globalization ch.1-12

In this era globalization was centered around countries. It was about how much horsepower, wind power, and steam power a country had and how creatively it was deployed.

Globalization 1.0 from 1492-1800

Interrupted only by the two World Wars. In this era, the dynamic force driving change was multinational companies.

Globalization 2.0 from 1800-2000

The convergence of the personal computer, fiber-optic internet connections, and software has created a “flat-world platform” that allows small groups and even individuals to go global

Globalization 3.0 from 2000

a shift toward a more integrated and interdependent world economy

globalization

two facets of globalization

globalization of markets/ demand side and globalization of production/ supply side

the merging of historically distinct and operate national markets into one huge global marketplace

globalization of markets

sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production

globalization of production

maintains order in the international monetary system

International Monetary Fund

lender of last resort

International Monetary Fund

requires nation-states to adopt specific economic policies in return for loans

International Monetary Fund

promotes development using low-interest loans

world bank

seen as less controversial than IMF

world bank

based on tradtion, precedent, and custom

common law

based on detailed set of laws organized into codes

civil law

based on religious teachings

theocratic law

body of law that governs contract enforcement differently

contract law

what law systems approach contract law

common law and civil law

GDP =

Consumption + Investment + Government Spending + (Exports-Imports)

adjustment provides a more direct comparison of living standards in different countries

purchasing power parity

stages of country development

traditional society, preconditions for take-off, take-off, drive to maturity, high-mass consumption

seven main instruments of trade policy

tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administrative policies, antidumping duties

A tax levied on imports that effectively raises the cost of imported products relative to domestic products.

tariffs

levied as a fixed charge for each unit of an imported good

specific tariffs

levied as a proportion of the value of an imported good

ad valorem tariffs

a government payment to a domestic producer.

subsidies

a direct restriction on the quantity of some good that may be imported into a country

import quota

a hybrid of a quota and a tariff; a lower tariff is applied to imports within the quota than those over the quota

tariff rate quota

quota on trade imposed by the exporting country, typically at the request of the importing country’s government

voluntary export restraint

extra profit that producers make when supply is artificially limited by an import quota

quota rent

Demands that some specific fractions of a good be produced domestically

local content requirement

bureaucratic rules designed to make it difficult for imports to enter a country

administrative trade policies

selling goods in a foreign market below their cost of production or below their “fair” market value

dumping

punish foreign firms that engage in dumping, thus protecting domestic producers from unfair foreign competition

antidumping policies

What are the levels of economic integration from including the least to the most

free trade area, customs union, common market, economic union, political union

all barriers to the trade of goods and services among member countries are removed, but members determine own trade policies with nonmembers

free trade area

all barriers to the trade of goods and services among member countries are removed and adopts common external trade policy

customs union

all barriers to the trade of goods and services among member countries are removed, adopts common external trade policy, and free movement of the factors of production

common market

all barriers to the trade of goods and services among member countries are removed, adopts common external trade policy, free movement of the factors of production, harmonization of tax rates, and a common currency

economic union

independent states combined into a single union

political union

the gravity equation in international trade

bilateral trade between two countries is proportional to their respective economic size, measured by their GDP, and inversely proportional to their geographic distance

how is the gravity equation represented

bilateral trade proportional for (GDPA)X(GDPB)/ Distance of AB

regional economic integrations

trade creation and trade diversion

when low-cost producers within the free trade area replace high-cost domestic production

trade creation

when higher-cost suppliers within the free trade area replace lower-cost external suppliers

trade diversion

what is operational effectiveness and why is it not strategy

performing similar activities better than rivals perform them, it is necessary but not efficient

value of product to an average consumer=

cost of production per unit + consumer surplus per unit + profit per unit sold

price per unit=

cost + cost of production per unit