Topic 1 Flashcards
(176 cards)
1
Q
What is the global economy?
A
Sum of interactions between diff economies that are now increasingly linked as one eco unit
2
Q
What are the effects of an increasingly integrated global economy?
A
Because the various economies are increasingly linked to each other, a single change in an economy can have ripple effects on others. This idea is reflected in the covid-19 pandemics and the war in Ukraine which has led to detrimental impacts for economies around the world because everything is increasingly linked, i.e. a downturn in America will lead to a downturn in Australia
In other words leads to higher eco shocks
3
Q
What are developed/advanced economis?
A
Refers to high income, industrialized or developed economies with high levels of economic development, close economic ties with each other and have liberal-democratic, political/economic institutions
4
Q
What is GWP?
A
Refers to the aggregate value of all goods and services produced worldwide each year in the global economy) sum of total output of g/s by all economies in the world over a period of time
5
Q
What is globalisation?
A
Integration between different countries and economies and the increased impact of international influences on all aspects of life and eco activity
6
Q
What are the indicators of globalisation?
A
Trade in g+s
Financial Flows
Increased TNCs and investment
Technology, transport and communication
International division of labour
7
Q
Explain how trade in g+s is an indicator of globalisation?
A
It is important indicator of globalisation as it is a measure of the extent to which g+s are produced in an economy and are consumed in other economies and shows how interconnected countries are in relation to trade which would depict globalisation
8
Q
What is the growth in value of exports of g+s from 1990 to 2021?
A
US 4.3 trillion to $30.1 trillion
9
Q
What are some causes of increased trade of g+s? (3)
A
Comparative advantage, new tech and transport, trade liberalisation
10
Q
What is comparative advantage?
A
Idea that economies do not produce all items they need or not as efficiently as other countries. And that countries should specialise in producing a certain product that they have a comparative advantage in (more efficient and less opportunity cost)
11
Q
How has the comp of global trade changed?
A
Change from manufacturing goods and services to fuels and minerals + commercial services
12
Q
What are financial flows?
A
Financial flows refer to the movement of cash in and out of a country
13
Q
How are financial flows an indicator of globalisation?
A
Because it gives an indication of how much money is moving around the world, and thus depicts how reliant countries are on financial flows. It is the most globalised feature as money moves quicker than g/s or peopl
14
Q
What are some benefits of financial flows? (2)
A
Enables countries to obtain funds that are used to finance their domestic investment
Global financial flows can allow a country to achieve higher levels of investment and thus experience greater growth
15
Q
What are the 2 causes of increased financial flows?
A
Financial deregulation (controls flow of money)
New tech and global communications (link financial markets throughout the world)
16
Q
What is FDI?
A
Movement of funds between economies for the purpose of establishing new companies or buying a substantial proportion of shares in an existing company
17
Q
How is investment and TNCs an indicator of globalisation?
A
TNNCs have production facilities around the world, thus leading to global investment flows through TNCs. Also, they show reliance on other economies which they might be sourcing certain things from. FDI has allowed for more globalisation as there are increased financial flows through SST speculative shifts of money
18
Q
What are TNCs
A
Global companies that dominate global product and factor markets which have production facilities in at least two countries
19
Q
What are the impacts of TNCs?
A
TNCs expand production facilities in a country, which lead to bringing in foreign investment, new tech, skills and knowledge –> increased efficiency, they also bring FDI to a country which increases the extent of globalisation
20
Q
How does tech, transport and communication impact globalisation?
A
Technological developments facilitate the integration of economies.
For example, there is cheaper and more reliable int communication through high speed broadband allowing the provision of commercial services to consumers around the world (increasing financial flows)
Also, developments in freight tech and increased use of automation and robotics allow for greater trad in g+s
Transport also allow for greater labour mobility between economies – > international division of labour
20
Q
What are some benefits of tech, transport and communication?
A
Boosts trade of tech
Drives FDI
Greater innovation
Greater productivity of labour and capital in production
21
Q
What does international division of labour mean?
A
Refers to the specialisation of people according to labour tasks in production process.
22
Q
Explain the nature of international division of labour (i.e. what happens at the top)?
A
At the top end, highly skilled workers are attracted to larger, higher income economies - OECD reports that migrants moving from developing to developed economies has increased from 36% to 51% in the past two decades (as of 2019)
Some smaller advanced economies suffer from a brain drain as skilled and talented workers are attracted to other countries with greater rewards
At the bottom end, low skill labour is in demand in advanced economies where it may be difficult to attract sufficient people born locally for certain jobs - typically filled by migrants
23
Q
How does international division of labour affect globalisation?
A
This is because there is greater interconnectedness between countries in relation to the transfer of labour
Also migrants may remit their incomes to their family in other ecos
24
How many people does International Labour organisation estimate have migrated to work in different countries?
around 169 million people
25
What is the business cycle?
Refers to fluctuations in the level of eco growth due to either domestic or international factors
26
What is the International business cycle?
Refers to the fluctuations in the level of eco activity in the global economy over time
27
What is the regional business cycle?
Fluctuations in the level of eco activity in a geographical region of the global economy over time, i.e. SEA
28
Can regional business cycles have diff patterns to the overall global eco activity?
Yes
29
What are reasons for regional business cycles having different patterns than global eco activity? (4)
Diff regions may be at diff stages of eco development
1 or 2 large economies may shape a regional business cycle because of the way that their changing growth levels flow onto other economies in the region
Common eco policy settings in a region will result in growth rates becoming more closely linked
Eco crises can intensify regional business cycles as a loss of confidence in one economy can spread quickly to neighbouring economies
30
What is some proof that countries eco growth are parallel to thee eco activity of the country's eco region or the rest of the world?
Aus experienced 4.2% growth in 2011 due to commodities boom due to China's strong EG of 10%
Aus influenced by G7 economies, with 63% of changes in output being influenced by G7 economies
31
What are factors that influence differences in business cycles between economies?
Interest rates (higher IR --> lower EG, vice versa)
GOV FP
Exchange rates (will impact on level of trade competitiveness and confidence within economies)
Structural factors (differences in levels of resilieince in financial system , innovation, tech etc.)
Regional factors (Some economies may be closely linked with neighbours and thus influenced by their eco performance, same vice versa)
32
What are 5 factors that strengthen the international business cycle?
Trade Flows Investment flows and investor sentiment
Transnational corporation
FInancial flows
Technology
Commoditity prices
33
What are 5 factors that weaken the international business cycle?
Domestic interest rates
Gov fiscal policies
Other domestic eco policies
Exchange rates
Structural factors
34
Why do certain factors have a negative influence on the international business cycle?
Because they can cause more fluctuations in thee global economy, and some certain factors may actually cause contractions in the int business cycle such as high interest rates domestically.
35
What are some factors impacting the transmission of eco conditions from one country to another?(7)
Increased trade flows
Increased investment flows
Increased transnational corporations
Financial flows
Financial market and confidence
Global interest rate levels
Commodity prices
36
What is free trade?
Defined as a situation where governments impose no artificial barriers to trade that restrict the free exchange of g+s between countries with the aim of shielding domestic producers from foreign competitors (i.e. governments no longer imposing protection)
37
What is the basis of free trade?
Argument that economies will be able to achieve higher levels of eco growth in a free trade environment thus leading to increased GWP.
The main argument for free trade is based on the concept of comparative advantage (which is essentially the principle that even if one country can produce all goods more efficiently than another country, trade will benefit both countries if each specialises in the production of the good in which it is comparatively more efficient)
38
How is comparative efficiency/advantage measured?
A country with greater comparative efficiency has a lower opportunity cost than the other country
39
What is absolute advantage (Note: not in syllabus)
Where an economy which is able to produce a greater quantity of a product given a certain level of resources than another economy should produce those goods more.
40
What are five advantages of free trade?
Allows countries to obtain g+s that they can't produce themselves or in sufficient quantities or sufficient efficiency
Allows countries to specialise in the production of g+s in which they are most efficient → better resource allocation and increased production within countries and throughout the world → Increased GWP because everything is much more efficient
International competitiveness will improve, as domestic businesses will have to face greater competitive pressures from foreign producers → greater innovation→ greater efficiency
Greater tendency for specialisation → economies of scale → lower average cost of production
Higher living standards as a result of lower prices → Increased production of g+s and increased consumer choice, as countries have access to goods that a lack of natural resources may otherwise prevent
41
What are 4 disadvantages of free trade?
National security may be undermined if economy is dependent on trade in a time of emergency, i.e. war or pandemic
Production surpluses from some countries may be dumped (sold at unrealistically low prices)
Difficult for less advanced economies to establish new industries if they aren’t protected from larger foreign competitors
May encourage environmentally irresponsible production methods because producers in some nations may win markets by undercutting competitor’s prices, which may only be achieved through undercutting environmental standards
42
What are the 5 international organisations that we study?
World Trade Organisation (WTO)
International Monetary Fund (IMF)
World Bank (WB)
United Nations (UN)
Organisation for economic corporation and development (OECD)
43
What is the role of the WTO?
Implement and advance global trade agreements
Resolve trade disputes between member economies
44
What are some criticisms of the WTO?
WTO has been ineffective in enforcing compliance among powerful nations (wealthy nations can afford expensive process of challenging)
WTO gives priority to free trade over environmental protection. (WTO overturned clean air legislation in the US that restricted oil imports from Venezuela), overturned on the basis that they are an unacceptable trade restriction
Slow progress in accepting certain proposals
45
When was the WTO founded, and how many members?
1995, 164 members
46
When was the IMF founded, and how many members?
Founded in 1944, Has 190 members covering all nations
47
What is the role of thee IMF?
Maintain international financial stability, particulalrly in relation to FOREX markets
48
What are the main responsibilitis of the IMF? (4)
Making resources available to members experience BOP (balance of payments) difficulties
During crises in individual economies, the IMF develops a ‘rescue package to help stabilise the economy’
Facilitating the expansion of international trade
Maintain international financial stability
49
What are some examples of the IMF being useful?
During 2008 GFC, IMF injected 250 billion into global economy providing global liquidity, and provided specific support for countries hit hard by the crisis
During Covid-19 pandemic, $219 billion in loans to 92 countries, allocated $650 billion of special drawing rights
50
What are some benefits of the IMF?(5)
Ensure global financial stability when financial crisis occurs (i.e. the emergency loan of US$17 billion to Ukraine in 2014 where a security crisis threatened to cause a major financial crisis)
Can suspend interest payments on loans to help developing nations cope with eco dowwnturn
IMF advises its members about policies that foster economic stability, reduce vulnerability to eco and financial crises and raise living standards
In 2010, th IMF altered it governance structure to give developing and emerging economics a greater say over IMF policies in which they may disagree with
In the LT, IMF policies are to support the free trade of g+s and the free movement of finance and capital throughout world markets
51
What are criticisms of the IMF? (4)
Pressures certain countries into changing eco policies to be able to receive financial assistance
IMF is controlled by richer countries thus leading to the idea that it benefits richer countries more
IMF has been criticised for moving too slowly and cautiously such as in the covid 19 pandemic
The IMF’s policies that it wants countries to follow may make conditions worse for economies affected. (the measures demanded by the IMF upon Greece during the crisis intensified the collapse of Greece's GDP, falling 26% lower than the IMF projection
52
When was the WB formed and how many member countries?
1944, 189 member countries
53
What is the main role of the World Bank?
Helping poorer countries with eco development, focus of funding investment in infrastructure, reduce poverty and help countries adjust their economies to demand of globalisation.
54
What are the 2 major goals and objectives of the world bank
Reducing the rate of extreme poverty to less than 3 percent of the world’s population by 2030. At 3 percent level, those in poverty will mostly be experiencing ‘frictional poverty’, that is, poverty related due to short-term disasters such as extreme weather events rather than long term poverty.
Reducing inequality by fostering income growth for the world’s bottom 40%.
Note: also aimed to achieve the millennium development goals and sustainable development goals
55
How does the World Bank provide support?
Make loans to developing countries that are below standard commercial rates to help fund infrastructure projects such as power plants, roads and dams.
Attempts to influence design of macro and micro economic policies to create conditions conductive to foreign investment and development
56
What are the benefits of the world bank?
It makes loans to developing countries at rates below standard commercial rates in order to fund infrastructure projects such as power plants, roads and dams
World bank supported the (HIPCI)Heavily Indebted Poor Countries Initiative, which aims to reduce debt by ⅔ in the world’s poorest countries in Africa, South Asia and Latin America (The world bank provided US$60 billion in loans, grants, equity investments and guarantees in 2017)
57
What are some criticisms of the WB?
World Bank’s programmes are vulnerable to corruption - policy advice focuses on pro-market policies which nurture foreign investment
Debt relief is an irresponsible eco policy - some claim that debt relief is irresponsible as it creates an expectation that all debts will one day be written off, increasing the chance that gov in developing countries will incur more unsustainable debt
58
When was the UN formed, how many members?
Formed in 1945, 193 members
59
What are the 3 key objectives of the UN:
Maintaining international peace and security
Promote human rights
Foster social and eco development
Provide humanitarian aid
60
Has the UN played an important role in supporting greater linkages between economies and promoting globalisation?
Yes
61
What was UN's comprehensive response to covid?
Created Recovery Trust Fund programming US$75 million to 80 programmes spanning 67 countries
Initiated coordinated responses across vulnerable domains such as public health, education, women and global supply chains
62
What is the OECD, how many members?
It is an international eco organisation of 38 mostly advanced economies committed to democracy and open markets.
63
What is the main goal of the OECD?
Promote policies to achieve the highest sustainable co growth and employment and a rising standard of living in member countries while maintaining fiscal stability, thus leading to the development of the world economy
Policies generally advocate in favour of free markets, globalisation
64
What are the 2 gov eco forums that we study?
G7 and G20
65
What are free trade agreements?
Formal agreements between countries designed to break down barriers to trade within those nations. There are two types; bilateral and multilateral trade agreements
66
What are trading blocs?
Occurs when a number of countries join together in a formal preferential trading agreement, which leads to the exclusion of other countries
67
What are monetary unions?
A monetary union is where two or more countries share a single currency. This makes trade between member nations more efficient, i.e. Europe’s Euro
68
What are regional trade agreements?
Regional trade agreements refer to treaties that are signed by two or more countries to encourage the free movement of goods and services across the borders of its members - i.e. more efficient trading
However, this may lead to trade diversion in which a country’s imports of a good or service switch from the most efficient producer to a less efficient producer with whom a regional trade agreement exists
69
What are the countries involved with G7?
US, UK, France, Germany, Canada, Japan, Italy
70
What is the purpose and significance of the G7?
Unofficial forum coordinating global macroeconomic policy due to its influence over fiscal and monetary policies of the powerful economies, its agenda has often included general political issues and current priorities including climate change, global poverty, security
Significance of G7 is now in decline, as there is a shift in global balance of power towards emerging economies, especially China.
71
What is the G20?
G20 includes 19 of the world's largest national economies + the EU, and covers 96% of the world in 2021, and 65% of the world's population
72
What is the main purpose of the G20?
Introduce forums for the 20 largest national economies and the EU to discuss economic policies. Forum for coordinating lobal response to avert depressions and agreeing to coordinate fiscal stimuli around the world
73
What aree 2 examples of theee success of the G20 summit?
2009 - agreement on measures to improve coordination of fiscal stimulus being implemented by gov around the world, as well as a plan for improved supervision of the global financial system and international financial institutions
2018 - Allows for a platform of discussion, as in the Midst of the China - US trade war, they were able to suspend tariffs on each other as it allowed for a platform for discussion
2019 - Xi Jinping and Trump agree to a trade war truce - delaying imposition of new US tariffs of up to 25% on US $300 bn worth of Chinese goods
74
What are 3 examples of Aus bilateral agreements?
CERTA (NZ and Aus)
AUSFTA (US and Aus)
ChaFTA (China and Aus)
75
What are the key features of the CERTA
Began in 1983. Prohibits all tariffs and export restrictions. Contributed to average annual increase in trade between Aus and NZ of around 7%
76
What are the key features of the AUSFTA?
Began in 2005. Trade between the two countries doubled. It included making 97% of Aus non-agricultural exports to the US becoming duty free, and 2/3 of agricultural tariffs going to zero
77
What are the key features of ChaFTA?
Began at the end of 2015. 85% of AUS goods exported to China became duty free, and will increase to 95% when ChaFTA is fully implemented. Reduction and elimination of tariffs on all major australian agricultural products and processed foods other than sugar and rice
78
What are some examples of multilateral/regional agreements?
EU (European Union)
NAFTA (US, Canada, Mexico)
APEC forum (Asia Pacific Eco cooperation)
79
What are the key features of the EU?
28 member nations. Objective is to dismantle trade barriers within Europe and increase tariff barriers against non-member countries. EU is also a monetary union --> more efficient trade.
80
What is an example of how the EU discriminates against other countries (i.e. creation of trade blocks)
Common Agricultural Policy: Involves the implementation of a system of agricultural subsidies and other programs for those in the EU to help promote the domestic market > international market → This affected Aus as EU doesn’t have comparative advantage, but wants to keep good employment in the industry → decreased revenue in Aus → decreased eco growth
81
What are the key features and significance of the APEC forum?
Established in early 1990sby countries in region of Aus following formation of trading blocs in other areas such as the EU and NAFTA
APEC is NOT a protectionist trading bloc but aims to reduce the cost of cross border trade amongst member countries. Because of this, Aus exports of merchandise goods + commercial services increase by 72% from 2009-2019
82
What are the advantages for free trade agreements?
Allows for a stepping stone towards free trade, initially convincing economies to reduce their protection barriers against a small group but eventually encouraging them to remove those barriers for the rest of the world
83
What are 3 disadvantages of trade agreements?
Agreements are exclusive --> retaliation effect for excluded economies
Hinders global free trade by slicing up world into smaller regions
Causes global inequality betwween developing and developed countries
84
What are three advantages of trading blocs?
They can expand the benefits of specialization of prod beyond the national boundaries by ↓ barriers to trade
Factors of production increasingly move more freely between economies
Easier negotiations
85
What is the main disadvantage of trade blocs?
Trade diversion - Non-members of the bloc lose export opportunities to less efficient nations that are members of that respective bloc
86
What are 2 advantages to multilateral agreements?
Facilitates increased trade integration within regions
Stepping stones towards free trade
87
What are 2 disadvantages to multilateral agreements?
Could lead to global trade fragmenting into self-contained regions→ limiting global free trade
Complex and time consuming to negotiate→ higher compliance costs
88
What are two benefits of bilateral agreements?
Promotes growth in trade
Enables smaller countries who are excluded from trade blocs and regional FTAs to access advantages of free trade
89
hat are two disadvantages of bilateral agreements?
Impact is often much smaller than government claims
Trade diversion
90
Wha is protection?
Protection refers to the implementation of artificial barriers to trade by the government to give domestic producers an artificial advantage over foreign competitors
91
What are the four main arguments for protection?
Protect infant industries
Protect domestic employment
Prevent dumping
Defence
92
What are the four main impacts of protection
Long term costs such as inflation
Lower levels of productivity
Lower levels of exports and growth
Higher unemployment
93
Explain the argument of protecting infant industries
This argument is based around the idea that new industries face lots of difficulties and high barriers to entry as they have relatively higher costs than established competitors in the foreign markets. This argument proposes that the infant industries may need to be shielded from competitors in the short run to enable them to build capacity, establish markets and achieve economies of scale, so that they can compete in the global economy. The idea is only for temporary protection
94
What is the counter argument to the argument of protecting infant industries?
Industries have relied to continue on this assistance, which leads to rent seeking behaviour --> higher inefficiency --> misallocation of resources
95
What is the argument for the prevention of dumping?
Dumping occurs when foreign firms attempt to sell their goods in another country’s market at unrealistically lowprices. The purpose may be to dispose of large production surpluses. Although these low prices are usually temporary, it can harm domestic producers. Thus when a country believes another country is dumping their goods in their country, they may impose protection in the form of tariffs to prevent the impact of dumping
96
What is a counter argument for dumping?
A countr argument is that a certain economy cannot be sure that another economy is actually dumping or if they aree just efficient in what they produce, which could lead to retaliation and retaliatory tariffs. For example China imposed trade tariffs of 116-218% on wine exports due to dumping accusations
97
Explain the argument of protection of domestic employment
If local producers are protected from competition with cheaper foreign imports, the demand for local goods will be greater, and will create more domestic employment
98
Explain the counter argument to protection of domestic employment
However, protection will distort the allocation of resources away from efficient industries to more inefficient industries. In the LT, this may lead to higher levels of unemployment and lower growth rates
99
Explain the defence and self-sufficiency argument
This argument raises the idea that a certain country doesn’t want to rely on other nations for defence products, because there is uncertainty in times of war, so it is good if they don’t have to rely on other nations. For example, the US wouldn't buy crucial defence equipment from overseas countries even if they could produce them cheaper because this would make it reliant on other countries for their national security.
100
WHat are the main forms of protection?
Main ones:
Tariffs
Subsidies
Quotas
Secondary ones:
Local Content rules
Export incentives
101
what are the 2 positive effects of tariffs?
Domestic producers supply greater quantity of good → Increased domestic production and employment (because the increased revenue will allow for them to continue spending (and keeping jobs))
The tariff raises revenue for the government but that is not the primary objective. In fact the more successful the tariff as a protectionist device (ie. the more imports it restricts) the less revenue it will raise
102
What are the 3 negative effects of tariffs?
More domestic resources are attracted to the protected industry (negative effect) - reallocation of resources towards less efficient producers (Decreased efficiency → lower allocative efficiency
Consumers pay a higher price and receive fewer goods → Redistributes income away from consumers to domestic producers → decreased QOL of the consumers because paying higher for products they could normally get
Retaliation effect
103
What are tariffs?
taxes placed on imports
104
WHat are subsidies?
subsidies involve financial assistance to domestic producers, which enable them to reduce selling price and compete easily with imported goods due to an increased efficiency
105
WHat are two benefits of subsidies?
Domestic producers supply a greater quantity of the good. Therefore, the subsidy stimulates domestic production and employment in the protected industry
(side note: economists prefer a subsidy to a tariff because they tend to be abolished quicker)
106
What are 2 negative impacts of subsidies
More resources in that economy are attracted to the protected industry leading to reallocation of resources from other sectors of the economy (where production and employment will fall)
Subsidies impose direct costs on government budgets because they involve payments from the government to the producers of goods and services. This means that governments have fewer resources to allocate to other priorities such as education and health care
107
What are import quotas?
A control on the volume of a good that is allowed to be imported over a given period of time
Note: the higher the quota, the lower the protection; and the lower the quota, the higher the protection
108
What are tariff quotas (not in syllabus)?
Under this protectionist method goods imported up to the quota pay the standard tariff rate whereas goods imported above the quota pay a higher rate.
109
What are two benefits of quotas?
THE QUOTA GUARANTEES DOMESTIC PRODUCERS A SHARE OF THE MARKET (NEEDS TO BE MENTIONED)
Domestic producers supply a greater quantity of the good. Therefore, the quota stimulates domestic production and employment in the protected industry
110
What are three negative effects of quotas?
Consumers pay a higher price and receive fewer goods. This redistributes income away from consumers to domestic producers in the protected industry and results in lower overall levels of economic growth
As with tariffs the imposition of a quota on imports can invite retaliation from the country whose exports may be reduced because of the quota. This can result in lower exports for the country that initiated the import quota.
More resources in that economy are attracted to the protected industry leading to reallocation of resources from other sectors of the economy (where production and employment will fall)
111
What are local content rules?
Local content rules refer to gov industry plans and policies where goods must contain a minimum percentage of inputs/outputs which have been locally made. In return for guaranteeing that a certain percentage of a good will be locally made the imported components may not attract a tariff.
112
What is an example of local content rules?
Used in the Collins - class replacement submarines - after the signing of AUKUS (2021), a new fleet of nuclear powered submarines are expected to be built. These MUST be built in Adelaide (thus utilising local labour)
Broadcasting Services Act (1992) - mandates a 55% minimum transmission quota on AUs broadcasting channels
113
What are export incentives?
Domestic producers are given grants, loans and technical advice so businesses can attempt to penetrate the global market → increased market share
114
What are three general eco effects of protectionism?
Global protectionist policies have the overall effect of reducing trade between nations. For an individual economy protectionism means that exports and imports will be a smaller share of the national economy.
Overall protectionist policies reduce living standards and reduce global economic growth by shielding inefficient producers
Protectionist policies make it more difficult for individual economies to specialise in production in which they are most efficient. Businesses are less able to achieve economies of scale and therefore have lower profits and lower dividends.
115
What are four effects of protection on the domestic economy?
Imported inflation (results from the effects of tariffs on import prices which passes into the domestic cost and price structure.)
Negative protection (efficient export industries such as mining being penalised through higher capital prices due to tariffs and as they cannot increase prices as they have the comp adv and are the price takers, their competitiveness decreases)
EG is decreased by protection because resources aren't being used efficiently in protected industries. Capital and labour may not be utilised intensively.
Reduced living standards
116
What are the 3 effects of protection on the global economy?
Reduced world trade --> decreased GWP (protectionism is estimated to reduce GWP by US $300bn - $700bn a year estimated by Institute of International economics in Washington)
The world Bank has stated if Africa, East Asia, South Asia and Latin America each increase their share of world exports by 1%, 128m people will be lifted out of poverty (2022)
OECD estimates that agricultural protection policies in OECD economies cost consumer and taxpayers around $350b a year
117
What is the difference between eco growth and eco development?
EG: Refers to an increase in the level of g+s produced in an economy
ED: Refers to the broad measure of welfare in a nation that includes indicators of health, education and environmental quality
118
What is the measure of Eco growth?
Typically GDP
119
What is the measure of Eco development?
Measured by various means such as HDI, GNI per capita and QoL indicators
120
What is the HDI?
It is a score between 0 for nations with no human dev and 1 for maximum
It is a measure of a country's average achievements in the basic aspects of human development; health, knowledge and standard of living
121
Can there be high EG but limited eco development? (3)
Yes it is possible. This may be due to:
Corruption; so benefits of the EG only goes towards corrupt politicians instead of it being reinvested into the economy
Environmental problems caused as a result of desire for greater EG. This may be because certain inefficient industries may sacrifice the environment for greater efficiency to help increase EG → pollution → health problems
EG may only benefit a small % of the population. For example, if a country produces more oil, it will see an increase in GDP. However, it is possible, that this oil is only owned by one firm, and therefore, the average worker doesn’t really benefit.
122
What is considered extreme poverty? What is the trend in extreme poverty?
Extreme Poverty, characterised by living under US$1.90 a day, has decreased since the 1980s
Percentage of people living in extreme poverty has decreased to less than 10% of thee population in 2020 from 40% in 1981
123
What are the millennium Development Goals?
8 global goals to guide efforts by international organisations to improve economic development in poorer countries
124
What is the change in life expectancy for those born in countries with low human development (1990-2020)?
50 --> 66 years
125
What is the under 5 mortality rate reduction between 1990 and 2020?
Close to 60% reduction
126
What was contradictory about globalisation during the covid pandemic?
Despite globalisation, during the covid pandemic, almost 12 bn covid vaccinee doses were administered globally in 2022, yet low income countries only accounted for <1% of total vaccine does, despite having 8% of world population
127
What is income?
Income is the amount of money or other monetary benefits measured in money terms which flow to individuals, it is typically awarded to an individual for their involvement in production of goods or services
128
How has income inequality changed as a result of globalisation?
Income inequality has risen by 0.5% per year over the last 30 years as a result of globalisation
IMF reveals that 1/3 of increase in income inequality is due to globalisation and tech changes worldwide
129
What are the living standards in Sub-Saharan Africa and South Asia?
Living standards in Sub-Saharan Africa and South Asia (where one third of the world’s population lives) are exceptionally low with 43% of the people live in extreme poverty
130
What is wealth?
Wealth is the total value of the stock of assets held by individuals at a point in time
131
What is the wealth inequality in the world?
Top 10% of the world accounts for 87.7% of the world’s $US280T in wealth
According to Oxfam (which used Credit Suisse data), the total wealth owned by the top 1% of the global economy surpassed the wealth of the remaining 99% in 2016
Covid involved doubling the wealth of the world’s ten richest men, while for 99% of people, incomes were reduced
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What are the two main methods of looking and income and quality of life indicators?
Gross national income (GNI) or Human Development Index (HDI)
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What is Gross national income (GNI)?
Total income earned by domestically owned factors of production over a period of time
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What is real GNI?
Real GNI- obtained by discounting GNI growth for the effects of inflation
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What is GNI per capita?
GNI per capita is calculated by dividing the real GNI of each country by its population – accounts for limitations of GNI such as difference in size of population and rate of population growth
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What is Purchasing Power Parity (PPP)?
theory that compares the relative price of products in different countries due to varying exchange rates
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What sort of statistics are involved in the HDI?
Life expectancy at birth: indicative of the health and nutrition standards in a country, high levels of longevity are critical for a country’s economic and social well-being
Levels of educational attainment: HDI measures average number of years for which adults aged 25 attended school and expected years of total school attendance for school-age children
Gross National Income per capita: measures the sum of gross value added by all resident producers in the economy, plus income from foreign sources on a purchasing power parity basis
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What is the Aus trend in HDI?
Aus has a very high HDI of 0.951 in 2021, and has stayed around that level for a decade, only increasing from 0.923 in 2010
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What are advanced economies?
refers to high income, industrialised or developed economies with high levels of economic development, close economic ties with each other and have liberal-democratic, political/economic institutions
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How many advanced economies are there in the world?
As of 2020, the IMF recognises 39 countries as advanced
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Where can many of the advanced economies be found?
Found mostly in the North America and Western Europe, and a small number in the Asia-Pacific region
Comprise most of the members of the OECD
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What are the characteristics of advanced economies?
Income levels: High income, with GNI per capita > US$12, 476
EG: Slower growth in recent decades
Structure of economy: Large service industries and advanced manufacturing
Stable population, low migration, low birth and death rates, high levels of labour participation, high levels of minimum wage, high levels per capita, diversified economies, large service sectors, smaller agricultural sectors, well developed manufacturing sectors, stable rates of growth (typically between 2-4%), high carbon footprints, high savings, low levels of absolute and extreme poverty, good access to clean water and education, advanced healthcare systems
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What are emerging economies?
economies in the process of industrialization and experiencing sustained high levels of economic growth, contains a range of economies that are neither high income nor do they share traditional characteristics of developing economies
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What are the characteristics of emerging economies?
higher birth rate than developed countries, inconsistent levels of participation but improving, low levels or no minimum wage but improving, increasing levels of GNI per capita, Increased diversity (large agricultural sectors but developing manufacturing sectors), very high carbon footprints, higher saving rats compared to developing economies, falling levels of poverty, increasing levels of access to education and clean water, improving medical care, improvement in development of financial markets
GNI per capita between $4085 - $12616
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What are developing economies?
Developing economies experience low living standards, low health and education levels and generally have agriculture-based economies with poor infrastructure and economic and political institutions and high prevalence of corruption
Generally, suffer from low income levels, weak human resources and have only experienced industrialization to a limited extent
Rely on foreign aid and development assistance as a major source of income
Low labour productivity, industrialization, technological innovation and infrastructure development
High levels of income inequality within their economies
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What are the characteristics of developing economies?
loss of population through emigration, high birth and death rates, high population ‘dependency’, inconsistent levels of participation, unofficial labour markets, low levels or no minimum wage, low levels of GNI per capita, lack of industry diversity, low growth rates (often in recession), exports primary products (including low value agriculture), high carbon footprints, low saving rates, high levels of absolute and extreme poverty, considerable inequality of wealth
GNI per capita typically below $4085.
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What are examples of developed countries?
United States, UK, Canada, Norway, Switzerland etc.
Typical EG of 1-3%
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What are examples of emerging countries?
Malaysia, Philippines, China, India, Indonesia
Typical EG of 4-6%
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What are examples of developing countries?
Nepal, Ethiopia, Zimbabwe
Typical EG of 4-6%
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What is the ranking for emerging, developing and developed countries in terms of development?
1. Developed
2. Emerging
3. Developing
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What are the 2 broad reasons for differences between nations?
Global factors and domestic factors
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What are the global factors for the differenes between nations?
Global Trade System
Global financial architecture
Global aid and assistance
Global tech flows
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What are the domestic factors for the differences between nations?
Economic resources
Institutional factors (political and economic institutions)
Economic policies
Government responses to globalisation
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What is meant by the global trade system as a reason for differences between nations? (4)
Several features of the global trade system work to reinforce rather than reduce global inequities. For example:
Wealthy countries protect their domestic agriculture sector as its not competitive with agricultural producers in developing nations --> severely affecting developing countries that export agriculture
Expanding regional trading blocs (e.g. EU and NAFTA) exclude poorer countries from gaining access to lucrative global consumer markets – exclusion from trade opportunities has an enormous impact on poorer countries
WTO’s Doha Round (focus on trade reforms to benefit poorer nations) has been met with resistance by developed countries, especially in regard to making concessions on issues that would benefit developing countries most
Benefits of FTAs inaccessible to developing nations due to substantial cost in implementing international agreements
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What is meant by global financial architecture as a reason for differences between nations? (5)
Although deregulated global financial markets are intended to create development opportunities, the global financial system can also entrench global inequalities. For example;
Long-term international flows of investment heavily favoured developed countries, but developing economies are receiving an increasing share of global FDI flows in recent years
Short-term financial inflows heavily favour the more prosperous emerging economies which offer better financial returns for currency and stock market speculators, also exposes economies to economic volatility
International financial rules have not kept pace with the globalisation of the economy and have tolerated loopholes that contribute to large flows of income or wealth to those who already hold substantial wealth
IMF's Structural policies have been criticised as it serves the interests of rich countries and may be inappropriate to the conditions of developing countries
Many developing countries have massive foreign debt burdens – interest repayments on past loans reduce the income available for governments to promote growth and development due to debt servicing costs
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what is meant by global aid and assistance as a reason for differences between nations? (2)
small scale efforts made by developed countries to address the problems of global inequalities contribute to the entrenched problem of differences in living standards. For example;
Distribution of aid by high income countries reflects strategic and military considerations rather than the needs of the world’s poorest countries
Critics of aid policies of developed countries argue that a significant proportion of official development assistance is ‘phantom aid,’ which do not improve the lives of the poor. For example, when the US provides fixed support to poor countries, it sometimes forces them to buy American crops; a far greater expense than buying crops in the local region
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What is meant by global tech flows as a reason for differences between nations? (3)
It has the capacity to contribute to closing the gaps in living standards but can also entrench inequalities. For example;
New technology can be absorbed much more quickly in economies that have better infrastructure, higher levels of education and already have high penetration rates of related technologies such as computers. Thus, poorer countries have a slower adoption of new tech
New technology large geared to the needs of high-income countries because they choose the priority areas of scientific research
Developing nations also find it difficult to gain access to new technologies, intellectual property rights restrict the benefit of technological transfer to poorer countries and also as they cannot pay for these technologies
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What is meant by economic resources as a domestic reason for the difference between nations? (4)
economies face difficulties in acquiring and maintaining sufficient resources for the production process, namely natural resources, labour, capital and entrepreneurship. For example;
High income countries tend to have highly educated and skilled labour resources, whereas low income nations have high population with poor education --> reduction in quality of the labour supply
Entrepreneurial culture such as the values of individual responsibility, enterprise, wealth creation and a strong work ethic can assist the industrialization and the transitioning towards sustainable economic development
Access to capital and technology: difficulty in gaining access to capital for investment and development is another major structural weakness for developing nations that contributes to lower living standards. In this scenario, poorly developed financial systems increase difficulty for businesses to gain easy access to loans for investment purposes. Essentially for developing countries, it is hard to access capital and technology
Economies with an abundant and reliable supply of cheap natural resources have better opportunities for ED than those who do not. However, an abundance of resources can hamper a country's ED if it leads to an overvalued e/r, narrow X base and over reliance on small number of industries to drive EG
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What are the institutional factors as a domestic reason for the difference between nations?(2)
political stability, legal structures, central bank independence, extent of corruption, strength of social institutions and the government’s domestic and external economic policies affects the ability of an economy to develop. Take political and economic institutions for example;
Political and eco institutions in individual countries can have a dramatic influence on the eco environment for businesses, investors and consumers.
Thus, Political instability, corruption and lack of law enforcement by government agencies tend to undermine confidence of investors, who become more reluctant to take risks due to threatened business interests
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What are the economic policies as a domestic factor for the reason for difference between nations? (5)
Economic policies can have a substantial impact on development, in how governments balance the roles of market forces and government intervention in the economy
If left to market forces, countries may achieve high levels of economic growth but may not improve education, health care and quality of life
Excessive government control and decision-making constrains entrepreneurship and innovation, reducing economic growth
Developed countries have strong market economies and significant government investment in human development
Less able to implement policies to ease inequality because they collect less tax revenue and cannot provide the same level of public services and social welfare
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How can a governments' response to globalisation as a domestic factor influence the differences between nations? (2)
Government responses to globalisation have a substantial influence on a nation’s ability to achieve economic development;
Policies related to trade, financial and investment flows, TNCs and the country’s participation in regional and global economic organisations influences an economy’s ability to take advantage of the benefits of integration
Policy responses to an economic crisis have a significant impact on the domestic economy – active labour market policies that support unemployed workers produced long-term benefits for the economy
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What are the effects of globalisation?
Developing economies have ↑ market access, ↑ access to tech and ↑ foreign investment
High income economies → ↑growth through TNCs, global supply chains and global service markets
Economies have not gained as much as expected from globalisation and greater economic integration has caused disruptive structural changes in some regions
Globalisation has however, led to a convergence in living standards in the global economy, in recent decades:
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What is the trend in the growth rate in East-Asia and Pacific region?
It is (one of) the fastest growing region
9% growth per year on average across the 1990s and 2000s, though it fell to 6.7% on average between 2011-19
Grew by 7.2% overall in 2021, but this reflected strong growth of 8.1% in China, while the rest of the region averaged 2.6% growth
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What is the trend in the growth rate in the Europe and Central Asia region?
Made a successful transition to becoming market economies
Grew by 5% in the 2000s, and 2.9% between 2011 and 2019. Emerging economies of Europe and Central Asia contracted by 3% in 2020, and rebounded to growth above 6% in 2021
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What is the trend in the growth rate in the South Asia region?
Experienced successful growth
5.7% since 2000s
Particularly India (5.8%) after greater integration with global economy, Bangladesh (6%)
SA contracted by 7% in 2020, rebounded by 7.7% in 2021
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What is the trend in the growth rate in the Middle East and North Africa region?
Solid EG throguh 1990s and 2000s underpinned by greater competition for energy resources during globalisation era
4.0% throughout 1990s and 2000s however went through less eco growth due to lower oil prices
3.3% contraction during 2020, but rebounded with 4.5% growth in 2021
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What is the trend in the growth rate in the Sub-Saharan Africa region?
growth rates faster than 1980s levels, but are insufficient for meaningful catch-up against advanced economies
Average growth rate of 4.8% during 2000 to 2019
Ethiopia (9.1% growth),
Mozambique (6.8% growth)
Economies contracted 2% in 2020, but rebounded with 4.5% growth in 2021
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What is the trend in the growth rate in the High income economies?
slower growth rates than those recorded in 1980s
2.2% growth on average in 1991-2019 period, slower than 3.3% recorded during the 1980s
IMF estimation that group of high income economies grew by 5.2% in 2021 after contraction of 5% in 2020
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What are the positive impacts of global financial markets on economies?
Countries would be unable to conduct international transactions without forex markets
Businesses would find difficulty to access loans or attract investors if confined to domestic financial markets
Efficient international financial markets encourage greater transparency of businesses and governments, fostering economic development
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What are the negative impacts of global finance markets on economies during the globalisation era?
Change in investor (global due to globalisation) sentiment against a particular economy can result in collapse of exchange rates, a shock to the economy and a recession accompanied by rising unemployment
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What is the impact of globalisation on trade, investment and transnational corporations? (5)
Globalisation→↓ Protection, ↑ FTAs, Improved technology→↑ Trade flows
Globalisation of financial markets (i.e. Deregulation and govt policies encouraging foreign investment). ↑ FDI→↑ economic growth (especially in emerging economies with ↓ barriers to investment)
↓ Restrictions on foreign ownership and development of foreign capital markets→↑TNCs
Low labbour and environmental laws in developing nations can lead to the exploitation of workers and environmental regulations in developing countries, which is esp relevant during globalisation
Globalisation highlighted the reliance on trade for many of our economies, especially because of several supply chain issues that emerged due to the covid pandemic
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What is the effect of globalisation on environmental sustainability?
Globalisation can have negative environmental consequences
Low income countries desperate to attract foreign investment and earn higher export revenue may engage in eco behaviour that harms the environment to increase efficiency.
-For example,deforestations for paper or wood chip industries, depletion of marine life through unsustainable fishing practices, poisoning of water supplies, pollution, increase CO2 emissions
However, it has some positive effects as globalisation also offers opportunities to protect the world's environment from harm. It forces individual nations to face up to their global responsibility for envrionmental preservation
International forums regarding environment such as the COP26, allows for discussion for the development of regulations to preserve environment and improve enviro sus . Also negotiations such as Kyoto Protocl and Paris Agreement are achieved due to globalisation
It has also facilitated the transfer of new technologies to improve energy efficiency and reduce environmental pollution. Such as electric cars and LED lights
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Does increased globalisation impact the international business cycle?
Yes. Closer linkages between economies can improve the IBC and the reliance on other countries as part of the Business cycle
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Wat are the benefits of increased integration contributing to a more connected IBC? (4)
Allows countries to achieve faster rates of economic growth by specialising in certain types of production and by engaging in trade
Countries with higher levels of trade experience faster economic growth
During times when world economic growth is higher, individual economies are likely to benefit from the upturn in growth
Reasons for the strength of global economic growth in the mid-2000s was the simultaneous upswings in the US and China which propelled the global economy to its fastest growth rates in 30 years
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Wat are the drawbacks of increased integration contributing to a more connected IBC? (4)
Makes economies more exposed to downturns in the international business cycle and to developments in their regions (i.e. eco shocks)
Closer links between economies resulted in a downturn in the US economy in the late 2000s spreading quickly to other developed and developing economies
As extent of trade and financial integration continues to increase, there is likely to be greater synchronisation of the IBC, intensifying both the downturns and the upswings in the global economy
Furthermore, this is seen in the global economic fallout from covid which spread quickly to both developed and developing economies
