Theme 4 - A Global Perspective [INCOMPLETE - MAJORITY] Flashcards
(32 cards)
1
Q
What is globalisation
A
- growing interdependence of countries and the rapid rate of change it brings about
- movement towards free trade of goods and services, labour and capital, and free interchange of technology and intellectual capital
2
Q
What are the factors contributing to globalisation
A
- improvements in transport infrastructure and operations
- improvements in IT and communication
- trade liberalisation (reducing protectionism)
- international financial markets
- TNCs
3
Q
What is the impact of globalisation on consumers
A
- more choice
- lower prices => comparative advantage
- rise in prices => increased incomes so high demand leading to inflation
- consumers worried about loss of culture
4
Q
What is the impact of globalisation on workers
A
- increased levels of both employment and unemployment => large scale job losses in western world in manufacturing sectors as jobs have been transferred to cheaper countries
- increased migration => lower wages
- international competition reduces wages for low skilled workers in developed countries
- wages for high skilled workers increases => inequality
- TNCs provide training and create jobs
5
Q
What is the impact of globalisation on producers
A
- reduced global risk as there are more markets in other countries
- exploit comparative advantage
- access to larger markets
- increased competition => some firms cannot compete
6
Q
What is the impact of globalisation on the government
A
- higher taxes but also tax avoidance
- corruption through TNCs bribing and lobbying government
7
Q
What is the impact of globalisation on the environment
A
- increased demand for raw materials
- more emissions
- world could work together to tackle climate change
8
Q
What is the impact of globalisation on economic growth
A
- increased investment => injection into economy
- introduction of world class management techniques and technology
- trade increases
- political instability
- comparative cost advantages will change over time so companies may leave when it is no longer advantageous
9
Q
What is the theory of absolute and comparative advantage
A
- comparative advantage stats countries find specialisation mutually advantageous if the opportunity costs of production are different
- if opportunity costs is same, there will be no gain from trade
- comparative advantage exists when a country is able to produce a good more cheaply relative to other goods produces
- absolute advantage exists when a country can produce a good more cheaply in absolute terms than another country
10
Q
What are the assumptions and limitations of the comparative and absolute advantage theory
A
- assumes there are no transport costs
- assumes costs are constants => no economies of scale
- goods assumed to be homogenous
- factors of production assumed to be perfectly mobile
- trade taking place depends on terms of trade between the countries
11
Q
What are the advantages of the comparative and absolute advantage theory
A
- shows how world output can be increased
- countries can benefit from economies of scale => reducing costs and global prices
- countries can utilise FoPs they have access to which others do not
- consumers have greater choice => increased welfare
- greater competition => incentive to innovate
12
Q
What are the disadvantages of the comparative and absolute advantage theory
A
- over dependence on countries
- can cause structural unemployment as jobs lost to foreign firms
- environmental will suffer
- loss of sovereignty
- loss of culture
13
Q
What are factors influencing the pattern of trade
A
- comparative advantage
- emerging economies
- trading blocks and bilateral agreements
- relative exchange rates
14
Q
How does comparative advantage influence the pattern of trade
A
- countries will trade where there is a comparative advantage to trading
- change in comparative advantage will affect trade pattern
- recent growth in exports of manufactured goods from developed to developing countries as they received advantage due to low costs
- deindustrialisation of developed countries means manufacturing sector decline and shifted to other countries
- led to industrialisation of developing countries and their share of world trade has risen
15
Q
How do emerging economies influence the pattern of trade
A
- countries grow at different rates and need to import more goods than before as well as export to pay for this
- emerging economies shift trade pattern by taking up larger proportion of country’s imports and exports than previously, e.g. China
- international trade arguably more important for developing countries than developed => contributed towards 20% of LDC economies to 8% of US
- collapse of communism meant more countries participating in world trade
16
Q
How do trading blocs and bilateral trading agreements influence the pattern of trade
A
- these increase level of trade between certain countries thus shifting pattern of trade
- joining EU meant UK traded more with EU countries than previously and less with countries outside EU
17
Q
How do relative exchange rates influence the pattern of trade
A
- exchange rate affects the relative prices of goods between countries
- prices are an important factor in deterring whether consumers buy goods => change in price affects pattern of trade
- can be argued UK’s trade deficit with Europe is due to strength of pound
- China have kept currency weak in order to increase trade surplus by making exports more competitive
18
Q
What is terms of trade
A
- measures rate of exchange of one product for another when two countries trade
- tells us quantity of exports that need to be sold in order to purchase a given level of imports
- movement in ToTs said to be favourable if ToTs increase as country can buy more imports with same level of exports => improvement in ToT
- unfavourable if they decrease, when export prices fall or import prices rice => deterioration
19
Q
How is terms of trade calculated
A
(Average export price index / average import price index) * 100
20
Q
What are factors influencing a country’s terms of trade
A
- improvement of ToT caused by rise in export prices or fall in import prices, deterioration by fall in export prices or rise in import prices
- exchange rates, inflation and changes in demand/supply of imports/exports affect in SR
- improvement in productivity compared to trading partners in LR
- changing incomes => rise in income increases tourism, Prebisch-Singer hypothesis suggests LR price of primary goods decline in proportion to manufactured goods meaning those dependent on primary exports see fall in ToT
21
Q
What are the impacts of changes in terms of trade
A
- if PED is inelastic, favourable movement in ToT would improve current account, if inelastic then favourable movement would worsen current account
- improvement in ToT likely to lead to fall in GDP and rise in unemployment. If caused by rise in export prices, exports fall, if caused by fall in import prices, imports will rise => reduced production => fall in jobs and output. However long term decline in ToT suggests long term decline in living standard
- important to look at cause of damage, if improvement occurred due to increased demand for exports, this is beneficial. If deterioration caused by improvement in international competitiveness, also beneficial. Export and import revenues more important than price
22
Q
What is a trading bloc
A
- group of countries within a geographical region that protect themselves from imports from non-members
- sign an agreement to reduce/eliminate protectionist barriers among themselves
23
Q
What are the different types of trading blocs
A
- preferential trading areas (PTA)
- free trade areas (FTA)
- customs unions
- common markets
- monetary unions
- economic union
24
Q
What is a preferential trading area (PTA)
A
- tariffs and other trade barriers are reduced on some but not all goods traded between member countries
25
What is a free trade area (FTA)
- occur when two or more countries in a region agree to reduce/eliminate trade barriers on all goods from other members
- each member is able to impose its own tariffs and quotas on goods it imports from outside the trading bloc
26
What is a customs union
- involves removal of tariff barriers between members and acceptance of common external tariff against non-members
- means members may negotiate as a single bloc with third parties
27
What is a common market
- first step towards full economic integration
- occurs when members trade freely in all economic resources so barriers to trade are removed
- impose common external tariff on imported goods from outside markets
- to be successful, there must be a significant level of harmonisation of micro economic policies, common rules regarding monopoly power and anti competitive practices and removal of custom posts
- may also be common policies affecting key industries
28
What is a monetary union
- two or more countries with single currency with exchange rate that is monitored and controlled by one/several central banks with closely coordinated monetary policy
- good since they mean prices are fixed and there are reduced exchange rate costs
- becomes easier for price comparison and MNCs are less able to price discriminate
- however there are financial costs involved with starting new currency and there would be costs if union broke up
- loss of policy independence, countries unable to change value of currency
29
What is an example of a monetary union
- Eurozone
- European Central Bank distributes cash, sets interest rates, maintains stable financial situation and manages foreign currency reserves
- in the EU, governments agreed not to exceed a fiscal deficit of more than 3£ and not to have a national debt of more than 60%
30
What is an economic union
- final step of economic integration
- there will be a common market with coordination of social, fiscal and monetary policy
31
What are the advantages of trading blocs
- free trade encourages specialisation => increased output (comparative advantage) => EoS
- firms inside bloc are protected
- competition causing innovation and lower prices for consumers
- more jobs
- increased consumer choice
32
What are the disadvantages of trading blocs
- distort world trade => trade diversion
- reduction in competition
- loss of resources => heightens regional inequalities as richest countries experience faster growth
- retaliation => trade disputes
- creation of trade blocs can distract government from gains of signing full free trade agreements
- distribute gains from trade unequally
- less national sovereignty
