Theme 4 - Globalisation and Trade Flashcards

Question

cons of being in the EU

Answer 1

💶 1. Loss of Monetary Policy Control Member countries of the EU give up control over their individual monetary policy → European Central Bank (ECB) sets interest rates and monetary policy for the whole Eurozone → Countries like Greece may not have appropriate monetary tools to address their specific economic challenges (e.g. high unemployment or low growth) 📉 2. Fiscal Constraints EU members are bound by fiscal rules, such as the Stability and Growth Pact → Limits on budget deficits and public debt (e.g., 3% of GDP) → Countries like Greece may face difficulty managing their own fiscal policies during economic crises → Forced austerity measures can lead to social unrest and economic contraction 🇬🇷 3. The Greek Sovereign Debt Crisis In the aftermath of the global financial crisis, Greece’s sovereign debt soared → Greece’s membership in the EU and the Eurozone restricted its ability to devalue its currency → Couldn’t adjust its exchange rate to make exports cheaper → EU-imposed austerity policies led to social and economic hardship → Resulted in a severe recession and high unemployment, with long-term negative effects on Greece’s economy 🔒 4. Limited Policy Flexibility for Economic Shocks EU monetary union means member countries can't devalue their currency to respond to economic shocks → Countries like Greece and Portugal were unable to adjust their exchange rates to restore competitiveness after the financial crisis → This worsened the impact of the global recession, as the economies couldn't re-adjust independently 🔄 5. Trade-Off Between Economic Integration and National Sovereignty Countries must comply with EU laws, regulations, and decisions → National sovereignty over economic policy is reduced → Policy decisions are made collectively, often requiring compromises → May not align with the interests of all member states (e.g., Greece and Germany in the context of austerity)

Answer 2

- a theory that derives from a countrys membership of a customs union - movement from high cost domestic producer to a low cost producer inside the customs union

Answer 3

1. Lower Prices for Consumers → Increased Consumer Welfare → Higher Standard of Living Trade creation leads to cheaper imports from more efficient producers → This lowers prices for consumers, as they can now purchase goods at a lower cost compared to domestic alternatives → With reduced spending on goods, consumers have more disposable income, which improves consumer welfare and can contribute to a higher standard of living → Over time, these lower prices also make essential goods more affordable, benefiting the general population and improving overall well-being. 2. Increased Competition → Enhanced Innovation → Higher Quality Products As trade creation opens up the market to new international suppliers, domestic producers face more competition → To stay competitive, firms must innovate and improve product quality to attract consumers → This encourages dynamic efficiency in the economy, as businesses are forced to cut waste, optimize production processes, and offer better products → Over time, this benefits consumers with a wider variety of higher-quality goods at more competitive prices, spurring economic growth. 3. Specialization → Enhanced Comparative Advantage → More Efficient Resource Allocation Trade creation allows countries to specialize in the production of goods in which they have a comparative advantage, i.e., the ability to produce at a lower opportunity cost → As resources are allocated more efficiently, this allows for increased output of goods, making use of each country’s most productive industries → The overall result is higher efficiency in global production, driving global economic growth and improving wealth creation across nations. 4. Economic Growth → Increased Investment → Job Creation With greater market access and trade creation, economies experience higher levels of export growth and are often able to attract foreign investment → Investment flows into sectors where countries have competitive advantages, leading to higher productivity and expanding industries → This, in turn, leads to job creation, both directly in the export industries and indirectly in supporting sectors like logistics, finance, and technology → As a result, economies can experience sustained economic growth and reduced unemployment rates. 5. Strengthened International Relations → Enhanced Political Cooperation → More Opportunities for Collaboration Trade creation often leads to closer economic ties between nations, facilitating stronger diplomatic and political relations → With a vested interest in mutual economic prosperity, countries are more likely to engage in peaceful negotiations and work together on global challenges like climate change, security, and health crises → Enhanced political cooperation can further lead to more opportunities for collaboration in areas like technology exchange and investment in infrastructure, benefiting all involved parties

Answer 4

The benefits of trade creation depend on several factors: Degree of Market Integration: - The extent to which barriers like tariffs and quotas are reduced. More integration leads to greater trade creation and efficiency gains. Comparative Advantage: - Whether countries can truly specialize based on their comparative advantage. The larger the difference in efficiencies, the greater the gains from trade. Market Competitiveness: - The level of competition in domestic and foreign markets. More competitive markets are likely to pass cost savings to consumers through lower prices. Elasticity of Demand and Supply: - If demand for imports and supply of exports are highly elastic, the benefits from trade creation will be more significant, as trade volumes respond strongly to price changes. Initial Trade Barriers: - The higher the initial trade barriers (tariffs, quotas), the larger the potential gains when those barriers are removed.

Answer 5

movement from a low cost foreign producer to a high cost producer within the customs union

Answer 6

loss of EU or the unions efficieny

Answer 7

📉 1. Loss of Efficiency (Welfare Loss) Joining a customs union → Common external tariff placed on cheaper non-member goods → Country imports from a higher-cost member country instead → Global efficiency falls as resources are misallocated 💷 2. Higher Prices for Consumers Cheaper imports from non-members become more expensive due to tariffs → Domestic consumers must now buy more expensive goods from member countries → Cost of living rises and consumer surplus falls → Reduces welfare and may increase inequality 🏭 3. Domestic Firms Face Higher Input Costs Firms previously importing cheaper raw materials or capital from non-members → Now face higher import costs due to trade diversion → Production costs increase → Reduced competitiveness and possibly higher prices passed on to consumers 🌍 4. Strained Relations with Non-Members Trade diverted away from efficient non-member countries → May lead to retaliation or worsened trade relations → Loss of export markets for domestic producers → Could slow growth and reduce geopolitical cooperation 🧮 5. Evaluation: Depends on Trade Creation vs Diversion If trade diversion is small and outweighed by trade creation → Net welfare gain may still occur → If member countries are more efficient than non-members → Then trade diversion impact is limited

Answer 8

💰 1. Elimination of Exchange Rate Risk No exchange rate fluctuations between member countries → Easier and cheaper for businesses to plan and trade → Reduced transaction costs in cross-border trade → Promotes higher levels of intra-union trade and investment 🏦 2. Increased Price Transparency Single currency across member countries → Consumers can easily compare prices between countries → Increases competition within the union → Helps lower prices and improve efficiency in the economy 📉 3. Lower Interest Rates Single currency and stable monetary policy → Central bank focuses on controlling inflation across the union → Lower inflation rates lead to lower interest rates → Encourages investment, spending, and economic growth 🏢 4. Boost to Economic Integration and Investment Single currency reduces currency risk and exchange rate barriers → Increases attractiveness of the monetary union as a trading block → More foreign direct investment (FDI) within the union → Economic growth and higher employment in member countries 📊 5. Stronger Global Presence Unified currency increases the region's global economic influence → Boosts the union’s credibility and stability in the eyes of global investors → Strengthens position in international trade negotiations → Greater economic power on the world stage

Answer 9

❌ 1. Loss of Independent Monetary Policy → No Control Over Interest Rates → Inability to Respond to Domestic Shocks → Prolonged Recessions A country gives up control of its own central bank and shares interest rate policy with other nations. If it faces a domestic recession, it cannot lower interest rates to stimulate demand. The ECB (European Central Bank) may set rates based on conditions in stronger economies like Germany. Weaker members (e.g. Greece, Portugal) may struggle to recover from downturns as a result. 📉 2. No Independent Exchange Rate Policy → Cannot Devalue Currency → Loss of Competitiveness → Worsening Trade Deficits In a monetary union, members use a common currency, so they cannot devalue to boost exports. If unit labour costs are high or inflation is greater than the average, exports become expensive. The country loses price competitiveness in global markets. This can lead to a persistent current account deficit and rising debt. 💰 3. One-Size-Fits-All Monetary Policy → Misaligned Interest Rates → Asset Bubbles or Credit Crunches → Destabilised National Economies Interest rates are set centrally, often not reflecting national inflation or growth rates. For fast-growing economies, interest rates may be too low, encouraging excessive borrowing and inflating asset bubbles. For struggling economies, rates may be too high, causing credit contraction. This divergence can lead to economic imbalances and financial instability. 📊 4. Fiscal Constraints (e.g. Maastricht Criteria) → Limits on Government Spending → Reduced Ability to Stimulate Economy → Austerity Measures Member states must follow rules like keeping debt below 60% of GDP and deficits under 3%. This limits the ability to use expansionary fiscal policy during downturns. Countries may be forced into austerity, cutting public spending when the economy needs a boost. This can worsen unemployment and slow recovery. 🇮🇹 5. Asymmetric Shocks and Structural Imbalances → Some Countries Fall Behind → Rising Tensions and Risk of Political Fragmentation A monetary union lacks a fiscal union, so there are no large-scale transfers to help struggling regions. Poorer or less productive nations may fall further behind the core economies. This fuels resentment and anti-EU sentiment, as seen in countries like Italy and Greece. It threatens the stability and unity of the monetary union over time.

Answer 10

- we assume that an improvement in the terms of trade means a country can buy more imports. this only holds if the improvement in the TOT translates into higher export revenue. only then, the countries purchasing power increases - if a country has high inflation rates, u less the PED of their exports is inelastic, they will not generate a lot of revenue - higher domestic prices make exports more expensive, which could reduce international demand, especially if the exports are not demand inelastic. foreign buyers may switch to alternative suppliers with lower costs - this could offset the gains from better terms of trade, as falling export demand would decrease foreign revenue and might even worsen the trade balance, particularly in competitive global markets

Answer 11

1. Improved international competitiveness - A lower terms of trade often means a country’s export prices have fallen relative to import prices - this can make exports more competitively priced, boosting demand for these goods - increased export volumes could raise overall export revenue 2. Depends on the quantity of exports and imports - the impact of TOT is depends on the relative volume of exports and imports - if the country is exporting a high volume even at lower prices, total export revenue may remain stable or increase - this would allow the country to maintain or improve its trade balance despite a worsening in terms of trade 3. PED - if exports are price elastic, a drop in price could lead to a proportionally larger increase in demand, boosting export revenue - even with a lower terms of trade, overall trade revenue could rise, benefiting economic stability and supporting employment in export sectors

Answer 12

- countries can specialise in goods they have a CA in - they are now consuming/producing more so this means an increase in GDP

Answer 13

🌐 1. Advances in Communication Technology → Faster Global Information Flow → Lower Transaction Costs for Firms → Easier Global Coordination Development of the internet, smartphones, and instant messaging reduced barriers to communication. This allowed real-time information sharing across continents. Businesses can now manage global supply chains and services efficiently. This has encouraged multinational expansion and outsourcing. 🚢 2. Containerisation in Shipping → Lower Transport Costs per Unit → Economies of Scale in Trade → Expansion of Global Trade Volumes Standardised containers allow goods to be transferred easily between ships, trucks, and trains. This cut down loading times, labour costs, and theft/damage risks. It became cheaper for firms to trade across borders. Led to a surge in international trade. 💸 3. Deregulation of Financial Markets → Easier Cross-Border Capital Flows → More FDI and Global Mergers → Greater Economic Integration Many countries liberalised capital controls and allowed foreign ownership. This encouraged foreign direct investment (FDI) in developing nations. Large firms began to merge or acquire international subsidiaries. Resulted in interlinked financial systems and economies. 🧾 4. Trade Liberalisation by WTO and Trade Blocs → Lower Tariffs and Quotas → Incentivised Export-Oriented Production → Growth in Global Supply Chains Organisations like the WTO pushed for global trade agreements. Countries reduced barriers to imports and exports. Firms now structure operations around where costs are lowest, sourcing parts globally. This has intensified global economic interdependence. 💻 5. Rise of Global Tech Platforms (e.g. Amazon, Google) → Easier Market Access for Consumers and Firms → Cross-Border E-commerce Boom → Integration of Consumer Markets Tech firms connect buyers and sellers worldwide via digital platforms. Even small firms can now access international markets easily. Consumers have more choice and firms have a broader reach. This helped create a more unified global marketplace.

Answer 14

Countries: Economic growth, but also widening inequality between rich and poor nations. Governments: Pressure to adopt pro-market policies, but also challenges to sovereignty due to global economic forces. Producers: Access to larger markets, but increased competition and the need to lower costs. Consumers: Greater choice and lower prices, but potential for exploitation of workers in low-wage countries. Workers: Creation of jobs in some sectors, but job losses in others due to outsourcing and automation. Environment: Environmental degradation due to increased production and transportation, but also potential for global cooperation on environmental issues.

Answer 15

Assumptions: No transportation costs. No trade barriers. Perfect mobility of factors of production. Two-country, two-good model. assumes full employment and constant returns. Limitations: Real-world economies are more complex than the simplified model. Changes in exchange rates or trade policies can distort comparative advantage. Specialisation might lead to dependence on a narrow range of goods.

Answer 16

Comparative advantage: Countries will trade based on their comparative advantage. Emerging economies: As developing countries grow, their demand for goods and services increases, affecting global trade patterns. Trading blocs and agreements: The formation of regional trade agreements or blocs (like the EU, NAFTA) can shift trade flows. Exchange rates: Changes in relative exchange rates affect the cost and demand for imports and exports.

Answer 17

1. Comparative Advantage → Impact on Patterns of Trade Countries specialize in goods they can produce at a lower opportunity cost. → This leads to increased trade between countries, as they export goods they specialize in and import those they are less efficient at producing. → The global trade pattern shifts to focus on the exchange of goods where countries have a comparative advantage. → Trade flows increase, leading to greater economic interdependence between nations, as countries rely on each other for goods and services. → The rise in specialization and trade results in higher global efficiency, as resources are allocated based on comparative advantage. 2. Emerging Economies → Impact on Patterns of Trade Emerging economies grow rapidly, boosting their production of manufactured goods. → As these economies expand, they start to export more goods like electronics, machinery, and textiles. → This leads to a shift in global trade flows, with a larger share of trade being conducted between emerging economies and developed nations. → Emerging economies become increasingly important in global supply chains, with their industries integrating more into international markets. → The growth of these economies leads to more diversified trade patterns, with more South-South trade emerging between developing nations. 3. Trading Blocs and Agreements → Impact on Patterns of Trade Trading blocs (e.g., EU, NAFTA, ASEAN) reduce trade barriers within member countries, making it easier to exchange goods. → This encourages intra-bloc trade, where countries within the bloc trade more with each other than with non-member nations. → Market access is enhanced, with businesses in the bloc benefiting from larger consumer bases and lower tariffs. → The growth of trading blocs leads to reduced trade with non-members, shifting global trade flows in favor of bloc members. → As these trade agreements evolve, global supply chains adapt, and economies within the bloc become more integrated. 4. Exchange Rates → Impact on Patterns of Trade Currency depreciation makes a country's exports cheaper for foreign buyers, leading to higher export volumes. → This shifts trade patterns, with more exports going to foreign markets, as products from the depreciating currency become more competitive. → At the same time, a weaker currency can make imports more expensive, reducing the demand for foreign goods. → This can lead to a reduced trade deficit, as the country exports more and imports less, changing its trade balance. → Fluctuations in exchange rates also introduce uncertainty into international trade, which can influence companies to adjust their strategies and hedge against risks.

Answer 18

📦 1. World Prices of Exports or Imports ↑ World price of exports (e.g. oil for Saudi Arabia) → ↑ Export revenue per unit → ↑ ToT (more imports per unit of export) → Improves living standards if price rise is sustained 📉 2. Exchange Rate Changes Appreciation of the currency → Exports become more expensive, imports become cheaper → ↓ Export competitiveness and ↑ import volume → Mixed impact on ToT (depends on elasticity of demand) 🔄 3. Changes in Global Demand and Supply ↑ Global demand for a country's exports (e.g. lithium or cocoa) → ↑ Export prices relative to import prices → ↑ ToT → Improves current account and purchasing power 🏭 4. Inflation Rates Relative to Trading Partners Higher domestic inflation than trading partners → Domestic goods become relatively more expensive → ↓ Export competitiveness → ↓ ToT as exports fall relative to imports 💰 5. Tariffs or Trade Restrictions Tariffs on imports or export subsidies → Distort relative prices between exports and imports → Can artificially improve ToT short-term → But may provoke retaliation or long-term inefficiency 🔁 6. Dependency on Primary Products Countries that export commodities with volatile prices (e.g. coffee, copper) → Experience large ToT fluctuations → ↓ Stability in income and development planning → May suffer long-term ToT deterioration (Prebisch-Singer)

Answer 19

An improvement in a country’s terms of trade means that export prices have risen relative to import prices. This allows the country to purchase more imports for every unit of exports it sells

Answer 20

📈 1. Improved export prices relative to import prices → → Export prices rise or import prices fall → The country can buy more imports per unit of export → Increases real purchasing power of income → Allows higher consumption and improved living standards 🛍️ 2. Reduced cost of imports → → Cheaper raw materials and capital goods → Lower input costs for firms → Boosts domestic productivity and competitiveness → May lead to increased output and employment 💰 3. Improvement in the current account (if export value increases and are inelastic) → → Exports become more valuable in global markets → Export revenue increases → Helps reduce current account deficit or generate a surplus → Strengthens the country's currency in the long run

Answer 21

🔺 Reduced International Competitiveness → Improvement in ToT means export prices rise or import prices fall → Exports become more expensive for foreign buyers → Demand for exports falls, worsening the current account → This can reduce export-led growth and increase unemployment in export industries 🔺 Deindustrialisation Risk → Strong ToT can be due to overreliance on raw material or commodity exports (e.g., oil) → Higher revenues may lead to appreciation of the currency (Dutch disease) → This makes manufacturing less competitive → Long-term decline in industrial base and jobs 🔺 Slower Economic Growth → Improvement in ToT could be driven by lower import prices (e.g., from cheap goods abroad) → Consumers switch to imports, domestic producers lose out → Less investment and productivity growth in local firms → Hinders long-run GDP growth 🔺 Inflationary Pressures If Export Prices Rise → If ToT improves due to higher export prices → Increased export revenues may raise domestic incomes and spending → Demand-pull inflation can emerge → Central bank may be forced to tighten monetary policy

Answer 22

a measure of a country's export prices relative to its import prices

Answer 23

📈 1. Boost to Export Competitiveness → A deterioration in ToT means exports are relatively cheaper → Makes a country’s goods more competitive on the global market → Leads to higher demand for exports → Increases AD → higher growth & potentially more employment 🏭 2. Export-Led Growth → More competitive exports can drive an increase in net exports (X-M) → Acts as a driver of economic growth, particularly for developing countries → Stimulates investment in export-oriented industries → Long-run productive capacity may increase (outward LRAS shift) 👷‍♀️ 3. Job Creation in Export Sectors → Rising export demand means firms expand production → Leads to more hiring in sectors like manufacturing and agriculture → Reduces unemployment, especially in developing countries → May raise incomes and living standards A deterioration in the terms of trade means that import prices have risen relative to export prices This makes imported goods more expensive for domestic consumers and firms As a result, consumers may switch to domestically produced substitutes due to the relative price advantage This leads to an increase in demand for domestic goods, potentially boosting domestic output and employment 🔄 4. Improved Trade Balance → Lower export prices increase quantity demanded for exports → Higher export revenue may outweigh costlier imports → Could lead to an improvement in the current account → Reduces reliance on borrowing or foreign aid

Answer 24

Lower export revenues A deterioration in TOT means that a country receives less for its exports relative to the price it pays for imports. ↳ This leads to lower revenues from exports, reducing the country's overall income. ↳ Lower income decreases the ability of the country to invest in key sectors like infrastructure, healthcare, and education. ↳ This, in turn, can lead to slower economic growth and lower living standards. Worsening trade balance As the price of exports falls and imports become more expensive, the value of imports exceeds the value of exports. ↳ This results in a trade deficit, which can put pressure on the country's foreign exchange reserves. ↳ A persistent trade deficit may lead to depreciation of the national currency, causing inflation. ↳ Increased inflation can reduce consumer purchasing power and harm economic stability. Reduced competitiveness Deteriorating TOT can signal that a country's goods and services are becoming less competitive in the global market. ↳ This makes it more difficult for businesses to compete internationally. ↳ Reduced competitiveness can lead to a decline in industrial output, higher unemployment, and lower wages. ↳ A weaker industrial sector further erodes the country's ability to diversify its economy and reduce reliance on a few sectors. Pressure on domestic industries Domestic industries that rely on imported goods face higher costs due to rising import prices. ↳ This can result in reduced profit margins for businesses, particularly in industries that depend on imported raw materials or technology. ↳ Higher production costs may force companies to cut jobs or reduce investment. ↳ This can harm productivity growth and economic development in the long term. Negative impact on the standard of living As the country’s terms of trade worsen, citizens may face higher prices for imported goods and a decrease in real income. ↳ Higher costs of living reduce the purchasing power of consumers. ↳ Lower standards of living may lead to increased poverty and inequality, as the population struggles to afford goods and services. ↳ This can fuel social unrest and contribute to political instability.

Answer 25

The Prebisch-Singer Hypothesis suggests that over the long term, the terms of trade for countries that export primary commodities (e.g. coffee, oil, cocoa) decline relative to those that export manufactured goods. 📉 Key Idea: Price of manufactured goods tends to rise faster than the price of primary products due to: ➤ Higher income elasticity of demand for manufactured goods ➤ Technological progress in manufacturing ➤ Saturation and over-supply in commodity markets 🌍 Implication for Developing Countries: Many developing countries are commodity-dependent Falling terms of trade mean they must export more to afford the same amount of imports This traps them in low-value export dependency and hinders growth 📊 Evaluation / Criticism: Not all primary product prices fall — e.g. rare earth metals or oil may rise Countries can escape the trap via diversification and industrialisation (e.g. Malaysia) Short-run commodity booms (e.g. copper in Chile) may contradict the long-run trend

Answer 26

The Harrod-Domar Model suggests that economic growth depends on the level of savings and the productivity of investment (i.e. capital-output ratio). More savings → More investment → More growth ✅ 📈 How it works: Higher savings allow more investment in capital goods (e.g. factories, infrastructure) → This leads to greater productive capacity → As long as capital is used efficiently (low k), the economy grows faster → Especially relevant to developing countries aiming to break out of low-growth traps 🌍 Implication for Development: Many developing countries have low savings rates, so struggle to generate sufficient investment Suggests a role for foreign aid, FDI, or microfinance to increase investment Savings → Investment: The key link is that savings are the source of funds for investment. The more people save, the more banks can lend to firms. The firms then use these funds to invest in capital projects, which can increase production capacity in the economy. 📊 Evaluation / Criticisms: Assumes capital is the main driver of growth – ignores human capital, technology, and institutions Assumes investment always leads to productive capacity – inefficiencies, corruption, or poor governance can waste it Can lead to capital-intensive growth, which may not reduce unemployment in labour-abundant developing countries

Answer 27

🌍 1. Increased Resource Exploitation Globalisation increases access to international markets → Encourages countries (especially developing ones) to exploit natural resources (e.g. deforestation for timber or mining for rare earths) → Overextraction exceeds the natural regeneration rate → Leads to long-term depletion and degradation of natural resources 🏭 2. Intensified Production and Consumption Globalisation boosts industrialisation and consumer demand across borders → Firms produce at larger scales to meet global demand → Overuse of inputs like water, land, and fossil fuels → Increases pollution, soil erosion, and reduces biodiversity 🔁 3. Spread of Unsustainable Practices Multinational corporations (MNCs) may relocate production to countries with weak environmental regulations → Lower costs but more pollution and irresponsible resource use (e.g. toxic waste dumping, overfishing) → Accelerates global environmental degradation → Tragedy of the commons arises with shared global resources 🚢 4. Expansion of Global Transport Networks Global trade requires large-scale logistics (shipping, aviation, road) → High fossil fuel usage in transport → ↑ Carbon emissions and pressure on global oil reserves → Contributes to climate change and depletes non-renewable energy sources

Answer 28

📈 1. Increases Productivity and Efficiency Specialisation allows countries to focus on producing goods where they have a comparative advantage → Resources (labour, capital) are allocated more efficiently → Higher output with the same input levels → Increases national income and economic growth (↑ GDP) 💷 2. Greater Economies of Scale Producing large volumes of a specific good → Firms experience lower average costs due to economies of scale → Lower prices for consumers and increased international competitiveness → Boosts exports and improves trade balance 🌍 3. Encourages International Trade Countries specialise in goods/services they produce efficiently → Trade with others for goods they don't produce as efficiently → Increases variety and access to goods for consumers → Supports global economic integration and higher overall welfare 🏭 4. Attracts Foreign Direct Investment (FDI) A country known for specialising in a certain industry (e.g. tech, finance, agriculture) → Becomes attractive to foreign firms looking to invest in that sector → Brings capital, jobs, and technology transfer → Enhances long-term growth and development prospects 📊 5. Improves Resource Allocation Firms and countries use factors of production (land, labour, capital) in areas where they are most productive → Reduces opportunity cost and waste → Supports sustainable and efficient long-run growth

Answer 29

⚠️ 1. Overdependence on Specific Industries If a country specialises in one main industry (e.g. oil, tourism) → It becomes highly exposed to sector-specific shocks (e.g. oil price crash or pandemic affecting tourism) → National income may fall sharply during downturns → Causes economic instability and increased unemployment 📉 2. Vulnerability to Global Demand Shifts Specialisation ties a country’s success to global demand for a few goods → A fall in global demand (e.g. for steel or semiconductors) reduces export revenue → Worsens current account balance and slows GDP growth 🔄 3. Deindustrialisation in Non-Specialised Sectors Focusing resources on one industry → Other domestic sectors may decline due to lack of investment or competitiveness → Leads to structural unemployment and a narrower economic base → Long-term economic flexibility and diversification are reduced 🌎 4. Exposure to Global Supply Chain Disruptions Specialised countries often rely on imports for non-specialised goods → Global shocks (e.g. war, trade disputes, pandemics) can disrupt imports → Causes shortages, inflation, and production delays → Undermines macroeconomic stability 🏭 5. Risk of Exploiting Labour and Resources To remain competitive in specialised production, countries may cut costs through overuse of natural resources or cheap labour → Can result in long-term environmental degradation or social inequality → May reduce long-run sustainable development

Answer 30

🌍 1. Increased Trade Between Member Countries Removal of tariffs and quotas → Reduces the cost of imports/exports between members → Increases trade volumes and consumer choice → Boosts economic growth and efficiency through comparative advantage 🏭 2. Economies of Scale for Firms Access to a larger market without trade barriers → Firms can produce in larger quantities → Achieve internal economies of scale → Lower average costs and increased international competitiveness 💼 3. Increased Investment and FDI Stable and integrated markets attract foreign investors → Multinational corporations are more likely to invest in bloc members → Inflows of FDI bring jobs, technology, and capital → Supports long-term development and productivity 💷 4. Enhanced Bargaining Power Bloc members can negotiate as a single entity in global trade talks (e.g. with the WTO or major economies) → Increased collective bargaining power → Can secure better trade deals and protect member interests 👷 5. Labour and Capital Mobility (in deeper blocs like the EU) Freedom of movement for labour and capital → Workers can move where jobs are available, reducing unemployment mismatches → Firms can access larger talent pools and capital markets → Increases efficiency in resource allocation

Answer 31

🚫 1. Trade Diversion Joining a bloc may cause a country to import from less efficient member countries → Cheaper goods from more efficient non-members face tariffs → Leads to trade diversion rather than trade creation → Reduces global efficiency and welfare 🌐 2. Loss of Sovereignty In deeper blocs (e.g. the EU), countries may need to follow common rules and regulations → National governments lose policy independence (e.g. on trade, monetary, or fiscal policy) → Limits flexibility in responding to domestic economic issues 💼 3. Risk of Structural Unemployment Increased competition within the bloc → Domestic firms that can’t compete may shut down → Workers in inefficient industries lose jobs → Leads to structural unemployment in the short to medium term 🔗 4. Overdependence on Bloc Members Relying heavily on trade within the bloc → Economic problems in major members (e.g. Germany in the EU or Brazil in MERCOSUR) → Can spill over and negatively affect the entire bloc → Increases vulnerability to regional shocks 💸 5. Unequal Gains Between Members Larger or more competitive economies tend to benefit more → Smaller or weaker economies may be left behind or dominated → Widening inequalities between member states → Can lead to political tensions or calls to leave the bloc

Answer 32

Free trade area: Members trade freely among themselves but can set their own external tariffs. Customs union: Members trade freely and have a common external tariff.

Answer 33

the flow of goods and services between regions

Theme 4 - Globalisation and Trade Flashcards

(57 cards)