Globalisation Flashcards
What is globalisation?
an increase in interconnectedness ad interdependence of economic activity and social relations
what is protectionism?
artificial barriers to international trade eg tariffs and quotas
What are the main causes of globalisation?
- the want for increasing sale and profits
- lower barriers to trade
- governments want to encourage domestic business to expand
- rising living standards
- less protectionism
- lower transport costs
- digital communication
- market liberalisation
- diverging consumer needs
alternative ways of going global?
- establish production sites overseas
- license technology
- joint ventures
- franchising
- offshoring , outsourcing
- selling direct via e-commerce
what is fragmentation?
the geographic separation of activities involved in producing a good across 2 or more countries to the location with the lowest costs
advantages of globalisation?
- gains from free trade through comparative advantage
- rapid growth leading to higher living standards and less absolute poverty
- increased real output generates employment
- access to larger markets allows firms to cut costs through offshoring and EOS
- access to global capital markets and FDI promotes investment and so greater potential growth
- faster pace of technological diffusion
disadvantages of globalisation?
- risks of rapid transmission shocks (credit crunch)
- rising inequality within countries as employees compete internationally with low wage economies
- exploitation of workers and the environment
- increased migration and pressure on social security
- external costs of trade
- unemployment as jobs are outsourced
what is factor endowment?
countries have different factors of production in different quantities and of different qualities due to:
- weather
- location
- population
- eductaion levels
- natual mineral deposits
what is an absolute advantage?
who makes the most output
what is a comparative advantage?
a countries ability to produce at a lower opportunity cost than another country, usually when a country is more productively efficient than another country
Evaluations of the theory of comparative advantage?
- assumes that factors of prod are equally productive (some workers are more productive than others)
- assumes that factors can easily be switched from the production of one product to another
- assumes there is only one model of a product but we know there are many different products
- doesn’t take into account production costs
- exchange rate fluctuations are ignored
- even if a country is specialised in the production of a good they may not necessarily export it
what are the arguments for protectionism?
- infant industry argument
- protect against dumping
- protect domestic employment
- protect against “unfair” low labour cost abroad
- protect product standard
- to raise govt revenue
- improve a current account deficit
- avoid the risk of overspecialisation
what are the main methods of trade barriers?
- tariffs
- quotas
- voluntary export restraint agreements
- embargoes
- subsidies
- export subsidies
- import licensing systems
- exchange controls
what is dumping?
A company exports a product at a price below their cost of production or lower than their home market price
why might firms “dump” their products?
- establish a market position in a foreign market
- cut their losses
advantages of tariffs?
- tax revenue
- creates and protects domestic jobs
disadvantages of tariffs?
- could be inflationary
- loss of consumer surplus
- appreciates the exchange rate (spiced decreases the price of imports which negates the effects of tariffs)
