International Trade & Globalisation Flashcards
What is Specialisation & National Specialisation
SPECIALISATION:
When individuals, firms & economies concentrate on the production of a particular good or service
NATIONAL SPECIALISATION:
When an economy concentrates its production on a small range of goods & service to exploit cost advantages & the availability of resources
Advantages & Disadvantages of National Specialisation
BENEFITS:
Allows to increase production potential, as instead of producing goods you’re not good at making, you can trade
Internal & External EOS of a small range of goods reduce costs
DISADVANTAGES:
Overspecialisation means economy is more reliant on trade, so trade wars are dangerous
If demand for your specialised product falls, you’re screwed
Definition of Globalisation
The merging of economies into one global economy. This happens due to development of technology in communications & transportation.
Definition of MNC & Why they Exist
A multinational corporation is a firm who operates in several economies but is headquartered in one. Corporations do this to get access to greater markets or more skilled/cheaper labour.
Benefits & Costs of MNCs to Host Country
BENEFITS
They generate job opportunities for the host country, produce tax revenue for the host country and increases consumer choice. Theoretically, it also has the spill over effect, where the company trains skilled labour, which spreads to other parts of the economy.
DISADVANTAGES
‘Crowding out’ where MNCs outcompete local businesses due to having greater EOS and access to resources.
‘Ring fencing’, where they don’t interact with the local economy and import resources & labour.
‘Race to the Bottom’ is when countries, in an effort to keep the MNCs in their country, offer concessions, which reduces any benefit and gives them leverage.
Effects of MNCs to Home Country
Loss of Employment
Loss of Tax Revenue
More vulnerable to foreign events
What is Free Trade?
Free trade is trade between economies without government intervention
What are the Benefits & Costs of Free Trade
ADVANTAGES:
Consumer Choice
Lower Prices
Better access to raw materials
DISDADVANTAGES:
Less demand for local goods
Less derived demand for local labour
Tax Revenue decreases
Workers become deskilled in other areas (No Car Industry = No Car Mechanics)
Worsens Balance of Payments
Methods of Protectionism
Tariffs (Tax on foreign goods)
Quotas (Limit on foreign goods)
Embargoes (Ban on foreign goods)
Trade Subsidies (Subsidies for local goods)
Administrative Barriers (Making it harder for foreign goods to be imported)
Reasons for Protectionism
To protect jobs (Increases derived demand)
To develop infant industries (Gives them the capacity to compete against more established industries)
To Protect declining industries (Gives them the time they need to become competitive)
National Security (Trade Wars don’t murder you)
Consequences for Protectionism
Firms become Inefficient (Makes it too easy and lack of competition)
Cause retaliation (No one wants to be tariffed)
What are Exchange Rates
The value of a currency in terms of another currency
Floating Vs Fixed Exchange Rates
FLOATING EXCHANGE RATES:
The market determines the value of a currency through supply & demand, without the government intervening
FIXED EXCHANGE RATES:
Deliberate attempts by a government to fix the value of its currency against another
What determines demand for a currency?
Demand for Exports (Including Tourism)
Interest Rates (People want to trade for your currency and store it in banks to earn money)
Speculation (Trying to make money based on short-term changes in value)
Investment (Spending by MNCs, as they need to use your currency)
Effect of Exchanging Currency
If you exchange one USD for one CAD, you increase the demand for CAD and increase the supply of USD, thereby increasing the value of the CAD decreasing the value of the USD.
