4.2.6 — International Economy Flashcards
(92 cards)
1
Q
Define globalisation
A
The process of an ever increasing integration of the worlds local, regional and National economies into a single international market (time-space compression)
2
Q
What does globalisation encompass?
A
- free trade of goods and services
- free movement of capital and Labour - free interchange of technology and intellectual capital
3
Q
What has the spread of globalisation caused for countries?
A
- more trade
- more transfer of capital including FDI
- brands developed globally
- Labour divided between several countries
- more migration
- more countries participating in global trade i.e China
- countries are more interdependent
4
Q
What factors have contributed towards globalisation is the past 50 years?
A
-
trade in goods:
Developing nations have acquired capital and knowledge to manufacture goods making it more efficient to transfer goods across international borders — offshoring / outsourcing to cheaper labour -
trade in services:
I.e trade of tourism, call centre services etc had increased from developing countries to developed countries -
trade liberalisation:
The growing strength and influence of organisations i.e WTO (who advocates free trade) has contributed to the decline in trade barrier -
multinational corporations (MNC’s):
Organisations which own or control the production of goods / services have used marketing to become global. They have been able to take advantage of EOS which lowers cost of production -
international financial flows:
The flow of FDI over international borders has increased; more investment in factories abroad -
communications and IT:
The spread of IT has resulted in faster communications and increased interconnectedness -
containerisation:
It has become cheaper to ship goods across the globe — causes lower, competitive prices. Containerisation means goods are distributed in standard sized containers making it easier to transport. MNC’s can exploit this -
Tech change:
Reduced cost of transmitting and communicating info
5
Q
What are some of consequences of globalisation? (Think individual countries, governments, producers + consumers, workers and the environment)
A
-
Individual countries
- There may be trade imbalances I.e between US runs a large current account deficit with China
- There could be imbalances and inequalities in access to health, education and markets.
- culture erosion
- inequality gaps -
Governments
-some govs may lose sovereignty due to increase in international treaties -
Producers and consumers
- consumers and producers can earn the benefits of specialisation and EOS
- firms operate in a more competitive environment — lowers costs and more competitive. Firms can offshore / outsource
- globalisation leads to higher GDP: increases living standards and lifts people out of absolute poverty
- wider range of goods and services for consumers -
Workers
- can take advantage of employment opportunities across the globe
- may result in structural unemployment
- shift from primary / secondary to tertiary / quaternary jobs
-TNC’s could exploit workers -
The environment
- higher pollution levels
- consumers may become more environmentally conscious
- deforestation, water scarcity, land degradation etc
6
Q
What has globalisation led to?
A
- outsourcing
- brands
- exploitation
- growth
- poverty
- monopoly power
- exploitation
- terrorism
7
Q
What are the benefits and drawbacks of globalisation?
A
Benefits
- easier communications
- faster delivery — containerisation
- travel and tourism
- easier access to info online and education for all
- free trade
- EOS
- increased competition: lower prices
- remittances
Drawbacks
- pandemic
- terrorism
- proxy war
- cyber crime
- cultural erosion: homogenous markets
- exploitation of workers
- environmental impact
- tax competition and avoidance
8
Q
What is the role of TNC’s in globalisation?
A
- spread westernisation
- relocate and manufacture in developing countries providing jobs and training etc
- innovating and inventing
- increase employment — driving economic development and activity
- encourage trade
- have global reach
- competition from TNC’s acts as incentive to domestic firms
9
Q
What does comparative advantage enable countries to do?
A
Specialise in production — increases economic welfare
10
Q
What is the model of the comparative advantage?
A
When countries give up producing less of another good than another country, using the same resources
11
Q
What are the negatives for the host countries of TNC’s?
A
- domestic businesses may not be able to compete and could fail
- TNC’s may not feel the need to meet the host countries expectations for acting ethically
- could impose their culture / ideologies onto the host country
- may mislead people into consuming demerit goods / goods with negative externalities
- profits may be remitted back to the TNC’s base country
- tax avoidance
12
Q
What are the economic benefits of free trade?
A
- countries can exploit their comparative advantage
> higher output using fewer resources and increased world GDP: improves living standards - increased economic efficiency
> established competitive markets — lowers production costs + increases output - there is trade creation because there are fewer barriers
> more consumption and large increases in economic welfare - more exports: higher rates of economic growth
- by specialising countries can exploit EOS
> lowers average costs - increased competition
13
Q
What are some drawbacks of international trade?
A
- free trade has resulted in job losses
> outsourcing means cheaper alternatives - free trade may have contributed to environmental damage
> increase in pollution from manufacturing
14
Q
What are some reasons for a change in the pattern of trade between the UK and other countries?
A
-
Comparative advantage:
Recent growth in exports of manufactured goods from developing nations to developed nations; cheaper foreign alternatives and decline in industrial sector in the UK -
Impact of emerging economies:
The collapse of communism has meant more countries are participating in world trade (particularly developing ones)
China and India invest heavily in Africa in return for natural resources -
Growth of trade blocs and bilateral trade agreements:
Heightened trade between members of blocs -
Changes in relative exchange rates:
UK’s current account deficit could be down to the strength of the pound compared to the euro
15
Q
Define trade creation
A
This occurs when a country consumes more imports from a low cost producer, and fewer from a high cost producer
16
Q
Define trade diversion
A
This occurs when trade shifts to a less efficient producer
17
Q
Define protectionism
A
The act of guarding a countries industries from foreign competition
18
Q
List the 5 methods of protectionism and their impact: (import controls)
A
-
Tariffs:
Taxes on imports to a country would likely see that the quantity demanded for domestic goods increases -
Quotas:
A limit on the quantity of foreign produced goods that are sold on the domestic market may lead to a price rise for domestic consumers (less supply) so they become worse off -
Export subsidies:
This form of government intervention may encourage goods to be exported rather than sold on domestic markets resulting in the Gov using tax relief, cheap access to credit etc -
Embargoes:
This complete ban on trade with a particular country may politically influence relations and suppress nations who have opposing ideologies -
Excessive administrative burdens (‘Red Tape’)
The increased cost of trading discourages imports — makes it difficult to trade with countries imposing red tape (particularly harmful to developing countries)
19
Q
What are the main causes for countries adopting protectionist policies?
A
If a country were to impose several protectionist measures, their trade deficit would reduce as they will be importing less due to tariffs etc
> infant industries may need protecting in the short term until the industry develops
> could be used to correct market failure by dealing with demerit goods
> could be used to protect domestic jobs
> could be imposed to improve the current account deficit
20
Q
What are the main consequences of countries adopting protectionist policies?
A
> could distort markets and lead to a loss of allocative efficiency — prevents industries from competing and so there is a loss of consumer welfare
> imposes an extra cost on exporters, which could lower output and damage the economy
> tariffs are regressive and most damaging to those on low incomes
> could lead to Gov failure
21
Q
What are the main features of a customs union?
A
- countries in a customs union have established a common trade policy with the rest of the world
- free trade between members i.e EU
- common markets establish free trade in goods and services, a common external tariff and allow free movement of capital / Labour across borders
- common trade policy
- safety measures for imported goods i.e for food
22
Q
What are the main characteristics of a single European market (SEM)?
A
- free movement of goods, services, capital and Labour between nations
- administrative provisions, laws and regulators are approximated between member nations
- competition policy is common across the whole of the EU
- common external tariffs
23
Q
List and describe some of the consequences for the UK for its membership of the EU
A
-
Trade creation and trade diversion:
With more trade blocs, trade has been created between members but diverted from elsewhere
> usually, a country might stop importing from a cheaper producer outside a trading bloc to a more expensive one inside the bloc
> protectionist barriers are often imposed on countries who are not members, meaning trade is diverted from members outside the bloc to producers within the trading bloc -
Reduced transaction costs:
Since there are no barriers to trade or no border controls, it is cheaper and simpler to trade -
EOS:
Firms can take advantage of a larger potential market in which to trade
> by specialising, firms and countries can exploit their comparative advantage so the gains of efficiency and advanced technology can be reaped -
Enhanced competition:
Since firms operate in a more competitive environment, they become more efficient and there is better allocation of resources -
Migration:
By being a member of a customs union, the supply of labour is increased
> could help fill labour shortages although it may mean some countries lose their best workers
24
Q
What is the role of the WTO in trade liberalisation?
A
The WTO promotes world trade via reducing trade barriers and policing existing agreements. It also settles disputes by acting as the judge and organises trade negotiations.
- Every member of the WTO must follow the rules (161 member states as of 2015).
> if rules are broken sanctions must follow
25
Explain some possible conflicts between regional trade agreements and the WTO
- trading blocs might distort world trade or adversely affect those who don’t belong to them
> could be an inefficient allocation of resources
- conflicts between blocs could lead to a rise in protectionism. A common external tariff contradicts the WTO’s principles: protectionist barriers are imposed on those who aren’t members
- some countries may argue the WTO is too powerful, or that it ignores problems of developing countries
- setting up a customs union or a free trade area could be seen to violate the WTO’s principle of having all trade partners treated equally
26
What is the impact of investment flows between countries on the balance of payments?
**Investment from abroad could lead to:**
- higher wages
- improved working conditions
- increased demand for the currency in the receiving country
> raises exchange rate, improving the current account balance
**Investment in other countries**:
- deficit increases as money flows out of the economy
27
What is the significance of deficits and surpluses for an individual economy?
- if imported raw materials are expensive, there could be cost push inflation
28
How could the 3 macro policies be used to correct a balance of payments deficit or surplus?
1. **Fiscal policy;**
- If there is a deficit on the current account, income tax could be increased
> reduce the amount of disposable income
> Govs could reduce spending — reduce AD
> fiscal policy only effective in the short term
> if green taxes are implemented, competitiveness of domestic firms could be compromised: could reduce exports
2. **Monetary Policy;**
Expenditure-reducing and expenditure-switching:
Expenditure reducing policies aim to reduce demand in the economy
Expenditure switching policies aim to switch consumer spending towards domestic goods
> if there is a current account deficit, bank might lower IR to cause depreciation in the currency
> changing the exchange rate could be a Gov expenditure-switching policy, however it is hard to control the supply of money in reality
3. **Supply side policies;**
> could help to increase productivity as there is more spending on education and training — more internationally competitive
> rise in exports, however there is a time lag
> could help to make the domestic economy attractive to investors
> domestic economy becomes more competitive via deregulation and privatisation which forces firms to lower average costs
> if govs provide subsidies to some industries there could be retaliation from foreign countries
29
Define economic integration
Process by which different countries agree to remove trade barriers between them
> blurs boundaries that separate economic activity in one nation state from another
30
Why could expensive, imported raw materials cause cost push inflation?
Since firms face higher production costs
31
What is the significance of deficits and surpluses for an individual economy?
- international trade has meant countries have become interdependent
> economic conditions in one country affects others as the quantity they export or import will change
- surpluses or deficits could indicate an unbalanced economy, as it could mean the country is too reliant on other countries for their own growth
- it could be difficult to attract sufficient financial flows in order to finance a current account deficit — may make it unsustainable in the long run
32
What are some of the global implications when a major economy / economies with imbalances decides to take corrective action? (Consider US China example, Eurozone)
- it could become difficult to finance deficits in the long run
> in the US, the current account deficit is financed by Chinese investors buying US securities at low IR. — if the Chinese lose confidence they would stop buying US debt, causing IR increase
- in the Eurozone, current account deficits are of greater concern because the countries have fixed exchange rates — they can’t devalue the currency to restore their level of competitiveness
- since 2006 the US deficit with China narrowed and China’s surplus also fell. — a surplus indicates low consumer spending and low savings ratio putting China at risk of having unsustainable economic growth
> now Gov aims to grow the economy using domestic spending rather than exports
33
Define the exchange rate of a currency
The weight of one currency relative to another
34
What is a floating system and how does it influence an exchange rate?
**Floating:** the value of the exchange rate in a floating system is determined by the forces of supply and demand
I.e when demand increases D1 to D2, the exchange rate appreciates from P1 to P2
35
How can we calculate the demand for a currency?
Exports plus capital inflows
36
How can we calculate the supply of a currency?
Imports plus capital outflows
37
What is a fixed system and how does it influence an exchange rate?
**Fixed:** has a value determined by the government compared to other currencies
The supply of the currency can be manipulated by the central bank, which can buy or sell the currency to change the price to whatever they want.
I.e a supply increase S1 to S2 (from selling the currency) means there is higher quantity Q1 to Q3 being sold. The currency depreciates in price P1 to P3 as a result which makes exports more competitive
38
What is a managed system and how does it influence an exchange rate?
**Managed:** combined characteristics of fixed and floating exchange rate systems
> currency fluctuates, but it doesn’t float on a fully free market — this is when the exchange rate floats but central banks influence the ER
I.e the Japanese central bank has attempted to make exports more competitive by manipulating the yen (even though it floats on the market)
39
What have the chinese done to their exchange rates to make their exports seem cheaper than the USA’s?
They maintained an undervalued fixed exchange rate (Yuan): they bought US dollar assets to make their exports seem relatively cheaper
40
How do IR influence ER?
An increase in IR (relative to other countries) makes it more attractive to invest funds into a country as the rate of return on investment increases
> higher demand for the currency
> causes appreciation
AKA **hot money**
41
How does quantitative easing influence ER?
When banks need to stimulate the economy they can introduce inflationary effects (more money supply)
> will reduce the value of the currency
42
How do foreign currency transactions influence ER?
BofE uses this to manage the UK’s gold and foreign currency reserves as well as managing the MPC’s pool of foreign currency reserves
> involves buying and selling foreign currency to manipulate domestic currency
43
What are the advantages of fixed ER systems?
- allows firms to plan for investment, as they know they will not be affected by harsh fluctuations in the ER
- gives monetary policy a focussed target to work towards
- anti-inflationary
- offers certainty and stability
44
What are the advantages of floating ER systems?
- ER automatically adjusts to economic shocks
- gives the monetary policy more freedom to focus on other macro objectives
- resource allocation
- inflation
45
What are the disadvantages of fixed ER systems?
- the Gov and BofE don’t necessarily know better than the market where the currency should be
- BOP doesn’t automatically adjust for economic shocks
- it can be costly and difficult for gov to hold large reserves of foreign currencies
- continued overvaluation/ undervaluation leads to a misallocation of resources
- ties up resources to maintain high levels of foreign currency reserves
46
What are the disadvantages of floating ER systems?
- fluctuations in prices of ER can be unpredictable, making planning for investment difficult
- it can affect exports and imports which could cause unemployment
- it could make the ER vulnerable to speculative shocks
- cost push inflation
- demand pull inflation
47
What is a monetary union / what do it’s members share?
Members share the same currency (more economically integrated than a customs union and free trade area)
I.e Eurozone
48
What year was the euro implemented?
1999
49
What other 2 currencies does the Euro float against?
The US Dollar and Pound Sterling
50
What are members of monetary unions required to do? (4 criteria)
1. Member nations must control their Gov finances so that budget deficits cannot exceed 3% of GDP
2. Gross national debt must be below 6% of GDP
3. Inflation has to be below 1.5% of the three lowest inflation countries
4. Average Gov bond yield has to be below 2% of the yield of countries with low IR (ensures ER stability)
51
When is the optimal currency zone created?
When countries achieve real convergence
> member countries have to respond similarly to external shocks or policy changes: has to be flexibility in product and labour markets — could be via geographical or occupational mobility of labour, and wage and price flexibility in labour markets
52
What are the advantages and disadvantages of a country joining a currency union i.e Eurozone
**Advantages:**
- participating countries have more currency stability — less prone to speculative shocks (gives markets more certainty)
> more investment etc
- few admin frees and less red tape when travelling abroad / exchanging money
- benefits small firms which trade with different member states
- German monetary credibility might result in all member states having a lower IR
> encourages investment
> creates jobs
**Disadvantages:**
- Labour mobility is limited across Europe due to language barriers
- ER is not flexible to meet each countries needs I.e if they need a boost in exports
- member nations lose sovereignty when there is a common monetary union, meaning countries with strong economies have to cooperate with weaker ones
- the one off cost of joining may be significant
53
Define economic growth
The increase in a country’s real national output — caused by an increase in the quality or quantity of FOP which causes an outward shift in the PPF
54
Define economic development
This refers to living standards, life expectancy etc (HDI factors) but it also concerns sustainability for the future
55
Are economic growth and economic development measured using quantitative or qualitative factors?
Economic growth: quantitative
Economic development: qualitative
56
What are some typical characteristics of LIC’s?
- low life expectancies
- high mortality rates
- high dependency ratio
- low GDP
- fast population growth
- low levels of education
- poor standard of living
- poor nutrition, lack of access to clean, safe drinking water and a lack of sanitation
- poor health care provision
57
What are some indicators of economic development?
- **HPI (Human Poverty Index):**
Measures life expectancy, education etc: POVERTY
- **GDI (Gender Development Index:**
Measures the relative inequality between men and women: considers HDI with for the 2 genders
- **HDI (Human Development Index)**
58
What are the 3 components of the HDI and how are they measured?
1. **Education** (combination of the mean number of years of schooling and the expected years of schooling)
2. **Life expectancy**
3. **Standard of living**
Measured by real GNI at purchasing power parity PPP per capita
59
What does HDI measure?
Economic and social welfare of countries over time
60
List some advantages of using HDI to compare levels of development between countries over time?
- HDI allows for comparisons between countries to be made, based upon which countries are generally more developed than others
> provides a broader comparison than GDP
- education and health are important, as they indicate the country’s infrastructure and opportunities — shows how successful Gov policies are
61
List some disadvantages of using HDI to compare levels of development between countries over time?
- doesn’t consider how free people are politically, their human rights, gender equality etc
- doesn’t consider the environment
- doesn’t consider the distribution of income (wealth divide between rich and poor)
62
How do market-orientated strategies affect growth and development? (Make the economy more free, with minimum Gov intervention)
1. **Trade liberalisation:**
Free trade occurs: output increases as countries specialise — increases living standards
> economic growth
2. **Promotion of FDI:**
FDI (the flow of capital from one country to another), in order to gain a lasting interest in an enterprise in the foreign country
> helps to create employment
> promotes sustainable long term growth for LIC’s
3. **Removal of Gov Subsidies:**
These could distort price signals by distorting the free market mechanism. > could be argued this leads to Gov failure — inefficient allocation of resources as market mechanism can’t act freely
4. **Floating exchange rates:**
Value of the exchange rate in a floating system is determined by the forces of supply and demand
5. **Microfinance schemes:**
Microfinance involves borrowing small amounts of money from lenders to finance enterprises
> increases the income of those who borrow
> multiplier effect
> usually for unbankable people allowing them to break away from aid and give borrowers financial independence
6. **Privatisation:**
Assets which are transferred from the public sector to the private sector
> firm left to the free market / individuals — can be argued this provides incentives to operate efficiently
> increase economic welfare
(Profit incentive)
63
How do interventionist strategies affect growth and development? (To try and influence growth, and development)
1. **Development of human capital:**
This would improve the economies skills base, improve productivity and allow for advanced tech to be used
> shift from primary / secondary to tertiary + sector jobs
2. **Protectionism:**
> Can help reduce trade deficit — less imports due to tariffs, quotas etc
> Can protect infant industries until they develop before letting the industry trade freely
> could however distort the market and lead to a loss of allocative efficiency as it prevents firms from competing + loss of consumer welfare
> high prices and less variety
3. **Managed exchange rates:**
These combine the characteristics of fixed and floating ER systems — currency fluctuates but it doesn’t float on a fully free market
(It floats on the market but central banks buy and sell currencies to influence ER
4. **Infrastructure development:**
I.e transport, energy, water etc
Higher supply costs delay businesses and it reduces the mobility of labour
5. **Promoting joint ventures with global companies:**
This occurs when a partnership is formed between 2 firms based in multiple countries
> allows the firm to participate in international trade without the responsibilities involved — they help tech knowledge to be transferred
> open up new markets for small firms
> a joint venture with a global company also helps firms to penetrate a foreign market
6. **Buffer stock schemes:**
In the agricultural market, govs might intervene with a buffer stock system to reduce price volatility
> govs buy up harvests during surpluses and then sell the goods onto the market when supplies are low
> helps farmer incomes to remain stable
> increases consumers welfare by ensuring prices are not in excess
Govs might not be able to afford to buy up stock or be able to store it (short shelf life)
64
How does industrialisation affect growth and development? (Lewis model)
**Lewis model** explanation of how a developing country which focuses on agriculture could move towards manufacturing
> there is a surplus of unproductive labour in farming in developing countries. Wages are fixed however, yet workers are attracted to higher wages in manufacturing sector
> in the manufacturing sector, entrepreneurs charge prices above wage rate, allowing them to make profits (which get reinvested)
> demand for Labour increases as the productive capacity of the firm increases
> economy shifts from primary to secondary sector
65
How does the development of tourism affect economic growth and development?
- tourism can help create jobs
> shifts dependancy away from producing primary products — developing countries tend to have a marginal propensity to consume, which could create a multiplier effect
- helps to diversify the economy
- helps to develop infrastructure
- makes the country more attractive to FDI
- could be a method of earning foreign currency
- income from tourism is likely to be sustainable as it relies heavily on the business cycle
- locals may feel stigmatised by tourism, especially if they can’t afford the luxuries which tourists can
66
How does the development of primary industries affect economic growth and development?
- some developing countries have an abundance of raw materials — Govs might choose to exploit this and develop the industry so the country can have a comparative advantage in its production
- primary industries, especially those like farming create most jobs for the population (often the only income to support families) — it is important the industry is supported
67
How do fair trade schemes affect economic growth and development?
- fair trade provides farmers with a guaranteed income and certainty about their sales: they can plan for the future
- can help support community development and social projects
- ensures working conditions meet a minimum standard
- encourages sustainable production, promotes environmental protection, and stops the use of child labour
- critics say the impact of fair trade schemes is insignificant — they argue it is a psychological influence on consumers in developed countries who believe they are helping
- fair trade increases the price of goods I.e cocoa and bananas encourages further production which increased supply — farmers who aren’t on fair trade have to deal with lower market equilibrium price
- could make farmers reliant on the sale of their produce but it promotes self sufficiency
68
How does aid affect economic growth and development?
- consumers in LIC’s have a high propensity to consume than save, due to their limited incomes — aid can therefore fill these saving gaps
- aid could be biast — countries may only offer aid to countries who they want to become friendly with
- countries may get become over reliant on aid
- corrupt leaders may not distribute aid responsibly
69
How does debt relief affect economic growth and development?
**debt relief**: partial or forgiveness of debt (wiping it)
- helps developing countries lift themselves out of poverty
- with high levels of debt, financial resources are diverted from infrastructure, education and healthcare
> if country’s default on their debt, it can make it harder to borrow more money in the future
- debt forgiveness can allow country’s to import more and increase standard of living — improves government finances
- could lead to more corruption if country’s believe they can escape debts
70
List some barriers to growth and development
1. **Primary product dependancy**
Volatility of commodity prices can make it hard for workers to plan for future
2. **Savings gap**
Developing countries’ consumers often can’t afford to save
> insufficient capital accumulation
**HARROD-DOMAR MODEL**: states that investment, saving and technological change are required in an economy for economic growth. The rate of growth increased if the savings ratio increases — leads to higher productivity
3. **Foreign currency gap**
This exists when current account deficit is larger than the value of capital inflows
4. **Capital flight**
When capital and money leave the economy via investment in foreign economies — triggered by an economic threat I.e hyperinflation
5. **Demographic factors**
If there is an ageing population for example, productivity will be low
6. **Debt**
The debt crisis emerging in the developing world threatens the fight against poverty and inequality
7. **Access to credit and banking**
8. **Infrastructure**
Poor infrastructure would discourage TNC’s from offshoring / outsourcing here as there would be higher production costs otherwise
9. **Education / skills**
A skilled workforce is necessary for a productive economy as higher skilled / competitive jobs are accessible — raises standards of living etc
10. **Absence of property rights**
Weak or absent property rights mean entrepreneurs cannot protect their ideas, so they don’t have an incentive to innovate
11. **Corruption**
Corrupt Govs may not invest aid and revenue into infrastructure appropriately
12. **Poor governance / civil war**
Could hold back infrastructure development and is a constraint on future economic development — causes displacement and poverty
13. **Vulnerability to external shocks**
Countries prone to natural hazards, war etc will find it hard to develop infrastructure and get pushed into poverty
71
List some strategies that can be used to promote economic growth and development
- trade liberalisation
- export promotion
- promotion of FDI
- removal of gov subsidies
- floating ER systems
- micro finance schemes
- privatisation
- development of human capital
72
Who was the economist David Ricardo?
Economist best known for his theory of comparative advantage, suggesting that countries should specialise in the production of goods and services in which they have comparative advantage; and trade with other countries for max efficiency
73
Todaro
74
Define inward investment
Investment in a country made by investors outside that country
75
What are some benefits and drawbacks of inward investment?
**Benefits:**
- creates job opportunities
- opportunities to establish new factories in order to expand
- development / research of a fund
**Drawbacks:**
- unsustainable development
- rapidly built infrastructure
- poorly planned projects
- lack of regard for local customs and practices
- impossible for small businesses to match the level and scope of the price of a large corporation which threats the existence and growth of such companies
76
What are the roles of the WTO?
- trade negotiations
- implementation and monitoring
- dispute settlements
- outreach: maintain regular dialogue with NGO’s
77
List some benefits of protectionism?
- employment in domestic country
- infant industries
- strategic trade theory
- sunset industries
- self sufficiency
- agricultural efficiency
78
List some of the highest traded currencies:
- USA dollars
- GBP
- Chinese yuan
- Japanese yen
- Swiss franc
- Australian dollar
- New Zealand dollar
79
What factors affect the supply and demand of currencies?
- weather
- seasonality
- central banks
- economic releases
- geopolitical tensions
- trade
- FDI
- IR changes
80
Why would a country give FDI?
- allows for transfer of technology
- promotes international trade
- important vehicle for economic development
81
What is an undervalued currency?
A currency with an ER lower than it ought to be (when it’s value in foreign exchange is less than it should be based on economic conditions
82
What are the (dis)advantages of an undervalued currency?
**Advantages**
- cheaper exports
> more competitive
> economic growth (AD increase)
**Disadvantages**
- makes imports expensive
> leads to imported inflation
83
Define a currency union
An agreement between a group of countries to share a common currency, and to have a single monetary and foreign exchange rate policy I.e EU
84
What are the 3 policies used to reduce BOP deficits?
1. **Deflation**
EXPENDITURE REDUCING
2. **Direct Controls**
EXPENDITURE SWITCHING
3. **Devaluation**
EXPENDITURE SWITCHING
85
What is the aim of an expenditure reducing policy?
To reduce demand in the economy, so spending on imports falls
86
What is the aim of an expenditure switching policy?
Aim to switch consumer spending towards domestic goods and away from imports
87
What is a positive and a negative of expenditure-switching?
+ve:
Reduction in imports as they are less price competitive
-ve:
Doesn’t rectify the underlying causes of competitiveness
88
What does the Marshall-Lerner Condition state? And what diagram do we use
That when the sum of the export and import price elasticities is greater than unity:
- a fall in the ER can reduce a deficit
- a rise in the ER can reduce a surplus
We use the J-Curve
89
What are the 3 corrective policies to correct a BOP surplus?
1. Reflation
2. Revaluation
3. Removing import controls
90
What 3 factors influence a current account balance (CAB)?
1. **Productivity**
It is crucial to improve productivity in order to improve price and quality of competitiveness of exports
2. **Inflation**
A country’s inflation is relative to trading competitors
3. **Exchange Rates**
Rising ER increases the foreign currency prices of the country’s exports and reduces their competitiveness
91
List the drivers of globalisation
- containerisation
- technological change
- EOS
- opening up of global financial markets
- differences in tax systems
- less protectionism
92
What are the advantages and disadvantages of privatisation?
**Advantages**
- short term revenue raising
- reducing public spending
- promotion of competition
- promotion of efficiency
**Disadvantages**
- privatisation increases monopoly abuse
- ‘selling the family silver’ (argued govs shouldn’t sell off capital assets to fund current spending)
- ‘free lunch syndrome’ (state owned assets are often sold off too cheaply
