2.2 The Global Economy Flashcards
Globalisation
The growing interconnection of the world’s economies
Reasons for globalisation
Reduced tarrifs and quotas - In the past it was too tricky to sell goods. Recently governments are supporting the idea of free trade.
Reduced cost of communication - Firms can access data everywhere, most people don’t need to work in offices
Reduced costs of transportation - Able to transport quicker and at larger amounts, also cheaper
Increased significance of MNC - domestic markets have become saturated
Impacts of globalisation
Individual country - For country that provides sites for globalisation, there is more GPD, this leads to economic growth and improved standards of living.
Governments - Increased tax revenue
Producers - Access to huge markets, more able to exploit economies of scale, more access to labour, reduced taxation. Move head office to cheapest place available
Workers - more job opportunities in LEDC and less in MEDC
Environment - gets worse
What is meant by MNC
Multi Nation Coorperations - large companies that sell goods or services globally, and/or have factories in other countries.
What is Foreign Direct Investment (FDI)
When a MNC invests in a foreign country or buys 10% or more of the share in a foreign country, or if they build factories and shops in that other country
Features of MNCs
- Lots of assets
- High quality of workers
- Powerful marketing, marketing capabilities
- Good technology
- High influential economically
- Very efficient
Reasons for MNCs
-Economies of scale
-Cheaper access to resources
-Lower development and transportation costs - recent improvements in tech
- Access to consumers in different regions
Free Trade
Situation in which the goods coming in or going out of the country are not controlled or taxed
Reasons for international trade
- Obtaining goods that cannot be produced domestically
- Obtaining goods that are cheaper overseas
- Selling of unwanted commodities /goods
Advantages of free trade
- Lower prices and increased choices for the consumer
- Lower input prices - countries specialise
- Wider market for businesses - more
Disadvantages of Free trade
- Competition for domestic businesses
- Unemployment
Protectionism
When a government attempts to protect domestic producers, u usually done by added trade barriers
Trade Barriers
Measures designed to restrict imports
Dumping
When firms sell large quantities of extra products below cost in the domestic market.
Reasons for protectionism
- prevent dumping
- protecting domestic industries
- to gain tariff revenue
- preventing entry of harmful goods
-reduce balance of payments deficit
