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macroeconomics 2
4.1.1 globalisation
globalisation - the increasing integration of the worlds economies into a single market
characteristics of globalisation
increase in trade of imports and exports
free movement of labour
free movement of capital
free movement of ideas/ enterprise
factors causing globalisation
improvement in transport
tech + internet communication
trade liberalisation
financial markets
MNC growth
NGOs (non govt orgs) e.g. world bank
MNC/ TNCs - companies with significant production operations in two or more countries
NGOs may encourage a country to open markets for general benefit
effects of globalisation
consumers
+ -
consumer choice homogenised goods so no choice in LR
lower prices high commodity prices due to increased demand for
better quality transport
local industries shrink
higher risk of cross border cyberattacks
workers
+ -
higher demand for workers from tncs outsourcing could mean job loss
high incomes for skilled structural unemployment
ability to migrate for better opportunities stagnated incomes for low skilled jobs due to
human capital rises as knowledge transferred through international comp
FDI + comp encourages skill acquisition strain on public provisions
inequality between countries falls
producers
+ -
increased specialisation and trade increased dependency on outsourcing country
lower risk due to larger raw materials market trade sanctions could limit business
lower cop → lower price could be limited through trade barriers, protectionism,
increase profit immigration bans, trade bans, etc
macroeconomics 2 1
, tax avoidance in other countries small domestic producers face high competition from
MNCs
govt/ society
+ -
higher tax revenue if MNC relocates, job and tax loss
could create policies to attract more firms e.g. possible bribery and corruption
subsidies, tax allowances distorts development
govt spends more on education + r+d to stand out environmental degradation/ exploitation of mines,
cattle, forests, etc
4.1.2 specialisation and trade
why do countries trade
price
difference of factor endowments
product differentiation
political reasons
absolute advantage - one country can produce one good more cheaply than another in absolute
comparative advantage - a country is able to produce a good cheaper relative to other goods
involves a country marking trade offs when specialising
theory of comparative advantage - its mutually beneficial to trade if the opportunity cost of production differs
aa limitations
assumes trust between countries
assumes no cost of trade
assumes max productivity
assumes each country wants each others goods
specialisation eval
creates dependency between countries
high labour productivity have a competitive advantage in highly specialised goods - argues that ca is made not natural
(ricardo)
countries where the price of capital to labour is high can specialise on the skill of their labour (ohlin)
north south divide could show north makes high tech and south makes low
goods may just be imported because of preferable quality over relative price
advantages of trade
uses ca to be more efficient
higher production volumes → more eos for produces
increased global competition → lower prices + more consumer surplus → innovation and better quality goods
increased comp could reduce domestic monopolies
encourages tech transfer between countries
increased output → increased employment
disadvantages
overspecialisation + increased risk of job loss e.g. 2008 fidi
new domestic firms struggle with international comp
niche domestic market struggle against cheaper foreign goods
macroeconomics 2 2
, 4.1.3 patterns of trade
types of patterns of trade
geographical
commodity
geographical
intra-regional trade - trade between countries in the same region
could form a regional trading bloc
commodity
extent of a country’s dependence on primary secondary and tertiary industries
can be the extent countries are over dependent on extractive industries
4.1.4 terms of trade
tot - measures how the price of a countries exports change compared to imports
used as a measure of international comp
factors affecting tot
change in demand for imports or exports
change in exchange rate
inflation relative to trading partner
rise in productivity (X price down)
changing global income
4.1.5 trading blocs + WTO
bilateral - agreement between two countries
when more, multi/ plurilateral
static benefits - short term benefits which come from gains of specialisation (gains from current account with net welfare
gain)
dynamic benefits - long term benefits from international trade that accelerate econ growth e.g. increased competition,
increased efficiency + transfer of resources
types of trading bloc
preferential trading areas
tariffs + trading barriers reduced on some goods between members
india chile pta
free trade areas
members remove restrictions between each other
free to have other trade restriction with non members
nafta 1992-2020
custom unions
remove restrictions between member countries
impose the same import restriction on other countries e.g. common external tariff (CET)
eu turkey customs union
common markets
no import restrictions between members
cet on all non members
macroeconomics 2 3
macroeconomics 2
4.1.1 globalisation
globalisation - the increasing integration of the worlds economies into a single market
characteristics of globalisation
increase in trade of imports and exports
free movement of labour
free movement of capital
free movement of ideas/ enterprise
factors causing globalisation
improvement in transport
tech + internet communication
trade liberalisation
financial markets
MNC growth
NGOs (non govt orgs) e.g. world bank
MNC/ TNCs - companies with significant production operations in two or more countries
NGOs may encourage a country to open markets for general benefit
effects of globalisation
consumers
+ -
consumer choice homogenised goods so no choice in LR
lower prices high commodity prices due to increased demand for
better quality transport
local industries shrink
higher risk of cross border cyberattacks
workers
+ -
higher demand for workers from tncs outsourcing could mean job loss
high incomes for skilled structural unemployment
ability to migrate for better opportunities stagnated incomes for low skilled jobs due to
human capital rises as knowledge transferred through international comp
FDI + comp encourages skill acquisition strain on public provisions
inequality between countries falls
producers
+ -
increased specialisation and trade increased dependency on outsourcing country
lower risk due to larger raw materials market trade sanctions could limit business
lower cop → lower price could be limited through trade barriers, protectionism,
increase profit immigration bans, trade bans, etc
macroeconomics 2 1
, tax avoidance in other countries small domestic producers face high competition from
MNCs
govt/ society
+ -
higher tax revenue if MNC relocates, job and tax loss
could create policies to attract more firms e.g. possible bribery and corruption
subsidies, tax allowances distorts development
govt spends more on education + r+d to stand out environmental degradation/ exploitation of mines,
cattle, forests, etc
4.1.2 specialisation and trade
why do countries trade
price
difference of factor endowments
product differentiation
political reasons
absolute advantage - one country can produce one good more cheaply than another in absolute
comparative advantage - a country is able to produce a good cheaper relative to other goods
involves a country marking trade offs when specialising
theory of comparative advantage - its mutually beneficial to trade if the opportunity cost of production differs
aa limitations
assumes trust between countries
assumes no cost of trade
assumes max productivity
assumes each country wants each others goods
specialisation eval
creates dependency between countries
high labour productivity have a competitive advantage in highly specialised goods - argues that ca is made not natural
(ricardo)
countries where the price of capital to labour is high can specialise on the skill of their labour (ohlin)
north south divide could show north makes high tech and south makes low
goods may just be imported because of preferable quality over relative price
advantages of trade
uses ca to be more efficient
higher production volumes → more eos for produces
increased global competition → lower prices + more consumer surplus → innovation and better quality goods
increased comp could reduce domestic monopolies
encourages tech transfer between countries
increased output → increased employment
disadvantages
overspecialisation + increased risk of job loss e.g. 2008 fidi
new domestic firms struggle with international comp
niche domestic market struggle against cheaper foreign goods
macroeconomics 2 2
, 4.1.3 patterns of trade
types of patterns of trade
geographical
commodity
geographical
intra-regional trade - trade between countries in the same region
could form a regional trading bloc
commodity
extent of a country’s dependence on primary secondary and tertiary industries
can be the extent countries are over dependent on extractive industries
4.1.4 terms of trade
tot - measures how the price of a countries exports change compared to imports
used as a measure of international comp
factors affecting tot
change in demand for imports or exports
change in exchange rate
inflation relative to trading partner
rise in productivity (X price down)
changing global income
4.1.5 trading blocs + WTO
bilateral - agreement between two countries
when more, multi/ plurilateral
static benefits - short term benefits which come from gains of specialisation (gains from current account with net welfare
gain)
dynamic benefits - long term benefits from international trade that accelerate econ growth e.g. increased competition,
increased efficiency + transfer of resources
types of trading bloc
preferential trading areas
tariffs + trading barriers reduced on some goods between members
india chile pta
free trade areas
members remove restrictions between each other
free to have other trade restriction with non members
nafta 1992-2020
custom unions
remove restrictions between member countries
impose the same import restriction on other countries e.g. common external tariff (CET)
eu turkey customs union
common markets
no import restrictions between members
cet on all non members
macroeconomics 2 3
