of payments

A

A record of all financial transactions between one country and the rest of the world

33
Q

What is the current account?

A 
Shows country's day-to-day transactions 
- Trade in goods
- Trade in services
- Investment income
- Current transfers
(- minus payments abroad)
34
Q

What are the capital/financial accounts?

A

Show long term investment and short term capital flows

  • FDI minus investment by UK companies abroad
  • Portfolio investment minus purchase of foreign share/brands
  • ST capital flows = flows into minus flows out
35
Q

What are the causes of current account deficits?

A
  • Low productivity
  • Relocation of manufacturing industry
  • high exchange rate
36
Q

What are some measures to reduce a country’s current account imbalances?

A 
DEFICIT = Devaluation/depreciation of currency, reduce AD (expenditure reducing policies) = deflationary fiscal/monetary, barriers
SURPLUS = supply side
37
Q

What are the types of exchange rate system?

A
  • Floating = determined by market forces
  • Fixed = fixed against other countries
  • Managed = floating but controlled by government policies
38
Q

What are the types of changes in exchange rate?

A 
Revaluation = increase under fixed
Appreciation = increase under floating
Devaluation = decrease under fixed
Depreciation = decrease under floating
39
Q

What are the factors influencing floating exchange rates?

A
  • Interest rates (higher = more money into banks = increase)
  • Inflation (high = decrease)
  • FDI = demand increases
  • Speculation = more = depreciation
40
Q

What are the government intervention methods in the currency market?

A
  • Foreign currency transfers = aim to decrease by CB selling currency (increase S = decrease value)
  • Interest rates (decrease = decrease demand)
41
Q

What are Marshall-Lerner conditions?

A

States that devaluation of currency will only improve trade balance if sum of PED for imports and exports are greater than 1

42
Q

What is the J-curve effect?

A

When a country’s trade balance initially worsens following devaluation = only improves in LR

43
Q

What are the impacts of exchange rate change on BoP?

A

FALL

  • More imports domestic
  • Increases competitiveness = BoP current account increases
44
Q

What are the impacts of exchange rate change on economic growth and employment?

A
  • Devaluation/depreciation = increase AD = less real output (more employment(
45
Q

What are the impacts of exchange rate change on rate of inflation?

A
  • Increase price of imported commodities = increase production costs = cost-push inflation
46
Q

What are the impacts of exchange rate change on FDI?

A
  • More FDI = cheaper to invest
47
Q

Define international competitiveness

A

A measure of the cost of a country’s goods/services exports relative to other countries
- Can be price or non-price competitiveness

48
Q

What are the measures of international competitiveness?

A
  • UNIT LABOUR COSTS = measures average cost of labour per unit output and calculated as ratio of total labour costs to output
  • Relative export prices = more than other countries = less competitive
  • Global competitive index = composite index based on macroeconomic stability, labour market efficiency, infrastructure and health/education
49
Q

What are factors influencing international competitiveness?

A
  • Unit labour costs
  • Productivity
  • Real exchange rate
  • Labour taxes/subsidies
  • Government regulation/laws
50
Q

What are the advantages of competitiveness?

A
  • Increase current account BoP
  • More employment
  • More economic growth
  • More FDI
51
Q

What are the disadvantages of uncompetitiveness?

A
  • More unemployment
  • Deficit of current account BoP
  • Depreciation in exchange rate = inflation

Macro (10 decks)

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