Economics unit 4 ial

Flashcards on Globalisation, Trade, and Economic Development

Globalisation

The increasing integration of the world’s local, regional, and national economies into a single international market.

Trade Liberalisation

The move toward greater free trade through the removal of protectionist barriers between countries.

Trading Bloc

A group of countries that have signed an agreement to reduce or eliminate tariffs, quotas, and other protectionist barriers.

Transnational/Multinational Company (TNC/MNC)

A company with significant product operations in at least two countries.

Foreign Direct Investment (FDI)

The flow of money between countries where one firm buys or sets up another firm in another country.

Transnational (or multinational) companies

Companies which operate in more than one country

Economies of Scale in Globalisation

Companies can sell large amounts of product in the world market, which allow them to gain benefits from economies of scale.

Transfer Pricing

An accounting technique used by TNCs to reduce tax on profit.

Tax Avoidance

When an individual or firm deliberately manipulates the tax system to pay less than the fair amount.

Absolute Advantage

Exists when a country is able to produce a good more cheaply in absolute terms than another country.

Comparative Advantage

Exists when a country is able to produce a good at a lower opportunity cost than another country.

Specialisation

When nations are not self-sufficient, but concentrate on producing certain goods and services and trading the surplus with others.

Theory of Comparative Advantage

States that countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs.

Bilateral Trade Agreement

An agreement between two countries, or between a country and a trading bloc, which gives favorable trade agreements; it reduces some barriers of trade between the two.

Emerging Countries

Middle-income countries which could become high-income countries over the next 20 or 30 years.

Pattern of Trade

Refers to the composition of exports and imports and geographical distribution of trade.

Terms of Trade

The ratio of export prices to import prices.

Dumping

The sale of goods at less than cost price by foreign producers in the domestic market.

Free Trade

International trade without trade barriers.

Geriatric Industry

An industry which is in decline.

Infant Industry

An industry which is just starting up and in its early stages of development.

National Security

The security of nation state.

Protectionism

Government actions or policies that restrict international trade.

Quota

A physical limit on the quantity of imported goods.

Restriction on Free Trade or Trade Barriers

Any measure which artificially restricts international trade.

Tariff or Import Duty or Custom Duty

A tax on imported goods.

Balance of Payments

Records all financial transactions between residents of one country and the rest of the world.

Capital Account

Shows the credit or money inflows and debit items or money outflows form non-produced, non-financial assets and capital transfers between residents and non-residents.

Current Account

Where payments for the purchase and sale of goods and services are recorded, along with primary and secondary income flows.

Current Account Deficit

When debits (outflows of money) are greater than credits (inflows of money) on current account.

Current Account Surplus

When credits (inflows of money) are greater than debits (outflows of money) on current account.

Devaluation of a Currency

When government or central bank officially fixes a new lower exchange rate for the currency in fixed or pegged system of exchange rates.

Expenditure Reducing

In a balance of payment context, government policies to reduce the level of aggregate demand in order to reduce imports and boost exports.

Expenditure Switching

In a balance of payments context, government policies such as devaluation or protectionism designed to switch production currently being sold domestically to exports.

Automatic Stabilizers

Mechanisms which affect levels of government spending and taxation, without any direct intervention by the government, when national income changes; they occur automatically and act to minimize fluctuations in actual GDP around the long-term growth rate.

Discretionary Fiscal Policy

The deliberate manipulate of government spending and taxes to influence the economy

Fiscal Austerity

tax rises or government spending cuts designed to reduce a fiscal deficit.

Intergenerational Equity

fairness between different generations

National Debt

The total accumulated borrowing of the government which remains to be paid to lender

Primary Deficit or Surplus

the actual fiscal deficit or surplus, not taking into account interest payments on the national debt

Current Budget Deficit

occurs when government revenues are less than current expenditure; it does not include government capital expenditure

Structural Deficit

the part of a fiscal deficit that exist even when the cyclical deficit is zero at the top of a boom

Cyclical Deficit

that part of the fiscal deficit which is caused by government spending and taxed changing through the trade cycle.

Exchange Rate Systems

Systems which determine the conditions under which one currency can be exchanged for another.

Floating or Free Exchange Rate System

Where the value of a currency is determined by free market forces and where the value of a currency changes from day to day

Depreciation of a Currency

When the value of a currency falls because of free market forces or with a managed float, because of government intervention.

Appreciation of a Currency

When the value of a currency rises because of free market forces or with a managed float, because of government intervention

Managed Exchange Rate System or Hybrid or Intermediate System

An exchange rate system where free markets determine the value of a currency but where central banks intervene from time to time to change the value of their currency

Fixed Exchange Rate System

A rate of exchange between at least two currencies which is constant over a period of time

J curve effect

a fall in the exchange rate is likely to lead to a deterioration in the current account position before it starts to improve

Marshall-learner condition

devaluation will lead to an improvement in the current account so long as the combined price elasticities of exports and imports are greater than 1

International Competitiveness

is the ability of a firm or a country to compete effectively in international markets.

Labour Productivity

Is output per hour worked. It is measured as real GDP per hour worked.

Multifactor Productivity

also used to measure international competitiveness. This measure considers both labour and capital productivity

Relative export prices

are the export prices of a country’s goods and services compared to the export price of that country’s main trading partners, expressed as an index.

Non-price factors

are factors other than price which influence a consumer’s demand for a product

Absolute Poverty

occurs when individuals are not able to consume sufficient necessities to maintain life.

Relative Poverty

Poverty which is defined relative to existing living standards for the average individuals

Structural changes in the economy

any basic changes in the way resources are allocated in an economy

Gini coefficient

a statical measure of inequality of income; its value ranges from 0, where there is perfect equality of income, to 1 where income is highly unequal with one person having all the income and everyone else having no income

Lorenz curve

a graphical representation of the degree of income or wealth inequality in society.

Direct tax

a tax levied directly on an individual or organisation

Indirect tax

a tax on good and service

Laffer curve

a curve which shows that at low levels of taxation, tax revenue will increase if tax rates are increased. However, if tax rates are high, then a further rise in rates will reduce total tax

Progressive tax

a tax where the proportion of income paid in tax rises as income rises

Regressive tax

a tax where the proportion of income paid in tax falls as income rises

Proportional tax

a tax where the proportion of income paid in tax remains the same while income changes

Fiscal deficit

is when government spending is greater than its income in a given year

Fiscal surplus

is when government spending is lower than its revenue in a given year

Fiscal policy

the use of taxation and government spending by the government to achieve its policy objectives

Monetary policy

he changes to monetary variables by central banks, such as interest rates and the money supply, to achieve their objectives

Exchange rate policy

The manipulation of the exchange rate to achieve policy objectives

Direct controls

Government measures that are imposed on the price or the quantity of a single product or factor of production

Supply side policies

Government policies designed to increase the productive potential of the economy

Bailout

when financial support is provided to a company or a country facing a potential bankruptcy threat.

Deflationary policies

fiscal or monetary policies aimed at reducing aggregate demand.

Reflationary policies

fiscal or monetary policies aimed at increasing aggregate demand.

Demand management

government use of fiscal or other policies to manipulate the level of aggregate demand in the economy.

External shock

a demand-side or supply side shock to an economy which has been caused by factors outside the individual country's control

Hyperinflation

large increase in the price level

Regulation on transfer pricing

rules made by governments on transfer pricing to ensure the amount of profits paid by MNCs is fair

Tax avoidance

when an individual or firm deliberately manipulates the tax system to pay less than the fair amount

Transfer pricing

an accounting technique used by transnational companies to reduce tax on profits by selling goods at a low price internally from a high tax country to another part of the company in a low tax country

Emerging countries

middle-income countries which could become high-income countries over the next 20 or 30 years.

BRIC countries

• the four countries : Brazil, India, Russia, China. Countries had high growth prospects

Tiger economies

economies with very high growth rates, such as have been experienced by South Korea, Singapore, HK, Taiwan in the past

Economic development

improvement over time of a wide range of economic indicators such as GNI, life expectancy, educational achievement, access to clean water and mobile phone connections

Human Development Index(HDI)

a measure of development developed by the United Nations based on three components: health, education and income

Indicators of development

the range of data which is used to help measure development such as GNI, life expectancy, and the percentage of adult male labour in agriculture

Low income countries

sometimes called least developed countries

Capital flight

when savings are sent abroad by citizens and firms of a country to another country which is either seen as being more secure or where the money can be hidden from government authorities.

Foreign currency(exchange gap)

the difference between the actual level of exports and the level of exports and the level of exports needed to create higher economic growth for an economy; sometimes called the foreign exchange gap

Harrod-Domar growth model

a model which suggests that economic growth is dependent on the saving ratio and technological progress

Prebisch-Singer hypothesis

suggests that over the long run, the price of commodities will fall compared to all other goods, such as manufactured goods; this suggests that countries with a high export dependency on primary products will experience a continued worsening of their terms of trade.

Resource curse

exists where an abundance of natural resources in a country is exploited, but there is consequently little increase in economic development

Saving gap

the difference between the actual level of savings in an economy and the level of savings needed to finance the investment required for a higher rate of economic growth

Market-Orientated

which rely upon free markets to deliver economic development.

Interventionist strategies

where government plays a leading role, regulating and manipulating markets or bypassing markets through direct provision of goods and services.

Countries such as Saudi Arabia, Chile and Norway have seen significant economic development because they have a comparative advantage in production of certain primary commodities.

Development of primary industries

Bilateral aid

when aid is given directly by one country to another