F585 The Economics of Globalisation

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What is Globalisation?
Increased integration and interdependence between international economies
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Main Characteristics of Globalisation
Free movement of capital and labour across international borders; free trade in goods and services; availability of technology and intellectual capital on an international scale
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Other Characteristics of Globalisation
Convergence of political decisions; international trade > % of all trade; increase financial flows; increase integration of production; more countries involved in trade;more foreign ownership; Deindustrialise developed, industrialise developing
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Factors promoting Globalisation
Trade liberalisation; Est. Financial Institutions; Improve Comms tech; increase profit/MNCs/FDI; increase EoS; Gov want FDI; less real cost and time of transport; opening markets to trade&I; international specialisation; more I by sovereign states
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Benefits of Globalisation
Specialisation based on CA; Increased Trade=>EoS; Increase Comp=>lower P more efficiency; lower production costs; more choice; higher GDP;lower absolute pov; developing access FDI and tech
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Drawbacks of Globalisation
increased price of some products (increased D world); economic dependancy=>instability; increased risks from exposure; increased financial flows; specialisation lead to dependancy on few industries; BoP imbalance; Threat local culture; Migration away
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What is an MNC
business that operates in more that one country
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What is FDI
when MNC’s acquire a lasting interest in an overseas firm
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Examples of FDI
Purchase a foreign firm; establish new operations abroad (i.e. Production; marketing etc.)
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Reasons for FDI
Market Seeking; Strategic Asset Seeking; Resource Seeking; Efficiency Seeking
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What is Market Seeking FDI
Finding new buyers abroad for their goods
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What is Strategic Asset Seeking FDI
Merge and Acquire foreign firms to gain; distribution networks; key sites; trade licenses; reputation; technology
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What is Resource Seeking FDI
Finding Cheaper FoP abroad
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What is Efficiency Seeking FDI
using subsidiary allows firms to bypass a trade bloc’s or a country’s tariffs and quotas
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Impact of FDI on Growth
Increase I=>J in CFY=>increase AD=> multiplier and accelerator=> increase GDP; Increased I=>increased PPC=> LREG
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Impact of FDI on Economy
increased productivity; tech transfer; positive externalities; increased tax revenue; Dynamic Efficiency from increased tech.
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Impact of FDI on BoP
SR; FDI causes increase in $rate which leads to fall in international competitiveness; LR; FDI increases output of X, increases BoP; increases competitiveness; fall in $rate
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Negatives of FDI
restrict local growth; increase local wages and distort local markets; demand pull inflation if near YFE; Create dependancy on MNC; Footloose; can affect C/A if profits relocated; crete unsustainability if increases negative externalities
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Benefits of MNCs
FDI can increase jobs/skills/wealth; buy local goods=>inflows of foreign currency; benefit from EoS=> increased Efficiency; increased SoL by increase employment
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Negatives of MNCs
Exploitation of workers; force local firms out of business; be footloose and create mass n; can withdraw profits to benefit form lower tax; lower choice->increase prices; can influence Gov policy; force countries to reduce corporate tax levels
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What are Private flows
Transferred by individuals; buying/selling shares, property, other financial assets. Hot money. MNCs with FDI
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Influences on Private Flows
Interest rates; state of different economies
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Effect of Private Flows on economies
Affect the F/A of BoP
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What are Official Flows
Government flows like; EU transfers or foreign aid
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Influences on Official Flows
Political Gain; Ethical Decision Making; Currency Defence; Alter Exchange Rates (if flows are big enough and last long enough)
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What are Short Term Flows
Funds in and out of an economy. Hot Money; Highly Volatile.
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Influences on Short Term Flows
Actual and Expected Interest Rates; Exchange Rates
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What are Long Term Flows
Buying and Selling assets; land property, production facilities(FDI) or portfolio investment
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Evaluative points of International financial flows
Demand for currency affected by Trade, Short term and long term capital flows= using official flows to change exchange rates can have a large effect on capital flows; IFF change BoP by altering F/A
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Who are the WTO
International Agency which negotiates and polices trade agreements between member nations
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Aims of WTO
Increase International Trade by allowing members to negotiate reduced trade restrictions; Resolve trade disputes
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Impact of WTO
Increase AD by increasing trade (by reducing protectionism)
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Who are the IMF
Global organisation promoting economic stability by lending to economies with BoP problems
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Effect of BoP problems
Trade falls =>GDP globally falls=> global economic stability threatened
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Aims of the IMF
improve certainty and stability
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What do the IMF do?
Give loans to countries with BoP problems to help improve trade and growth
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Are IMF loans conditional
IMF loans are conditional on market friendly policy changes that strengthen economy and international competitiveness hence improving BoP
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Are all IMF loans helpful
Loans may harm development if they result in public service cuts, lower education quality or quantity, or lower health standards
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Who are the World Bank
Organisation that provides development funding to countries and expertise for economic management
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Aims of the World Bank
Negotiate Debt Relief
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What do the World bank do
Offer low interest loans to countries unable to borrow money commercially; long term interest free loans for the worlds poorest countries
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Impact of the World Bank
Allows developing economies to invest. this increased AD and AS causing SR and LR growth/
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Are World Banks Conditional
Normally require countries to adopt market friendly reforms.
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Other cards in this set

Card 2


Main Characteristics of Globalisation


Free movement of capital and labour across international borders; free trade in goods and services; availability of technology and intellectual capital on an international scale

Card 3


Other Characteristics of Globalisation


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Card 4


Factors promoting Globalisation


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Card 5


Benefits of Globalisation


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