Economics Unit 3

Globalisation

Globalisation – expansion of world trade in goods/services leading to greater interdepence.

Causes :

-          Improved transport

-          Less protectionism

-          Better living standards

-          Better IT

-          Economies of scale

MNC- a company that has operations all over the world

Advantages

Disadvantages

Lower labour costs

Loss of jobs

Taking advantages of each country

Technology lost when relocated

Lower transportation costs

Loss of tax revenues

Absolute advantage – when a country is able to provide a good/service using fewer resources + at a lower cost than another country

International Trade – exchange of goods/services across international boundaries

Advantages

Disadvantages

More consumer choice

Pollution – factories

Lower price

Transportation costs

More competition so less monopolies

Air miles

Specialisation – being better than another country at providing a good/service in terms of quantity of output + lower cost

Cuts tariffs

Free trade – an absence of tariffs, quotas + regulations designed to reduce/prevent trade among nations

Advantages :

-          More choice

-          More competition + innovation

-          More world output

Patterns of trade

UK :       more services than goods

                more imports than exports

Protectionism- an act to reduce international trade

Tariff- a tax placed on a foreign good to increase price and decrease demand

Quota- physical limit

Embargo- ban

Regulations

Why?

·         Stop negative externalities- alcohol

·         Stop dumping

·         Helps infant industries to develop

Advantages

Disadvantages

Larger market to export to

Loss of jobs

Cheaper imports

More global warming

EU

Single market  - no protectionism between members

-          No border control

-          Free movement of people

-          Competition

Advantages

Disadvantages

Free movement of capital

Job losses

Free movement of capital

Attracts jobs/capital away from the rest of the world

More competition

MNCs drive out local firms

Customs Union- group of countries (e.g. EU) have free trade between members with a common external barrier

Single currency- group of countries agree to adopt the same currency + to have the same monetary policy

Advantages

Disadvantages

Price transparency

Monetary policy doesn’t suit everyone

Employment

Responding to recession takes time

Transaction costs

Current account – the balance of trade in goods/services + net investment incomes from overseas assets

Balance of trade in goods – the export of goods from the primary/secondary sectors minus the import of goods

Balance of trade in services - the export of services from the tertiary sector minus the import of services

Current account deficit(outflow) – the value of imports exceeds the value of exports

Current account surplus(inflow) – the value of exports exceeds the value of imports

Reasons for Current Account Deficit :

-          Globalisation – made in different countries

-          Exchange rate – too expensive

-          Low productivity/investment – can’t compete

Solutions :

-          Control inflation

-          R&D

- Improving productivity

Exchange rate – how much one currency is needed to be given up to buy one unit of another currency

Floating exchange rates – where the price of 2 currencies are decided by marker forces

Fixed exchange rates – where the central bank of a country tries to decide on the price of a currency

Strong £ = cheaper import + expensive exports

1.        Raise interest rates

2.       More pounds bought

3.       More demand for the pound

4.      Price is bid up

International competitiveness – ability of companies to compete with other companies from abroad

Competitiveness – the ability of a country to compete successfully internationally + maintain improvements in real output and wealth

Factors influencing it :

-          Wages – cost more

-          Productivity – more output

-          Exchange rate

-          Raw materials – lower cost

Government policy + international competitiveness

-          Low inflation

-          FDI - Creates jobs + Innovation +  Output (more)

Advantages

Disadvantages

More FDI

Loss of jobs

More choice

Pollution

Sustained economic growth

Small businesses cannot gain

Poverty

Absolute poverty- less than $1.25 a day

Relative poverty- less than 60% of the country’s median income

To reduce it :

-          National Minimum Wage

-          Child benefits

-          State pension

Supporting LDCs

·         Aid                              -Money/goods. Money can be given in a grant or a loan with interest

·         Trade                         - Free trade

·         Investment             - Human capital- schools, training, skilled workforce attracts FDI

·         FDI                              - MNC set up in country- could lead to overdependence

·         Debt relief

·         NGOs                         -Non-government organisations- Oxfam, Save the Children- focus on specific issues

Limits to the benefits of globalisation

-          Low education + training – can’t use technology

-          Poor healthcare

-          Lack of investment – large foreign debts