Globalisation

• What is absolute advantage?

  Producing a good more cheaply than another country
• What is comparative advantage?

  Producing a good at a lower opportunity cost
• What is globalization?

  Growing interdependence of countries and rapid change
• What is international competitiveness?

  The ability to compete effectively in markets
• What does the J-curve illustrate?

  Current account worsens before it improves
• What is the Marshall-Lerner condition?

  Sum of elasticities must exceed one for improvement
• What are terms of trade?

  Ratio of export prices to import prices
• What does the Marshall-Lerner condition state?

  Devaluation improves trade balance if elasticities sum ≥ 1
• When does the J-curve effect occur?

  When currency devaluation raises import costs initially
• What are the factors contributing to globalization?

  1. Trade in goods
  2. Trade in services
  3. Trade liberalization
  4. Multinational corporations
  5. International financial flows
  6. Communications and IT
  7. Containerization
• How do developing countries contribute to trade in goods?

  They acquire capital and knowledge to produce goods
• How has trade in services changed?

  Increased trade of tourism and software from developing countries
• What role does the World Trade Organization play in globalization?

  Advocates for free trade and reduces trade barriers
• How do multinational corporations contribute to globalization?

  MNCs utilize marketing to expand globally
• What has increased due to international financial flows?

  Capital and foreign direct investment across borders
• How has IT impacted globalization?

  Made communication easier and cheaper globally
• What is containerization?

  Standardized containers for cost-effective global shipping
• How does productivity affect international competitiveness?

  Higher productivity lowers costs and increases efficiency
• What are unit labor costs?

  Significant part of production costs for firms
• How do exchange rates affect competitiveness?

  Lower exchange rates make exports cheaper
• Why is product quality important for competitiveness?

  Good quality leads to inelastic demand and reputation
• How does regulation impact international competitiveness?

  Excessive regulation raises production costs and hinders investment
• What does the rate of innovation indicate?

  Proportion of GDP invested in new capital
• How is terms of trade calculated?

  Index price of exports over index price of imports
• What is the J-curve effect on imports and exports?

  Time lag in changing export and import volumes
• What is a limitation of comparative advantage in a perfectly competitive market?

  Unrealistic assumptions limit specialization benefits
• How does the exchange rate affect production costs?

  It influences the cost of producing goods
• What can result from unequal distribution of globalization benefits?

  Income and wealth inequalities may arise
• How do newer firms struggle in a global economy?

  They may be driven out by competition
• What is a potential impact of global companies on governments?

  Loss of sovereignty due to international treaties
• How do producers adapt to globalization?

  They lower costs and improve efficiency
• What are the effects of globalization on consumers?

  Increased living standards and product availability
• What are the implications of globalization for workers?

  More job options but potential structural unemployment
• How does globalization impact the environment?

  Increased pollution and environmental degradation risks
• How have emerging economies changed global trade?

  They participate more due to economic shifts
• What are the impacts of globalization on individual countries?

  1. Inequalities in income and wealth
  2. Challenges for newer firms
  3. Loss of government sovereignty
  4. Increased competition for producers
  5. Improved living standards for consumers
  6. Job options and structural unemployment for workers
  7. Environmental consequences
• Disadvantages of protectionism

  • higher consumer prices
  • less efficiency and innovation
  • risk of trade wars
• Advantages of protectionism

  • increased competition leads to better quality products
  • specialisation boots efficiency
  • economic growth and higher living standards
• WTO promotes free trade by...

  • Negotiating trade agreements
  • Resolving disputes
  • Setting rules for fair trade
  • Monitoring trade policies
• Challenges faced by WTO

  • Some countries ignore rulings
  • Struggles with enforcing rules on big economies e.g. China, US
  • Trade wars & geopolitical tensions