Extract 1 - Globalisation and World Trade

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Globalisation and world trade

Key terms

  • globalisation - a process of deeper economic integration and interdependance between countries
  • capital markets - markets for bonds (debt) and equities (shares)
  • specialisation - specialising factor inputs in a certain task
  • division of labour - breaking down production into smaller individual tasks
  • comparative advantage - refers to the relative cost advantage tat one country has over another
  • economic efficiency - making optimum use of scarce factor inputs
  • import tarrifs - ad valorem taxes on the value of imported products
  • absilute advantage - the ability to produce a product (g/s) at a lower absolute cost

Aspects of globalisation 

  • trade to gdp ratios are rising for most countries
  • expansion of financial capital flows between countries
  • rising FDI and cross border M%A
  • rising of global brands
  • deeoer specialisation of labout i.e components from many nations
  • global supply chains and new trade and investment routes
    • china for example are creating, through significant infrastructure spending, a new silk route/pathway of trade and investment within the emerging world

Looking at extract

the closer links between the worlds economies are seen in a number of indicators 

  • the value of trade in g+s as a % of world GDP is increasing
  • FDI as a % of world GDP has increased 6 fold since 1980
  • the number of migrant workers has trebled wince 1960s (remittances and migration extract 4)
  • merchandise trade as a share of GDP is the sum of exports and imports / the value of GDP expressed in $
  • this trade to global GDP has risen in the LR but has been stable fo declining gently in recent years
  • the growth of world trade is currently clowing down casting coubt on the points made in this extrace - has the current phase of globalisation stalled?
  • some economists think we have reached the end of peak globalisation

it is argued that globalisation brings significant benefits to both individual economies and to the global economy as a whole

it opens up markets throughout the world promoting specialisation and division of labour as economies focus production according to their comparative advantage

  • economies can access larger markets than would be the case without globalisation
    • this means accessing markets of countries with a higher GNI per capita and larger gDP (US and China are biggest countries in the world)
    • for advanced countries, growing consumer markets in emerging countries offer rich potential for trade in g+s+investment
  • they can access more capital goods and more advanced technology as well as larger markets for their exports 
  • at the same time they can benefit from cheaper imports
  • economic thoery provides strong support for the process of globalisation in terms of the benefits of increased economic efficiency

Comparative adv and economic welfare

  • ca idea where a country has a relatively low opp cost of production and so specialises in produces this good. providing certain assumptions are met, it makes sense for those countries to specialise where they ahve comp adv
  • if each country specialises, total output increases leading to better allocative…


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