Chapter 6 Economics - International Trade and Globalisation

Specialisation at a National Level

countries specialise and develop expertise in producing goods and services in particular industries

Advantages / Basis of Specialisation at a National Level

Cheaper Production Methods (lower costs and prices, increased productivity, efficient allocation of resources)
Factor Endowments (superior resource allocation)
Increased Consumer Choice (due to specialisation)
Increased Output (GDP increases due to sales of exports abroad)

Disadvantage of Specialisation at a National Level

The price and availability of imported goods may be affected by external influences (exchange rate fluctuations, problems with supply, crop failure, flooding)

Overdependence on the production of a particular product for its income (fall in demand could result in wide-scale unemployment and negative economic growth)

Globalisation

the process by which the world's economies become increasingly interdependent and interconnected due to greater international trade and cultural exchanges

Multinational Companies (MNCs)

organization that operates in two or more countries, with premises and productive operations in more than one countries (Apple, Coca-cola, Volkswagen)

Costs and Benefits of MNCs to Home Countries

Inflow of Profits
Improved Reputation Overseas

Loss of Jobs (in home countries, unemployment)
Outflow of Capital (outflow of money from home country to set up production)

Cost and Benefits of MNCs to Host Countries

Lower Unemployment (local jobs)
Profits for Local Businesses (suppliers of raw materials receive sales selling to MNCs)
Lower Prices (due to increased competition)
Inflow of Investment Capital
Increased Economic Growth (contributes to GDP)
Transfer of Knowledge and Skills (to local workers and businesses)
Increase in Tax Revenue
Improved Trade Balance (exports by the MNCs)

Low-skilled Jobs (created by the MNCs)
Closure of Local Businesses (unemployment)
Depletion of Natural Resources (from the host country)
Increased Pollution
Exploitation of Labour (low wages, poor working conditions)
Outflow of Profits
Loss of Tax Revenue