Global economics RWE Flashcards
(50 cards)
Foreign Exchange
Ghana selling Cacao to the Netherlands allows them to have euros which they can then use, they don’t have a convertible and trusted currency so need foreign exchange
Countries relying on trade
Singapore due to poor natural land endowments
Low Labour Costs
China have labour costs more than 40% the United States labour costs
Economies of scale and protecting infant industries
Due to the large economies of scales through infrastructure in all types of petrol production when Saudi Arabia diversified into petrochemical production rather than extraction, in 2 years they very quickly managed to be one of the largest producers of it. Hence need to protect infant industries in other countries from countries with large EoS (but comparative advantage is in Saudi Arabia so which is more important global efficiency or domestic growth)
Diversification and reliance on one export
Malaysia relied heavily on natural rubber exports however once synthetic rubber started to be economically viable to make they suddenly lost a lot of economic growth due to their exports greatly reducing (don’t always rely on natural endowments) with their economic growth slowing down from 6-4% until they got into palm oil (diversification and natural endowments) and specialised into that allowing their economic growth to surge back up to around 8% in the 1990s following the fall in economic growth
Protecting Product Standards
The EU banned US beef imports due to the treatment of this beef with excess hormones that decreased its quality in the 1980s
Subsidies and dumping
in the 2000s the EU subsidised over €4b annually into cotton farmers which then dumped these low-cost cotton onto African countries which destroyed the home markets, not allowing them to take advantage of their comparative advantage due to the natural endowments of their country due to the climate especially in LICs like Mali where cotton production contributed to around 10% of their GDP it had much larger impacts
Tariffs raising government revenue
in the 1800s in America where tax revenue was predominantly from tariffs rather then direct taxes (which trump is trying to turn back to but is much harder in the current global market due to a much higher government cost and influence)
PTA and FTA
ASEAN (Association of Southeast Asian Nations) PTA increasing trade by 50% from 2010-2020 and the ASEAN FTA which although allowed for more FDI, nearing $200b in 2019, due to the business friendly environment it also caused too rapid industrialisation and led to low environmental concerns and regulations
Lack of monetary sovereignty in the EU
Romania had an inflation of around 5%, needing higher interest rates, whilst Ireland had inflation of around 0% at the same time, needing lower interest rates, showing the need for independence in 2024
Trade Creation / Trade diversion
Spain joined the EEC (prior to the EU) in the 1980s creating huge expansion as high tariffs were dropped and Spains GDP quintupled in 20yrs whilst HDI also increased by over 0.1 signalling great economic development / UK joined the EEC in the 1970s but led to higher prices especially with commonwealth countries which led to a slow down in GDP growth by an avg 1% (not that much) and an increase in their Gini coefficient by 0.04
Trade deals outside the WTO
The Transatlantic trade and investment partnership (TTIP) between the EU and the USA
Problems with a persistent current account deficit
Solutions Being Bad:
Official reserves account to solve using foreign currencies like Gold allows no backing for domestic currency (Argentina when they experienced hyper inflation and they had nothing to back their currency so huge depreciation)
Decreases monetary sovereignty if interest rates increases.
Also causes more instability as higher levels of debt (not good main cause of Lebanese financial crisis - half GDP in 2 yrs)
Also increases debt (Lebanese financial crisis half GDP in 2yrs not good)
Credit rating decreases as debt builds up (UK when Brexit decreased to AA2 from AA1 which threatened more causing uncertainty and lack of business confidence - spiral - showing that credit rating is important for confidence.
More instability causes capital flight (Thailand experienced this in the Asian Financial Crisis of 1997 which worsened their already dire situation)
Causes of current account deficit;
High foreign ownership of domestic business causes a loss in economic sovereignty, Greece in 2009, leading to restrictive policies that aligned with foreign preferences and didn’t benefit the population leading to slow economic growth afterwards.
High foreign ownership of domestic business also means that when a solution of more debt to fill the deficit gap is introduced then business confidence plummets so all foreign people leave so sudden crash (shows how solution and causes work together to form a horror situation so you really don’t wanna be in that situation)
Structural causes of persistent current account surpluses
Long-run competitiveness in South Korea with electronics ; High savings ratio in Germany with 11% disposable income : personal savings ratio resulting in long-term current account surpluses ; Rise in price of inelastic exported goods (Russia in natural gas and oil after Other natural gas providers after russian invasion of Ukraine 2022) ; Good R&D (Singapore)
Cyclical causes of persistent of current account surpluses
Depreciation of a currency (Argentina) ; Increase in foreign consumer demand (South Korea with electronics) ; Increased income investment and current transfers (remittances in India are now at $125 billion annually (12.5% increase from last year))
Positives of current account surpluses
Allow to put money into Sovereign Wealth Funds (China has four funds notably the China investment corporation (CIC) and hold $1.5t in all of these SWFs combined) ; Appreciation of a currency as more foreign demand decreasing export revenues but more safe haven (Switzerland beneficial as increases their reputation which is much more crucial then there exporting sector which isn’t as large as its banking and financial sector allows that to have long-term reputation to build up)
Negatives of current account surpluses
Appreciation of currency means bad for exporting heavy countries lies China for example and can lead to retaliation (Trump as he has claimed that other countries are benefiting from USA as they have budget surpluses with the USA)
Population trap due to trying to increase population to increase economic growth
Canada huge population trap for many years causing 10% of Canadians to live under the national poverty line
Land Reclamation
Netherlands and Singapore through projects aiming to build on water
Business retraining
Amazons 2025 upskilling initiative investing $700m to upskill 100,000 employees
Capital Widening
Indias projects like the PMGSY aiming to support the growing population especially in rural areas through irrigation and more infrastructure for it
Capital Deepening
South Korea investing in Advanced Manufacturing in the smartphone industry via advancing its semiconductor manufacturing sector
Improving banking systems
Lebanon from the end of the 20th century to the early 21st century rapidly increased their banking and financial sector (although the debt built up from this caused it’s crash from 2019-2021 it still caused benefits whilst it was there)
SDGs
No poverty no1 (half all people living in poverty in all its dimensions and definitions by 2030) ; Quality Education no4 ; Gender Equality no5
