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Globalisation intro, types of advantage, terms of trade.

What is Globalisation?

The ability to extract, product products and sell products in numerous countries

What are the three types of country income classifications?

HIC, MIC, LIC

What is HIC based off?

GNI per capita

What is the 6 factors of globalisation mnemonic?

SILTC

What are the 6 factors of globalisation?

Supply chains (global)

International Trade

Labour mobility

TNCs

Capital/Communications

What is FDI?

Foreing direct Investment - measures the amount of investment made by foreign investors.

Benefit and downside of high fdi?

Benefit-Increased capital

Downside-Increased unemployment

Benefit and downside of low FDI?

Benefit-Protect local industries

Downside-Labour exploitation

What causes slowballisation?

Supply chain shocks, trade wars, scarring due to financial crisis 2009

Downsides of globalisation?

Countries can’t pick specialisation —> different goods have different inherent values

Demographics have varying impacts

Absolute advantage vs Comparative advantage?

Comparative is lower opportunity cost

Absolute is higher maximum output

What is the theory of comparative advantage?

That if all country’s specialised in the goods they produce, it would increase global output.

What are the three assumptions in the theory of absolute advantage?

• Constant opportunity cost - failed because of diseconomies of scale

• No transport costs - unrealistic

• No barriers to trade - tariffs

What is terms of trade?

Index of exports ÷ index of imports • 100

What currency is the imports and exports measured in, in terms of trade?

Imports —> Foreign currency

Exports —> Own currency

What trick relates terms of trade and exchange rates?

Currency value is proportional to terms of trade

Draw the evaluative graph for comparative advantage.

What is the statement to be drawn for comparative advantage evaluative graph?

Assumption of perfect factor substitutes may overstate the gains from specialisation