4.1 International economics Flashcards
Absolute/comparative advantage, globalisation, trade (26 cards)
Globalisation
The closer integration/interdependance of world economies
Characteristics of globalisation
- Increases % of value of overseas trade to a country’s GDP
- More specialisation of labour as they exploit comparative advantage
- Creation of global supply chains
- More MNCs
Factors contributing to globalisation
- Low transportation costs
- Low communication costs
- Reduced trade barriers
- China joining WTO (2001)
- End of Cold War
- Deregulation of financial markets
- Migration
Impacts of globalisation (consumers)
- More choice as there’s a wider range of goods available
- Lower costs as there’s more comp leading to competitive pricing
- However, can lead to higher prices with higher incomes, causing inflation
Impact of globalisation (workers)
- Many lose jobs, esp in the West, as producers have moved to China/India for cheaper production
- Demand for high-skilled workers rising, increasing their wages, causing worse inequality
- Workers exploited in poor conditions in some countries
Impact of globalisation (producers)
- Can produce and sell in more countries, diversifying risk and letting them find the cheapest labour force
- Can exploit comparative advantage
- Firms who can’t compete globally fall behind
Impact of globalisation (environment)
- Increase in world production led to more demand for raw materials, affecting the environment, causing negative externalities
- More transportation of goods leads to more emissions
- However, it means the world can work tgt to tackle climate change
Impact of globalisation (economic growth)
- Increases FDI from MNCs, which is an injection into the economy, having a larger impact due to multiplier effect
- MNCs can bring better tech and innovation
- Leads to deindustrialisation in developing countries as domestic firms can’t compete with MNCs
Reasons a firm would invest in another country
- MARKET-SEEKING
Investing to sell goods and have a branch there - RESOURCE-SEEKING
Using foreign branches to exploit resources of the country - EFFICIENCY-SEEKING
Having a branch to boost efficiency, like using it to make it easier to transport goods
Artificial barriers
Factors (protectionist measures) that make it harder/dearer for economies to trade globally
(tariffs, quotas, embargoes, sanctions)
Trade sanctions
Blocking of all trade between 2 countries (eg. USA sanctions Cuba)
Trade embargoes
Blocking of trade of a single product to a country
Foreign direct investment (FDI)
Investment undertaken in one country by a firm based in another country
World’s biggest economies (PPP adjusted) (2022)
- China
- USA
- India
- Japan
- Germany
USA could be more than China if it wasn’t PPP adjusted
Absolute advantage
When a country can produce a product using less factors of production than another country
Comparative advantage
When a country can produce a good with a lower opportunity cost than another country
Calculation to find how much a country is giving up to produce one good over another
given up / produced
Trading bloc
Group of countries that sign an agreement to reduce/eliminate protectionist barriers
Preferential trading area (PTA)
An area that has barriers reduced on only certain goods
Free trade area (FTA)
When multiple countries agree to reduce/eliminate barriers on all goods traded between eachother
Customs union
Removal of tariff barriers between countries and a common tariff put on all non-members, so the group operates as one in trade negotiations
Common market
Members trade freely with no barriers on goods, services, and LABOUR, common tariff on all non-members, aims to create a single economy
Difference between this and customs unions is that labour can travel freely
Monetary union
Multiple countries with a single currency and exchange rate monitored by one, or multiple banks with very coordinated monetary policy
Benefits of monetary unions
- Reduced exchange rate costs between countries
- Easier to compare prices, making it harder fpr MNCs to price discriminate
