International Economy Flashcards
(26 cards)
Causes of globalisation
- Trade liberalisation
- Technological advancements
- Growth of MNCs
- Capital mobility
- Deregulation
- Global institutions
Trade liberalisation
Countries reducing or removing protectionist measures to encourage free trade
Technological advancements
Innovations in communications and transport make it faster and cheaper to connect globally
Growth of MNCs
- Large firms can expand into multiple countries to exploit economies of scale and gain greater access to natural resources
- MNCs establish global supply chains
Capital mobility
- FDI and financial flows move freely across borders
- Investors can fund factories, buy shares and offer loans
Deregulation
The removal of rules restricting business or finance, making it easier for firms to operate and invest internationally
Global institutions
Organisations like the IMO, World Bank and WTO support integration and offer financial support
Characteristics of globalisation
- The free movement of goods, services, capital and labor across borders
- Increasing interdependence between economies
Advantages of globalisation for LDCs
- FDI boosts growth, jobs and infrastructure
- Provides greater access to larger export markets
- Technology and skills transfer
Disadvantages of globalisation for LDCs
- Risk of exploitation
- Dependency on volatile global markets
- Environmental degradation
Advantages of globalisation for MDCs
- Access to cheaper goods and inputs
- Increased profit for firms (offshoring/outsourcing)
- Greater consumer choice
Disadvantages of globalisation for MDCs
- Job losses in manufacturing due to disindustrialisation
- Wage pressure on low-skilled workers
- Growing income inequality
Comparative advantage
If a country can produce a good at a lower opportunity cost than another
Absolute advantage
If a country can produce a good using fewer resources at a lower cost than another country
Free trade
The act of trading between nations without protectionist barriers
Advantages of free trade
- Countries can exploit their comparative advantage, leading to increasing world GDP
- Increased economic efficiency by increasing competition
- Fewer barriers allowing for trade creation, increasing economic welfare
- Increased exports leading to higher rates of economic growth
- Specialisation allowing for economies of scale
Disadvantages of free trade
- Job losses in developed nations as countries with lower labour costs have entered the market
- Contributed to environmental damage due to increased manufacturing
Specialisation
The process by which individuals, firms or countries produce a narrow range of goods/services in which they have an advantage
Changes in the UK pattern of trade
- Globalisation has increased trade links between the UK and emerging markets
- Deindustrialisation as the UK has shifted exports from manufactured goods
- Changes in relative costs
- EU membership/Brexit
- Technological advancements
Tariffs
- A tax on an imported good, raising their price to make domestic products relatively cheaper
- Domestic firms are likely to experience greater demand, increasing domestic employment but leading to inflationary pressure
Tariffs evaluation
- Tariffs protect inefficient industries, reducing long term competitiveness
- Other countries may retaliate with their own tariffs, reducing exports
- The effect depends on the elasticity of demand for imports
Quotas
- A direct limit on the quantity of a good that can be imported
- Reduced supply of foreign goods increase prices, leading to less competition and reduced choices
- Domestic industries can grow in the short term
Quotas evaluation
- They can lead to allocative ineffiency where resources are not be used where they are desired
- Foreign producers who secure quota access can earn higher profits due to scarcity pricing
- High administrative costs to monitor quotas
- May lead to retaliation, harming exports
Export subsidies
- Government payments to domestic firms
- Encourages firms to sell goods abroad more cheaply, increasing exports and improving the trade balance
- Higher employment in export industries, boosting economic growth
