Globalisation

• Define absolute advantage

  When a country can produce a good more cheaply in absolute terms than another country.
• Define comparitive advantage

  When a country is able to produce a good more cheaply relative to other goods produced; it has a lower opportunity cost
• Define globalisation

  The growing interdependence of countries and the rapid rate of change it brings about; movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital.
• Define international competitiveness

  The ability of a country to compete effectively and become attractive in international markets.
• Define J-curve

  A current account will worsen before it improves following a depreciation of the currency.
• Define Marshall- Lerner condition

  The sum of the price elasticities of imports and exports must be more than one if a currency depreciation is to have a positive impact on the trade balance.
• Define terms of trade

  The ratio of an index of a country's export prices to an index of its import prices.
• What does the Marshall-Lerner condition state?

  It states that a devaluation in a currency only improves the balance of trade if the absolute sum of long-run export and import demand elasticities is greater than or equal to 1.
• When does the J curve effect occur?

  When a currency is devalued as depreciation raises the cost of imports, the total value of imports rises initially, causing the deficit to worsen. Export value declines with time, resulting in a decrease in the trade deficit. There may be a delay in adjusting the amount of exports and imports when the currency is devalued. This might be due to trade agreements and the price elasticity of demand for imports in the short term, while consumers look for alternatives. Consumers may begin to purchase domestic items in the long run, reducing the deficit.
• Factors contributing to globalisation: trade in goods (1)

  Developing countries have acquired the capital and knowledge to make goods. It is easier and less expensive to move goods across international boundaries due to modern modes of transportation. MNCs relocate their production offshore because some developing countries provide cheaper labour. As a result, developed countries trade with developing countries in order to gain access to similar produced goods.
• Factors contributing to globalisation: trade in services (2)

  The trade of tourism, call services and software production (especially India) has increased from developing countires to devloped countries.
• Factors contributing to globalisation: trade liberalisation (3)

  The growing strength and influence of organisations such as the World Trade Organisation, which advocates free trade, has contributed to the decline in trade barriers.
• Factors contributing to globalisation: Multinational corporations (4)

  MNCs have utilised marketing to become worldwide, and thus, they have been able to benefit from economies of scale, including risk-bearing economies of scale. Lower production costs have emerged from the development of technological knowledge and economies of scale.
• Factors contributing to globalisation: International financial flows (5)

  The flow of capital and FDI across international borders has increased. China and Malaysia have financed their growth with capital flows. Also, the foreign ownership of firms has increased. There has been more investment in factories abroad. The removal of capital controls has facilitated this increase.
• Factors contributing to globalisation: Communications and IT (6)

  The spread of IT has resulted in it becoming easier and cheaper to communicate, which has led to the world being more interconnected. There are better transport links and the transfer of info has been made easier , also known as the "death of distance".
• Factors contributing to globalisation: containerisation (7)

  It is getting more cost-effective to move goods across the world. As a result, prices fall, increasing market competition. Containerisation means that goods are distributed in standard-sized containers, so it is easier to load and cheaper to distribute using sea and rail transport. This contributes to global demand being met. Cargo can be carried twenty times faster than previously, economies of scale can be exploited, and less labour is needed. However, it is mostly (MNCs) that have been able to take advantage of this, which might lead to some structural unemployment.
• How countries achieve international competitiveness: Productivity (1)

  The more productive the country becomes in the production of a good/service, the lower its costs per unit and the cheaper it can supply the good on the international market. They can also produce more per hour with the same quantity of resources, which makes them more efficient.
• How countries achieve international competitiveness: unit labour costs (2)

  Unit labour costs form a significant part of the production costs of a firm, especially if it manufactures goods. In China, unit labour costs have been low, especially because of the large population which increases the supply of labour. This has made them highly competitive in the manufacturing sector. However, the rise of the middle class in China has meant workers have been demanding higher wages recently.
• How countries achieve international competitiveness: exchange rates (3)

  A lower exchange rate means goods are more competitive as exports are relatively cheaper.
• How countries achieve international competitiveness: product quality (4)

  If a good is renowned for being of a good quality, such as German cars, they are likely to have a more inelastic demand, since consumers are attracted to the reputation.
• How countries achieve international competitiveness: regulation (5)

  Excessive regulation can make it hard for businesses to invest and raise their average production costs. The UK government has introduced the "Red Tape Challenge," which aims to simplify regulation for businesses in order to make meeting environmental standards cheaper and easier while also creating new jobs. It should help to encourage investment and innovation so that domestic businesses can compete on a global scale. Excessive employment restrictions in France make it difficult for small businesses to compete.
• How countries achieve international competitiveness: rate of innovation (6)

  This is calculated by the proportion of GDP invested in new capital. If a country innovates more, they are likely to develop new, more advanced technology that can help them become more competitive. It could increase the quality of the goods and services produced. It could be argued that non-price factors such as availability, reliability, quality, design and innovation are more important than price factors.
• How is the terms of trade calculated?

  It measures the volume of imports an economy can receive per unit of exports. It is calculated by the index price of exports over the index price of imports. Terms of trade above 100 are improving, whilst those below 100 are worsening.
• J-curve effect on imports/exports

  When the currency is devalued, there may be a time lag in changing the volume of exports and imports. This could be due to trade contracts and price inelasticity of demand for imports in S.R, whilst consumers search for alternatives. In L.R, consumers might start purchasing domestic products, which could help improve the deficit.
• Evaluation of comparative advantage: perfectly competitive market (1)

  It assumes a perfectly competitive market, but it is unrealistic, which results in the full benefit of specialisation not happening. Specialising fully could also lead to structural unemployment since workers might not gain the transferrable skills they need to change between sectors, or they are simply unable to change.
• Evaluation of comparative advantage: exchange rate (2)

  It doesn't consider the exchange rate when considering the cost of production for both countries. Therefore, if the price of one good increases, it is more worthwhile producing that good, even if the country has a comparative advantage in the other good.
• Impact of globalisation and global companies on: individual countries- inequalities (1)

  If the benefits and costs of globalisation are not fairly distributed, there may be income and wealth inequalities. This is seen in China, where rural and urban populations' income and living standards are dramatically different.
• Impact of globalisation and global companies on : individual countries- newer firms (2)

  Newer industries may find it difficult to survive in a competitive global economy and hence be driven out of the market. This might be damaging to developing countries with less established or smaller industries. Furthermore, huge corporations' supernormal profits may be reduced, limiting R&D investment and, as a result, long-term economic growth.
• Impact of globalisation and global companies on : governments (3)

  As international treaties grow, certain states may lose their sovereignty. Individual states would have a difficult time resisting their power, and if countries join the organisations, they will be restricted to their regulations.
• Impact of globalisation and global companies on : producers (4)

  Firms operate in a more competitive environment, which encourages them to lower their average costs and become more efficient. Producers can make their average costs lower by switching production to places with cheaper labour. The spread of technology has resulted in firms being able to employ the most advanced machines and production methods.
• Impact of globalisation and global companies on : consumers (5)

  Globalisation leads to a growth in global GDP, which raises consumer living standards and helps in the eradication of extreme poverty. However, calculating the proportion of the increase due to globalisation is difficult. This increase in average consumer income should help firms offset some of their decreased production costs. This is due to growing demand from China, which has driven up the price of raw materials by contributing to the rise in commodity prices. Because of the greater availability of products and services, consumers might benefit from a larger selection of goods and services. However, some services, such as hotels, may become homogenised.
• Impact of globalisation and global companies on : workers (6)

  There may be more job options for employees worldwide, but this might lead to structural unemployment, as there was after the collapse of the shipbuilding and mining industries in the United Kingdom. This is because manufacturing was more efficient in other countries, thus production relocated to countries with lower labour costs. However, it may be argued that countries would have transitioned from agricultural to manufacturing to services regardless of globalisation, and that globalisation just accelerated the process. The creation of employment when production goes to countries with cheaper labour costs can be viewed as either beneficial or harmful. On the one hand, MNCs may be exploiting workers by employing them in sweatshops, for example. Working in a sweatshop, on the other hand, may give a greater and more steady income than other options like agriculture.
• Impact of globalisation and global companies on : environment

  Although increased production and car use may result in more pollution as a result of industrialisation and rising consumer living standards, consumers may become more environmentally conscious as their average wages rise. Deforestation, water shortages, and land degradation might all have significant environmental consequences.
• Impact of emerging economies

  Developing countries are now participating in world trade due to the collapse of communism. International trade is more important for developing countries as it accounts for 20% of LDC economies but only 8% of the US economy. China and India have invested in African infrastructure in exchange for natural resources. Both China and India are important in Europe, with trade and financial relations, China is a main import source, whilst both are important for capital.