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Emerging economies
Economies that have increasing growth rates but relatively low income per capita e.g. china and Brazil
Globalisation
The economic integration of different countries through increasing freedoms in the cross border movement of people, goods/services, technology and finance
BRICS
Brazil, Russia, India, China, South Africa
MINT
Mexico, Indonesia, Nigeria, Turkey
Indicators of growth
Gross domestic product, literacy, health, human development index
GDP
Total output of a country divided by the number of people in the same country
High= high standard of living
Useful indicator to compare the growth of countries
Literacy
% of adults within an economy who can read and write
Heaths
Key indicators: avg life expectancy, infant mortality rates, access to health care and access to clean water
Impacts the quality of workforce and therefore whether businesses want to invest there
Human development index
Combines life expectancy, education level and income to determine the quality of development of citizens within a country
Imports
Goods and services bought by people and businesses in one country from another country
Exports
Goods and services sold by domestic businesses to people or businesses in foreign countries
Specialisation
Occurs when a country / business decides to focus on producing a particular good or service
Competitive advantage
When a business specialises they can have higher quality products so can add value to their products to gain advantage over their competition
FDI
Foreign Direct investment is investment by foreign firms which results in more than 10% share of ownership of domestic firms
Reasons for FDI
Access to local resources
Access to local knowledge and skills
Access to infrastructure and complementary industries
Investment in expanding industry and fast growing profitable businesses
Access to foreign branches
FDI benefits
Increased economic growth as there is any inflow of money into the country
Increased job opportunities
Access to knowledge and expertise from foreign investors
Horizontal FDI
Occurs when a business invests in the same industry or sector in host country as in home country e.g. McDonalds invests in the same industry (fast food)
Vertical FDI
Occurs when a MNC invests in foreign businesses that are part of the supply chain e.g. Toyota purchase a tyre manufacturer
Trade liberalisation
The removal or reduction of barriers to trade between different countries
Trade liberalisation benefits
Allows businesses to increase their market size → increased output and benefits from economies of scale
Free trade helps businesses to reduce costs as imported raw materials and components can be sourced cheaply → business is more competitive
Trade liberalisation drawbacks
Domestic firms → infant industries may not be able to compete against international firms
Some industries may be subject to dumping as businesses abroad may sell excess product at unfairly low prices
Factors contributing to globalisation
Political change
Growth of structural change
Growth of the global labour force
Migration
Increased investment flow
Increased significance of global companies (TNCs)
Reduced cost of transport and communication
Political change
Changes in the gov of a country can influence the country’s trading attitude
Reduced costs of transport and communication
Economies of scale → containerisation
Tech improvements → sellers and buyers to connect easiler
Increased significance of TNCs
Businesses operate in more than one country → HQ in one country and then branches in other countries
FDI increase (investment)
Job and wealth creation within an economy
Establish in countries where trade barriers may face businesses
Migration
Movement of people → flexibility of jobs
Growth of labour force
Grown significantly → china and India → emerging economies
Structural change
Country, industry or market changes which sector or industry they operate in → offshoring often occurs
Protectionism
When a gov seeks to protect domestic industries from foreign competition
Protectionism measures
Tariffs
Import quotas
Legislations and domestic subsidies
Tariff
A tax placed on imported goods from other countries → increases the price of imported goods → helps to shift demand to domestic businesses / products
Tariff benefits
Protect infant industries
Increase in gov tax reve
Tariff drawbacks
Increases the cost of imported raw materials → affect businesses who use these goods for production = higher consumer prices
Reduces competition for domestic firms who may become more inefficient and produce poor quality products for consumption
Import quotas
Government imposed limit on the amount of a particular product allowed into the country
Import quota benefits
To meet the extra demand → domestic businesses may need to hire more workers → reduces unemployment and benefits the wider economy
The higher prices for a the product may encourage new businesses to start up in the industry
Countries are able to easily change import quotas as market conditions change
Foreign countries view quota as less confrontational to their business interests than tariffs → exports can still sell goods at higher price in domestic markets (limited amount)
Import quotas drawbacks
Quotas limit the supply of a product and whenever supply is limited price rises
They may generate tension in the relationship with trading partners
Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition
Government legislation
Impose laws to restrict certain imports to protect customers and businesses e.g. US chicken is banned in the UK → health and safety reasons
Government legislation benefits
Domestic businesses can grow as limits competition
Government legislation cons
Face retaliation from other countries
Domestic subsidies
Payments are given to domestic businesses to help lower their cost of production e.g. post brexit, UK gov provides subsidies to farmers to reduce the costs
Domestic subsidies pros
Reduced costs = lower prices → domestic firms more competitive and jobs protected
Domestic subsidies cons
Businesses could become inefficient as they know that costs are subsidised
