The Global Economy Flashcards
What is globalization?
Globalisation involves the growing interconnectedness of economies through the exchange of goods and services across borders.
What are tarrifs?
They are taxes on imports, used to give home products a price advantage and to raise revenue.
What are Quotas?
It is the physical limit on the quantity of a good that can be imported into a country in a given time period.
What are the reasons for globalization?
- Fewer restrictions on trade
- Better, quicker and cheaper transport
- Better quicker and cheaper communication
- Multinational Corporations
Wanting to sell more overseas as domestic markets may be saturated.
What are Multinational Corporations (MNCs)?
Are businesses with production or marketing operations in other countries as well as their home.
What is a saturated market?
market in which there is more of a product for sale than people that want to buy.
What are the impacts of globalization and global companies on individual countries?
- Host country can experience increase in GDP.
- Business developments done by global companies can result in economic growth and raise living standards for people in the country.
- Output generated by global company is counted as output by the host country, therefore if output is sold overseas, it counts as an export for the host country. This improves their current balance.
What are the impacts of globalization and global companies on governments?
Profits made by global companies are taxed by the host nation. This increases tax revenue for the government which can be spent to improve government services or lower taxes.
What are the impacts of globalization and global companies on producers?
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Access to Larger Markets
Global markets are much bigger than domestic markets= opportunity to increase sales. -
Lower Costs
By selling more output to larger markets, they can lower their costs= EOS. -
Access to Labour
Globalization=free movement of labour. Larger pool of workers to choose from. Wage costs are also lower. -
Reduced Taxation
Global businesses can reduce the amount of tax they pay by setting up HQ in low tax country.
What are the impacts of globalization and global companies on consumers?
- Increased choice of products
- Lower costs of communication and transport= lower prices for consumers.
What are the impacts of globalization and global companies on workers?
- Creates new jobs
- Freedom to migrate to developed countries.
- MNCS tend to locate in areas with lower wage costs, therefore some workers are disadvantaged.
What are the impacts of globalization and global companies on the environment?
Global economic growth means more environmental damage. Multinationals or global companies may use up large amounts of non-renewable resources which are harmful for the environment. Furthermore global economic growth will result in more vehicles being purchased and more flights taken = more CO2 emissions.
What is foriegn direct investment (FDI)?
FDI, or inward investment, occurs when a company makes an investment in a foreign country.
What are the reasons for the emergence of MNCS/FDI?
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EOS
Firms that sell to global markets produce more than those who sell to domestic markets, therefore they can lower costs. They can pressure suppliers to lower prices. -
Access to natural resources/ cheap materials
They can shop around many countries for the best bargains in raw materials, components or even labour. -
Lower transport and communication costs
Reductions in trade barriers and transport costs have made it easier for firms to benefit from operating in more than one country. -
Access to more customers in different regions
MNCS can sell far more goods and services in global markets than in domestic markets, therefore earning much more revenue/profit.
What are the advantages of MNCS/FDI?
- Job Creation
- Increased choices for consumers
- Technology transfer to host country
- Host country labour employed by MNCS are trained and skills are developed
- Increased tax revenue for host government
- Improvement in current balance for government if local goods are exported
What are the disadvantages of MNCS/FDI?
- MNCS drawn by cheap labour may only offer unskilled jobs, poor working conditions and low wages
- Local firms may be unable to compete and shut down
- MNCS might corner scarce resources or cause environmental problems
- Tax avoidance
- Moving profits abroad (back to developed country)
What is free trade?
Means allowing trade without imposing barriers or tariffs to restrict the flow of goods and services.
What are the benefits of free trade?
- increased choice and lower prices for consumers
- Wider markets for businesses to find cheaper/better suppliers = EOS
- Countries can specialise in what they are good at and sell to overseas markets
What are the disadvantages of free trade?
-
Negative impact on current account
as imports may be cheaper and more attractive to customers -
Countries too dependent on a narrow range of goods
can be at risk from changing demand patterns= unemployment for industry** -
Unemployment can occur in a industry in a country
if a foreign country has cheaper prices for the same industry
What is protectionism?
Approach used by governments to protect domestic producers.
