Economics Topic 1: Global eco

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WTO and GATT

- The World Trade Organisation (WTO) replaced the General Agreement on Tariffs and Trade (GATT) in 1995. This is because GATT had no power to enforce trade agreements and forced members to hold their promises, however this resulted in countries only implementing parts of the planned trade agreements. Now, WTO has the legal power to ensure that once an agreement has been negotiated, it is implemented as quickly and fully as possible.

Main sources of growth in an economy:

- The increased use of resources such as land, l, c, e due to improved tech, population and labour force growth or management techniques - Increased productivity of existing resource use through rising labour and capital productivity. Capital widening occurs when the capital stock keeps pace with the growth in the labour force. Capital deepening when the capital stock outstrips the growth in the labour force.

Definition of protection

Definition of protection: Refers to gov policies that give domestic producers an artificial advantage over foreign competitors, such as tariffs on imported goods.

Emerging eco characteristics

In process of industrialisation and modernisation Experiencing sustained levels of economic growth Examples: China, Brasil, Indonesia Low to middle per capita income Fast growing economy Increase in domestic and foreign investment Income levels vary but what these economies have in common is fast growth in income levels Strongest growth rates in the world (5-10%) and favourable prospects Industrialising usually with substantial manufacturing sectors. Per capita income: $4085 per capita to US $12615 per capita

Multilateral trade agreements

Multilateral trade agreements are those that provide free or preferential trade between many nations, usually on a regional basis. The Association of South East Asian Nations (ASEAN) is one of the main forces of trade liberalisation in the Asia Pacific region. It excludes all of the larger Asian economies and is used to give voice to the smaller emerging economies such as Indonesia, Thailand, Singapore, The Philippines, Vietnam, Brunei, Burma, Cambodia and Laos. Australia's main multilateral trade agreement is the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). It came into effect in 2010. This agreement covers 20% of Australia's total trade and creates a free trade area of 600 million people with a combined GDP of US$3.7 trillion. This agreement is particularly effective as Australia and the ASEAN are complimentary economies, i.e goods produced by one economy are demanded by the other. AANZFTA is forecasted to boost the Australian economy by $19bn during the decade after its implementation. During the 1990's Australia's trade efforts were focused on the Asia Pacific Economic Cooperation (APEC). It was originally targeted at free trade by 2020 but it has made little progress in recent years because there are no binding laws or agreements between APEC members that force them to keep their promises. Hence countries have reneged on their promises to reduce protection. The APEC is now a forum for discussion on global issues such as climate change and terrorism. However, the forum still encourages trade liberalisation among members and from 1990 to 2010 Asia Pacific tariffs have fallen from an average of 17% to 6% and proportion of goods without tariff has increased to 40%. 37 regional trade agreements have been formed amongst APEC members. The main disadvantage with multilateral trade agreements is that sometimes they can be exclusive. A trading bloc occurs when a number of countries join together to in a formal preferential trading arrangement to the exclusion of other all countries. To major trading blocs are NAFTA and the EU. The North American Free Trade Agreement (NAFTA) is between the United States, Canada and Mexico. It was created in 1994 and aimed to eliminate all agricultural protection in 5 to 15 year period. It has been particularly successful at increasing trade between members. Mexico has benefited greatly from being able to export to the United States very large consumer market while the corporations in USA and Canada have been able to cut costs by moving many of their manufacturing processes to Mexico where labour wages are lower. The European Union (EU) is the most major trading bloc in the world with 27 member nations. European economies historically had imposed a large amount of trade barriers against each other over time, an effect being worsened by war and other conflicts within area. The EU was formed in the 1950's to decompose the complex systems of protection that had grown in the area and to give the member countries preferential trading conditions. As more and more countries joined the EU they began to put up barriers against countries in the rest of the world and trade more exclusively with countries in their own region. This was one of the major reasons that Australia's trade flows, which had mainly historically been with Europe, shifted to Asia. To further make trade more preferential and easier between European countries the Euro was created as a common currency and accepted by 17 of the 27 countries. This meant that it was easier to facilitate trade between countries as exchange rates no longer needed to be considered. However, the Euro has had serious disadvantages too, including not being able to run separate monetary policy in different European countries despite them having different economic conditions. This became apparent during the Eurodebt crisis.

Organisation for economic cooperation and development (OECD)

The OECD is an organisation of 34 countries that are committed to democracy and the market economy. The OECD conducts research into a wide range of economic outcomes and coordinated economic cooperation among member nations to tackle economic issues so that overall there is higher sustainable economic growth, employment and standard of living for members. For example, the OECD conducted research and proposed the internationally coordinated macroeconomic stimulus when the GFC stuck the world economy in 2008.

The United Nations

The UN is the largest global organisation with 193 members. It covers a larger range of issues than any other organisation such as the global economy, security, environment, law and health. A range of UN agencies have been developed to make it easier for trade and investment to occur globally such as the standardisation of food safety and rules on copyright and intellectual property. The International Labour Organisation has also developed standards to improve working conditions around the world and prevent child labour and discrimination. The UN has also created many international agreements that promote human rights and freedoms as these are necessary conditions for economic growth and development.

Impact of increase in global trade on Aus consumers, businesses, gov:

○ Consumers: Increase variety of g and s, cheaper import good prices, able to invest in foreign investments more freely. ○ Businesses: Cheaper input costs, employment increase or decrease, increase in competition, increase in business growth due to cheaper inputs costs, able to invest more freely overseas, able to access international labour markets, relocate manufacturing offshore. ○ Gov: Subsidies for domestic manufactures, increase trade agreements, revenue may decrease due to increase import tax, could see increase in employment in growth industries, eg: IT, communications, finance.

GNI per capita (PPP) is used to measure income levels in the global economy because:

○ Gross National Income (GNI) is the sum of value added by all resident producers in an economy plus receipts of primary income from foreign sources. Economists use GNI per capita (PPP) to measure income levels in the global economy as it allowed a standard comparison of real income levels between countries. This is because the PPP adjusts exchange rates to equalise the price of identical goods and services in different economies. They do this because, for example, by using the measure of US dollar, inaccurate comparisons about living standards of developing countries are made, as if the prices of G and S in developing countries are low relative to prices in the US, then measuring GNI in terms of US dollar will underestimate the true income of people in these developing countries. Developing countries exchange rates tend to be undervalued.

Absolute advantage

- A country is said to have an absolute advantage in the production of a commodity when it is able to produce that commodity more efficiently than another nation, ie: it can produce more of that commodity than any other nation. - The principle applies in particular where a country might possess natural or other resources (climate, minerals, ores, skills, etc) that are not available in some other countries. - Australia should produce wheat because we produce the most. NZ produce wool. Just look at what country produces the most. - Simple: if I produce more of this and you produce more of that, so we swap - Just looking at output not price.

Advantages of free trade

- Allows countries to obtain G and S that they can't produce themselves or in sufficient q to satisfy D. - Allows countries to specialise in G and S in which they are most efficient = better resource allocation, increase production within countries and throughout the world. - Encourages efficient allocation of resources. - Greater tendency for specialisation leads to economies of scale which will lower average costs of production while increased efficiency and productivity. - International competitiveness will improve as domestic businesses face greater competitive pressures from foreign producers, and govs will encourage domestic industrial efficiency. - Encourages innovation and spread of new tech and production processes throughout the world. - Leads to increased standards of living because decrease prices, increased production of G and S and increased consumer choice as countries have access to G that lack of natural resources may otherwise prevent. - The opening up of global markets leads to higher rates of eco growth and increased real Y. - Greater range of output, increased quantity and quality of G and S available. - Increased productivity of resources - Increased competition between firms - Increased world output. - Increased national Y and living standards.

Benefits of globalisation

- Benefits associated with globalisation: ○ The higher levels of world trade help less developed nations as it results in foreign I into their eco ○ It lowers levels of poverty, create more work opps, increase Y and increase standard of living. ○ Businesses operate more efficiently and productivity, competition lower costs, lower inflation rate.

Costs associated with globalisation

- Costs of globalisation: ○ MNC's profits don't go back to developing countries it was generated in. ○ MNC'S will shift their capital and I from country to country depending on which gov offers the best deal. ○ Over exploitation of resources and increased pollution

Global economy definition

- Counties that produce G and S and contribute to GWP (Gross World Product)/global output/GDP - They engage in world trade of G and S and are responsible for flows of foreign, direct and portfolio investment. Consists of all production, trade, financial flows, investment, technology, labour and economic behavior between nations. - Economics are increasingly linked to each other, and because of this, changes in individual economies can have a ripples effect on others. - Eg: Debt problems in Our, e.g.: Greece because of the interdependency of economies there. - The economy which is based on economies of all the world's countries, national economies.

The global economy is comprised of 3 main categories of economies:

- Developing and emerging: ○ 152 economies classified, eg: India, China, Brazil ○ Process of raising their rates of eco growth and development ○ Lower per capita Y and living standards than advanced economies - Advanced: ○ 39 economies, eg: USA, Aus, Japan, Germany, UK, France, Italy, Canada ○ High levels of eco development ○ Average per capita Y over $30.000 per annum ○ Market based economies with free enterprise eco systems of resources allocation and limited gov intervention.

UNHDI v Consumption Profile

- HDI is the most commonly used and looks at big, main areas of development like health and education. - Whereas, the consumption profile is discussing other development indicators, like how may people have TV's, internet access and electricity consumption.

FOREX

- FOREX (foreign exchange markets) are networks of buyers and sellers exchanging one currency for another in order to facilitate flows of finance between countries. They have experienced extraordinary growth in recent years, with the average daily turnover reaching almost $5.5 trillion in 2014, up from $4 trillion in 2010. - Speculators for FOREX are investors who buy and sell financial assets with the aim of making profits from short term price movements. They are often criticised for creating excessive volatility in financial markets. The main drivers of global financial flows are speculators who shift billions of dollars in and out of financial markets worldwide to undertake short-term investments in financial assets.

Investment and transnational corporations

- FDI: Foreign direct investment is where companies est or buy a controlling interest in a foreign subsidiary. FDI has grown 5 times from 1995-2014. FDI implies a controlling stake in a business and its difficult to pull out or sell off. - FPI: Foreign Portfolio Investment is where equity (shares) and debt securities are acquired. It has grown substantially, almost 6 times in 2014 from 1995 levels. In 2008, FPI fell substantially because of the GFC and increased financial market turbulence and price volatily. It's easier to sell off shares if there's a downturn. - Growth of FDI: ○ FDI has grown substantially in past decades. In 2014, it totalled $1.67 million US, about 5 times more than in 1995. This has been mainly due to easing of K controls between countries as financial deregulation has spread globally. In 1970's and 80's foreign exchange controls were lifted by most OECD countries (floating of the exchange rate). Central banks removed direct lending, world share markets linked by tech. ○ Traditionally favoured developed but now moving towards developing with eco like China and India. ○ First time in 2012, developing received more FDI flows than developed. ○ Partly explained by 32% fall in fdi flows to developed in 2012. ○ Trend continued since 2012, with developing receiving a record 59% of FDI inflow in 2014. ○ Developing also sog increase their share of FDI outflows in 2014 these eco contributed 35% of global Fdi funds, compared to 13% in mid 2000's. - TNC's: A transnational corporation is a corporation that has its headquarters in 1 country and operates wholly or partially owned secondary offices/stores in one or more other countries. There 'subsidiaries' report to the central headquarters. The growth in the number and size of transnational corporations since the 1950's has generated controversy because of their eco and political power as well as their mobility and complexity of the operations they are responsible for. - TNC'S affect globalisation as they: ○ Spread globalisation through cheap internal marketing. Wealthy TNC's often utilise the vast resources of people for cheap labour. ○ It is spread through the 'uninformative product' which is where a company will release only one product, one after the other = everyone desire the newest edition/one. ○ Spread through destroying local competitors as may companies invest offices and factories and then by attracting plenty cheap labour, quickly dominate and crush the lesser companies and businesses. - Roles TNC's play in global I flows: ○ Play a vital role. ○ Have production facilities in countries around the world, sourcing inputs from one country, manufacturing in another, packaging in another. ○ When TNC's est or expand facilities in a country, they bring foreign I, new tech, skills and knowledge. - Difference between global financial flows and global investment flows: ○ One measure of the globalisation of I is the expansion of foreign direct I (FDI) which involves the movement of funds that are directly invested in eco activity or in the purchase of companies. FDI's are strongly influenced by eco activity. They have traditionally favoured developed nations, but this is now changing to developing and emerging. For first time in 2012, developing received more FDI flows than developed, cause China and India, etc. TNC's play a vital role in global invest flows = design in one country, produce in another, package in another. International financial flows: money moves between eco.

What is foreign direct investment

- Foreign direct investment is when a company sets up in another country, set up factories there. Controlling interest of shares, over 10% - FDI: Foreign direct investment is where companies est or buy a controlling interest in a foreign subsidiary. FDI has grown 5 times from 1995-2014. FDI implies a controlling stake in a business and its difficult to pull out or sell off.

GNI per capita (PPP)

- GNI per capita (PPP) is used to measure income levels in the global economy because: ○ Gross National Income (GNI) is the sum of value added by all resident producers in an economy plus receipts of primary income from foreign sources. Economists use GNI per capita (PPP) to measure income levels in the global economy as it allowed a standard comparison of real income levels between countries. This is because the PPP adjusts exchange rates to equalise the price of identical goods and services in different economies. They do this because, for example, by using the measure of US dollar, inaccurate comparisons about living standards of developing countries are made, as if the prices of G and S in developing countries are low relative to prices in the US, then measuring GNI in terms of US dollar will underestimate the true income of people in these developing countries. Developing countries exchange rates tend to be undervalued.

Causes of global inequalities: Global factors

- Global trade system § Wealthy countries protect their domestic agricultural sector, because it is not competitive with agricultural producers in many developing baptism □ Developing nations that export commodities are severely affected by high levels of global protectionism in the agriculturist sector § Regional trading blocs such as the European Union and North American Free Trade Agreement can exclude poorer nations from gaining access to lucrative global consumer markets □ Exclusion from trade opportunities has an enormous impact on poor countries § The World Trade Organisation's Doha Round of trade negotiations had been promoted as the "development round" because of its focus on trade reforms to benefit poorer nations but high-income nations have resisted making concessions on the issues that would provide the greatest benefit to developing countries § Benefits of free trade agreements are often not accessible to developing nations because of the substantial costs on implementing international agreements and lodging appeals against other countries protectionist measures □ The complexity of many trade agreements further tilts the benefits of the global trade system towards richer countries and can entrench rather than alleviate, global inequalities -Global financial architecture - Although deregulated global financial markets and the global financial system are intended to create development opportunities by enabling free flow of funds around the world, the global system can also entrench global inequalities § Long term international flows of investment heavily favoured developed countries, changed over the last decade with developing countries receiving an increasingly larger share of global FDI flows □ FDI Flows now entrench a widening gap between faster growing emerging economies an developing economies, largely benefiting a handful of emerging economies including China, Brazil, India and Russia § Short Term financial flows heavily favour the more prosperous emerging economies, which offer better financial returns for currency and stock market speculators § These regions as a result are exposed to economic volatility § When crises occur they can set back economic development for years while global financial market speculators simply move on to invest in other countries § International Financial rules have not kept pace with globalisation of the economy and in some areas have tolerated loopholes that contribute to large flows of income or wealth to those who already hold substantial wealth □ E.g. during 2010s between USD $21 trillion and $32 trillion in wealth has been siphoned out of countries into international tax havens □ The absences of basic rules, such as requiring TNCs to report their earnings or profits in individual countries has fosters this rapid growth of the use of tax havens in developing economies § Many developing economies have massive foreign debt burden □ 2016 International Debt Statistics report estimated that total external debt for low and middle income economies was USD $5.2 trillion □ Interest repayments reduce the income available for governments to promote growth and development through spending on education, health care and infrastructure - Global aid and assistance -Small scale efforts made by developed countries to address the problems of global inequalities also contribute to the entrenched problem of differences in living standards § Total level of development aid provided by high income economies was only 0.3% of GDP in 2016 § Significant proportion of official development assistance is "phantom aid" (aid funds that do not improve the lives of the poor) § Distribution of aid by high income countries reflects strategic and military considerations rather than the needs of the world poorest countries □ In 2002 178 billion USD went to Afghanistan and Iraq and very little else where § While multilateral development aid is better targeted at the world's poorest countries it is less than one-third of the value of total development assistance from the Development Assistance Committee Members Global technology flows: ○ Tech has the capacity to contribute to closing the gap in living standards, but it can also entrench inequalities. ○ New tech, like broadband, can be absorbed much more quickly in eco that have better infrastructure, higher levels of education and that already have high penetration rates of related tech, such as computers. ○ WTO in 2017 observed that internet remains unavailable to 3.39 billion people, most living in developing eco. ○ No tech means businesses and consumers are locked out of the online opp to sell and purchase goods and services, which is a rapidly expanding market, and reinforcing eco isolation from the digitally connected and developed world. ○ Digital divide: different access to tech ○ New tech also largely geared to needs of high income countries because they choose priority in areas of scientific research, thus is not beneficial for the poor countries ○ Developing find it difficult to gain access to new tech, as Intellectual Property Rights restrict the benefits of tech transfer to poor countries because they can't pay the developed countries prices for it.

Health development index

- Health ○ Life expectancy at birth - Education ○ Mean years of schooling ○ Expected years of schooling - Living standards ○ Gross national income per capita. In seeking a broader picture of the level of economic development (than just the level of Y). Economists use a range of indicators of the typical lifestyles of people in nations in the global economy. The main 2 quality of life indicators are: HDI and Consumption Profiles.

Income def

- Income: flow of money, paid on regular basis, occurs over a lot of time. Income is the amount of money, or other benefits measured in money terms, which flow to individuals or households, usually for their contribution to the production process or as a direct payment from the gov.

Key indicators/trend which are aspects of globalisation include:

- Integration of national financial systems to create a world financial system. Financial deregulation in most countries, K flows more freely. - Major companies and businesses conduct trade and investment across national borders. MNC's seek most competitive locations. - ICT revolution led to new types of products and services, employment. Internet allows commerce with global trade. - Global markets include Asia Pacific North America, Europe regions. - Growth products include elaborately transformed goods, tech goods, specialised services, eg: finance, IT. - International trade linked with foreign I, as companies use the foreign I currency to access foreign markets. - A tendency towards the business cycles of the economics most involved in globalisation to harmonise, ie: recessions and booms at same time. Eg: GFC known as international business cycle. - Increasing flow of labour and private savings across national boundaries.

Local content rules

- Local content rules specify that G must contain a minimum percentage of locally made parts. - In return for guaranteeing that a certain % of a good will be locally made the imported components may not attract a tariff. - Eg: French defence contractor, DCNS, won Aus Gov's $50 billion submarine building contract in 2016 was their commitment to undertake some parts of the manufacturing and service in Aus.

Distribution of income and wealth

- Less than a $1.25 US a day, live in absolute poverty, World Bank's definition of absolute poverty - Income: flow of money, paid on regular basis, occurs over a lot of time. Income is the amount of money, or other benefits measured in money terms, which flow to individuals or households, usually for their contribution to the production process or as a direct payment from the gov. - Wealth: stock of assets you have, eg: house. Determined at a point in time. Wealth is the value of stock of assets held by individuals at a point in time. - Distribution of Y globally decreasing but increasing in developed eco. - 3.5 billion people earning 500-2000, percentage of pop living on high income spread out. - PPP: converting different currency to US, to compare currencies - Has become more equal in distribution of Y - Gini co-efficient: 0 is equal, 100 is nor equal ○ Decreasing over time, eg: 2003 was 69, 2013 was 65 decline to 61 in 2035. - Changing markets when distribution changes - When people get more income and GDP increases, their education, living standards, etc, increase. Link between eco growth and development. - Increase demand for airports, cars, etc. - Increase demand and stain on scarce resources - Quintiles: whole population, divided into fifths ○ Used when discussing distribution of income and wealth ○ Equal when all equal, 20% are poor, 20%, 20%, 20% and 20% rich. ○ Reality: 1st and 2nd quintile have barely anything, 94% the richest ○ Richest 2% of world pop have more wealth than 80% of world. - Global poverty has decreased from 52% in 1980 t0 11% in 2015. - Living standards improving in most countries - Under 5 mortality rate has reduced by more than half since 1990 - Global primary school enrolment increased from 80% to 91% between 1990 to 2015. - Greatest reduction in poverty occurred in East Asia and the Pacific where poverty declined from 57% to 4.1% from 1990 to 2015. - The region that has experienced the smallest decline in poverty was Europe and Central Asia where poverty only declined from 1.5% to 0.3% - The WB's data on GNI per capita shows the global distribution of world income. The WB classifies countries into four categories: ' ○ Low income economies: GNI per capita: $1005 or less, eg: Afghanistan, Ethiopia, Uganda ○ Lower-middle income, GNI per capita: $1006 - $3955, eg: Cambodia, Vietnam, India ○ Upper-middle income, GNI per capita: $3956 - $12235, eg: Pery, China, Iraq, Turkey ○ High-income economies, GNI per capita: $12236 or more, eg: Australia, Italy, USA, UK

Technology, transport and communication

- Main changes that have occurred through: ○ Transport tech ○ ICT (information communication tech) - Advances in transport have encouraged rapid growth in world travel and trade. - The main changes which have affected globalisation are: ○ Increased tourism ○ Workforces have become global ○ Products can be sent all over the world quickly. ○ Before air travel people would travel by trains and ships, taking much longer. - Shrinking globe: get somewhere faster and cheaper. - Ocean shipping: now more efficient and economical, reason for this intro of super tankers for bulk cargo eg: oil and wheat. ○ Containerisation: goods being packed into containers at the factory and taken by truck or train to the port where they are loaded and transported by ship. This standardised by 1961. - Changes in ICT: ○ Distance that people lived affected how quickly they could pass info. ○ Today we are linked by a huge global communication network which is fast and effective. ○ Spreading ideas very quickly through computer ○ Fibre optic cables and satellites are responsible for the changes in the way we communicate: - Carry calls and digital info, cables under the sea and on land. - Satellites transmit messages via space quickly and cheaply. - Satellites also make GPS possible. - Computerisation enables the storage, retrieval and movement of info. Internet allows info to be accessed and shared quickly. Businesses benefit from the internet through improved communication, trading and advertising. - Digital divide = gap between people who have access to tech and the people who don't have access. ○ Computers and internet provides users with improved education = higher wages, people living in countries with limited access and therefore disadvantage. ○ Divide between differing countries or regions of the world is referred to as the global digital divide. ○ Inequalities between individual, households, businesses or geographic areas. - It is driving globalisation as: ○ Developments in freight tech, eg: standardised shipping containers, cargo tracking and more efficient logistics systems facilitate greater trade in G. ○ Cheaper and more reliable international communications through high-speed broadband allows for the provision of commercial services to customers around the world. The proportion of global pop that was internet has increased from 12% in 2000 to over 43% in 2010. ○ In finance and investment, tech plays a key role in facilitating globalisation through powerful computer and communications networks that allow money to move around the world in a fraction of a second. ○ Smartphones and mobile internet access are fundamentally changing the structure of many industries, from retail and transport sectors to education leisure and professional services. ○ Advances in transportation such as aircraft and high speed rail networks allow greater labour mobility between eco and increase accessibility to tourism and travel for consumers. ○ These allow integration at a depth unthinkable in previous decades and centuries. - Global tech examples: Smartphones, DVD's, TV, computers, Ipods/pads, electronic tablet. - Ecommerce: Trade between businesses in different regions/countries conducted with the use of tech (computer, internet, phone, etc). Increases globalisation by allowing faster, more economical, reliable, more efficient trade of products, communications, investments , information. - Transport infrastructure (roads, railways, ports, waterways, airports. Capital plays a vital role for operation of domestic eco and global eco. Movement of resources, eg: raw materials, finished G, capital and labour. - Internet services: essential tools for eco development, helping to contribute to the global eco integration. Communications backbone that links businesses, individuals and nations in global eco, reduces business cost.

Stages of integration

- Political union: A type of state which is composed of or created out of smaller states. They share a central gov and the union is recognised internationally as a single political entity. - Fiscal union: Involves individual countries sharing the same common budget. It means spending and tax levels would be taken by a central fiscal authority. The USA is a fiscal union of different American states. - Monetary union: Characterised by the features of a common market, common currency and co-ordination of monetary policy through a single central bank. Eg: the Economic and Monetary Union (EMU) is an example as all adopted Euro currency. - Common market: Involves features of a customs union but allows the free mobility of labour and capital within the common market countries, as well as free flow of g and s. Eg: EU - Customs union: Member countries not only abolish trade restrictions between themselves but adopt a common set of trade restrictions against non-member countries. - Free-trade area: Where a gourp of member countries abolish trade restrictions between themselves but retain restrictions against non-member countries. Eg: North American Free Trade Agreement (NAFTA) - Preferential Trade Area: A trade pact between countries that reduces tarriffs for certain products to the countries who sign the agreement. Tariffs aren't necessarily eliminated, they are lower than countries not party to the agreement. - Independent economy: Economic self-sufficiency.

What is portfolio investment

- Portfolio investment is when a company buys shares in another country, less than 10% shares. - FPI: Foreign Portfolio Investment is where equity (shares) and debt securities are acquired. It has grown substantially, almost 6 times in 2014 from 1995 levels. In 2008, FPI fell substantially because of the GFC and increased financial market turbulence and price volatily. It's easier to sell off shares if there's a downturn.

Role of TNC play in global Investment flows

- Roles TNC's play in global I flows: ○ Play a vital role. ○ Have production facilities in countries around the world, sourcing inputs from one country, manufacturing in another, packaging in another. ○ When TNC's est or expand facilities in a country, they bring foreign I, new tech, skills and knowledge.

Characteristics of the phases in the business cycle

- Upswing: expansion, increase demand, decrease inventories, increase demand for resources, increase demand for equipment. - Boom: Peak, supply or capacity constraints, inflation begins to increase, growth in global output (unsustainable) - Downswing: decrease demand and output, increase rates unemployment as activity slows. - Trough: Decrease global output, decrease demand, reaches minimum point.

TNC affect globalisation as they:

- TNC'S affect globalisation as they: ○ Spread globalisation through cheap internal marketing. Wealthy TNC's often utilise the vast resources of people for cheap labour. ○ It is spread through the 'uninformative product' which is where a company will release only one product, one after the other = everyone desire the newest edition/one. ○ Spread through destroying local competitors as may companies invest offices and factories and then by attracting plenty cheap labour, quickly dominate and crush the lesser companies and businesses.

What are TNC's

- TNC's: A transnational corporation is a corporation that has its headquarters in 1 country and operates wholly or partially owned secondary offices/stores in one or more other countries. There 'subsidiaries' report to the central headquarters. The growth in the number and size of transnational corporations since the 1950's has generated controversy because of their eco and political power as well as their mobility and complexity of the operations they are responsible for.

What is a tariff quota

- Tariff quotas: Countries sometimes use a system of tariff quotas. Under this protectionist method goods imported up to the quota pay the standard tariff rate whereas goods imported above the quota pay a higher rate. In the past many of Aus' most highly protected industries, eg: textiles, clothing, were shielded from foreign competition in this way.

Different forms of protection

- Tariffs = import taxes - Quotas = quantitative limits on the level of imports allowed. - Voluntary export restraint arrangements = where two countries make an agreement to limit the volume of their exports to one another over an agreed period of time. - Embargoes = a total ban on imported G - Intellectual property laws = patents and copyrights. - Export subsidies = a payment to encourage domestic production by lowering their costs. - Import licensing = govs grants importers the licence to import goods. - Exchange controls = limiting the amount of foreign exchange that can move between countries. ○ Quotas, embargoes, export subsidies and exchange controls are all examples of non-tariff barriers to international trade.

Economic integration

- The economies of countries have become more 'integrated' over time through a reduction in trade barriers, eg: tariffs and subsidies - The liberalisation of trade between two or more countries or many countries within a region. - Leads to formation of a monetary union. - Eg: European Union, Asia Pacific Economic Co-operation forum (APEC)

Aus economic integration

- Very integrated due to being an advanced eco - Participation eg: TPP, ASEAN, AANZFTA - This means increased trade agreements/opps, decrease tariffs, cheaper imports, investment, capital, skills, tech, etc, flow more easily. - Aus placed in certain place geo so integration with Asian countries and Pacific countries. Trade increase with those economies.

Wealth def

- Wealth: stock of assets you have, eg: house. Determined at a point in time. Wealth is the value of stock of assets held by individuals at a point in time.

World trade organisation

- The WTO implements and enforces trade agreements between countries in the global economy. Initially, this role was held by the General agreement on Tariffs and Trade (GATT) which organised multiple rounds of trade negotiation. However GATT had no power to enforce trade agreements and force members to hold to their promises and so countries would only implement parts of the planned trade agreements. In 1995 the GATT was replaced by the WTO which had the legal power to ensure that once an agreement was negotiated it was implemented as quickly and fully as possible. WTO membership continues to grow with 153 countries currently enrolled and 30 outstanding applications. The WTO has had some success in negotiating further agreements to free up world trade with some countries making voluntary reductions in areas with trade barriers such as financial services, telecommunications, and IT. In recent years the WTO has focused on the Doha Rounds of negotiations which has been dubbed the 'Development Round' as it could have added $520bn to GWP by 2015 and lifted 140 million people out of poverty. However the WTO has been criticised for the failure of the Doha Round. Negotiations were held up by the refusal of developed nations to remove agricultural subsidies which are costing developing countries $38bn a year. The WTO also has a role to resolve any trade disputes that occur amongst member nations. This system of dispute resolution has been successful amongst smaller nations however the WTO has been criticised not being able to enforce arbitration amongst larger and more wealthy countries. Furthermore, this process of dispute resolution is extremely expensive which makes in accessible to developing countries. Recently, environmental sustainability has been integrated into the WTO's activities. In Module 3 we will learn more about environmental economics and its role in policy. However, this combination of trade liberalisation and ecologically sustainable economics is extremely interesting and gives students some good material to incorporate in their extended responses:

Forces driving globalisation

- The forces driving globalisation are strong and generally supported by the govs of advanced, emerging and developing countries. The four major forces that underpin the process of globalisation are: ○ The increased customisation of products and services has led to the development of a network or global web of production and distribution facilities in major world markets by MNCs. ○ The improved levels of technology, communications, transport and information tech have reduced transport, communications and transaction costs in conducting global businesses. ○ The rapid liberalisation of the global trading environment, has occurred through the signing of bilateral, regional and multilateral trade agreements. ○ The financial and trade linkages between countries have been strengthened by globalisation, but this has also led to faster transmission of financial and real shocks between countries and regions. ○ Trade in G and S ○ Financial Flows ○ International division of labour and migration ○ Investment TNC's ○ Technology, transport and communication.

Subsidies

- The gov can protect domestic producers by providing a per unit subsidy to producers. Subsidies are cash payments made by the gov to local producers. - Vetical distance between both supply curves is how you calculate the size of the subsidy. - Compared to a tariff: ○ Consumer: Price stays the same, wheras tariff it increases so consumers win because they are getting more supply at same price. ○ Businesses: Supply more with no increase in price, gov is paying for supply. ○ Importers: Lose section of market share. ○ Gov: have to spend money on this however it increases supply and profits = more equipment, therefore better to subsides than pay welfare. - Subsidies involve financial assistance to domestic producers, which enables them to reduce their selling price and compete more easily with imported goods. Businesses able to sell their goods in higher quanity. - Eco effects of a subsidy: ○ Domestic producers supply a greater quantity of the good, therefore the subsidy stimulates domestic production and employment in protected industry. ○ More resources in that eco are allocated to the protected industry leading to reallocation of resources, from other sectors of the eco (where production and employment will decrease) ○ Consumers pay a lower price and receive more G because the subsidy shifts the supply curve for the sector to the right. However consumers still pay indirectly for subsides through increased taxes. ○ Subsidies impose directly costs on gov budgets because they involve payments from gov to the producers of G and S. This means that govs have fewer resources to allocate to other priorities, eg: education and health. ○ Economists are opposed to protectionist policies they often prefer a sub to a tariff because sub tend to be abolished more quickly, since they impose costs on the budget rather than generating revenue. - Gov give money to firm so they can shift supply curve to S1, where they produce more goods for same price.

Why do nations trade?

- Trade provides the means by which a greater number of wants in an eco can be satisfied. Thus, trade should enable GDP to expand resulting in higher living standards (better solve the eco problem). - Trade occurs because some countries are capable of producing some goods and services more efficiently, and therefore at a lower cost, than other countries (due to different resources combinations the different countries have). - Countries benefit if they specialise in the production of those goods and services in which they are relatively more efficient, and export the surplus production. - Each country thus seeks to sell goods and services in international markets to generate foreign exchange so that goods and services which its own economy can't produce can be bought. - In this way a greater level of output is achieved because resources are being used more efficiently and living standards may be raised because more wants can be satisfied. - The theories of Absolute and comparative advantage illustrate this.

Comparative advantage

- This principle shows that two countries can gain from trade even when only one of them has an AA in the production of all goods (ie when one country can produce everything more cheaply than another country). - David Ricardo was able to show that even if one country could produce everything more cheaply than another country, both countries would benefit from specialisation and trade. - He argued that countries should specialise in producing those goods in which they were relatively most efficient at producing. - Each country should specialise in the good in which it has the lowest opportunity cost. - Trade takes place and is advantageous to countries entering into such trade because of the differences in the opportunity cost in producing different goods in different countries. - The principle of comparative advantage states that each country will be better off if it produces those goods in which it has the CA and that all countries then trade their surpluses with each other ie: specialisation and trade. - The principle demonstrates that the benefits of trade depend on opp cost. - It also demonstrates that after specialisation and trade, total production increases. - Takes into account the relative efficiency of producing it. - Produce at a lower opp cost. - Find what you are good at and do it, then trade. - Just not looking at total output, but opp cost of producing one good. - In calculating the CA of each types of production in each country, one looks at the 'real cost' (opp cost) of producing each good. - In the USA, it costs 2 units of clothing to produce 1 unit of food. - In Aus, it only costs 3/4 units. In real terms, food is more in the USA the Aus, thus Aus has a CA in the production of food. On the other hand, it costs only 1/2 unit of food to produce one unit of clothing in the USA, but in AUS it costs 1 and 1/3 units of food. Thus, the USA has a CA over Aus in the production of clothing.

Developing economies characteristics

1. A dominance of agricultural production 2. Labour intensive and small scale production 3. Weak public sector 4. Low levels of human capital 5. Low levels of capital and technology limiting the use of natural resources 5. Natural resource variations be between nations 6. Poorly developed financial markets - limited savings and investment 7. Low income levels / high levels of poverty 8. Low to moderate rates of economic growth 9. High population growth 10. Examples - Niger, Sierra Leone, Chad. Per capita income: US $1035 per capita or less to US $4085 per capita

Bilateral trade agreements

A bilateral trade agreement involved the removal of protection between two countries. They are the easiest type of trade agreement to negotiate as they only consider the interests of two countries. Bilateral trade agreements have experienced a rise in popularity in recent times, mainly due to the faltering of the WTO's progress and the ability of wealthy nations to negotiate favourable trade relationships with other countries using their economic power. Bilateral trade agreements are currently the main focus of trade policy in Australia. Australia has formed many bilateral trade agreements with other countries such as Thailand, UAE, Chile and most recently China. Some of those bilateral agreements are summarised below. The Singapore-Australia Free Trade Agreement (SAFTA) was Australia's first trade agreement with an Asian country. It was initiated in 2003. The trade agreement covers the elimination of tariffs and improves market access for services such as telecommunications, finance and professional services. It also provides cooperation across other areas of policy affecting business such as professional standards, education and competition policy. The Australia-United States Free Trade Agreement (AUSFTA) was implemented in 2005 and focused on the reduction of tariffs, mainly in agriculture and manufacturing, with all automotive tariffs being removed immediately and all other tariffs set to be removed by the end of 2015. Since this agreement the United States has become Australia's 3rd largest trading partner, participating in 8.5% of Australia's total trade flows. While bilateral trade agreements do go some way towards trade liberalisation they do so on a country by country basis, and so the benefits are not as widespread as they can be. Furthermore, the benefits of bilateral trade agreements tend to be overstated due to their tendency to cause 'trade diversion', i.e not increase the overall level of trade in the world, simply shift more into the countries involved in the agreement. Bilateral trade agreements have some use and should be created however they shouldn't take preference over the final goal of multilateral trade liberalisation.

Eco development def

Economic development is a broad measure of welfare in a nation that includes indicators of health, education and environmental quality as well as material living standards.

Eco growth definition

Economic growth occurs when there is a sustained increase in a country's productive capacity over time. This is commonly measured by the percentage increase in real GDP.

Domestic factors that cause global inequality

Economic resources: - Natural resources: ○ They are important inputs for the production of higher value added manufactured good and services. ○ Eco that have abundant and reliable supply of cheap natural resources clearly have between opps for eco development than those that do not, even if some have been spectacularly unsuccessful in using these opps. ○ Oil rich countries in Middle East, Africa and Latin America have achieved higher growth rates than their neighbours largely as a result of their exploitation of natural resources, ○ But abundance of natural resources can also hamper a country's eco development if it leads to an overvalued exchange rates, a narrow export base and an over-reliance on a small number of industries to drive eco growth. - Labour supply and quality: ○ Labour is an input to the production process for many sectors of the economy and therefore influences development levels. ○ High income countries tend to have highly educated and skilled labour resources ○ Low income nations are characterised by high pop growth, poor education levels and low health standards which reduce the quality of labour supply. ○ In South Africa, the quality of the labour supply is diminished by inadequate education facilities and high rates of HIV/AIDS which affects almost one in four South Africans aged 15-49 years and reduces workforce participation and productivity ○ In poor ones, lack of education especially in females - Access to capital and technology: ○ Difficulty in gaining access to capital for investment and development is another major structural weakness of developing nations that contribute to their lower living standards. ○ Low income levels provide little opp for savings that can be used for investment. ○ Poorly developed financial systems make it difficult for businesses to gain easy access to loans for investment purposes. ○ Microfinance orgs have been established in developing eco to provide small loans to help the poorest people in the world manage their farms and start a business. ○ Also with small research orgs and limited funds for business innovation developing countries have limited opp to develop new tech or to pay for the patents to use tech developed in other countries. - Entrepreneurial culture: ○ Evidence suggests that a country's history and social institutions can impact on its eco success. ○ The values of individuals responsibility, enterprise, wealth creation and a strong work ethic can assist the industrialisation process, and the transition towards sustainable eco development - High levels of inequality: ○ Large gaps in the distribution of income and wealth are a common characteristic of developing countries and especially of countries with high concentrations of poverty. ○ Poorest billion people are spread acorss around 100 countries, with 70% living in middle income countries. ○ By mid 2010's, the worlds richest 62 individuals held the same amount of wealth as a the bottom half of the entire global population. Institutional factors: - Ranging from political stability, legal structures, central bank independence, extent of corruption, strength of social institutions and the government's domestic and external economic policies - Political and economic institutions: ○ Institutional factors in individual countries can have a drastic influence on the eco environment for businesses, investors and consumers, and thus have implications for a nation's level of economic development. ○ Political instability, corruption, and a lack of law enforcement by gov agencies tend to undermine the confidence of investors, who will be reluctant to take risks if their business interests are threatened by an inadequate structure for resolving legal disputes, corruption or other institutional problems. ○ Impact of weak political institutions on eco development are difficult to quantify. One attempt to do so is the Corruption Perception Index, compiled each year by Transparency International. § The Corruption Perception Index is a score between 0 for countries with a relatively high level of corruption and 100 for countries with a relatively low level of corruption, - Economic policies: ○ Gov eco policies can have a substantial impact on development, in particular how govs balance the roles of market forces and gov intervention in the eco ○ If all major decisions are left to market forces, a country may achieve a high level of eco growth, but it may not improve education, health care and quality of life. ○ On the other hand, excessive gov control over eco decision making can constrain entrepreneurship and innovation reducing eco growth. ○ An IMF paper found that the major reason for higher inequality in Latin America compared with Euro eco was that developing eco govs are less able to implement policies which can ease inequality because they collect less tax rev and therefore can't provide the same level of public services and social welfare. - Government responses to globalisation: ○ Can have a substantial influence on a nation's ability to achieve eco development. ○ Policies relating to trade, financial flows, investment flows, TNC's and the country's participation in regional and global eco orgs will influence an eco ability to take advantage of the benefits of integration, such as eco restructuring, efficiency, access to foreign capital and technology and access to overseas goods markets. Eg: East Asian eco that have been most open to trade and foreign investment have experienced the strongest rates of eco growth in recent decades. ○ A recent WTO paper found that policy responses to an eco crisis have significant effect on the domestic economy.

Developed/advanced eco characteristics

Large service & advanced manufacturing sector Market based system Limited government intervention High levels of literacy & Life expectancy (E.g. Australia 82,5 years) High levels of human capital (high skill) High income levels Slowing economic growth Examples - Singapore, Portugal, Australia, Japan

International monetary fund

The IMF's role is to maintain international financial stability, particularly in relation to foreign exchange. In a situation where a financial crisis breaks out, the IMF attempts to minimise the crisis through the development of a 'rescue package'. The IMF often requires countries to change their policies in regards to finance before they are eligible to receive a rescue package, known as 'structural adjustment policies'. These structural adjustment policies have played a major part in globalisation as they ensure that many countries have adopted similar economic strategies such as balancing budgets, deregulating markets and privatising businesses. Many large international financial intermediaries will only lend to countries that have adopted the IMF's structural adjustment policies. During the GFC the IMF pumped $520billion into the global economy and provided specific support for countries hard hit by the crisis, with its lending commitments reaching a record of $157billion by 2009. The IMF also suspended interest payments on some loans during the GFC. When the European sovereign debt crisis began in 2011 the IMF provided a €300bn bailout package at the condition of strict austerity measures such as cutting spending, increasing taxes and privatization of PTE's for countries such as Greece, Portugal and Ireland. The IMF has been criticised for its rescue packages often doing more harm than good for countries in financial crisis. For example, during the Asian Financial Crisis in the late 1990's the Indonesian government was required to reduce government debt through reduced spending on health and education. Though the financial package restored financial stability, it resulted in poverty almost doubling from 11% to 20%. The IMF has also been criticised for serving the interests of rich countries as they contribute more the IMF's budget which entitles them more voting power in the decisions of IMF policy (the US provides 18% of the IMF's total budget). Furthermore, the IMF's policies are accused of only helping developing nations so that they are able to repay their debts to rich countries.

International and regional business cycle

The global eco, like any eco, is affected by regular and recurring fluctuations in the levels of eco activity. If a country's eco is experiencing a boom or recession its domestic demand for G and S can be affected. The combined effects on the level of eco activity of individual countries will in turn affect the global eco. The periodic and irregular expansions and contractions in world output can be measured by changes in real world GDP. Historically, there is a strong relationship between the business cycles of the world eco. To identify a global recession is a difficult task, even when they are occurring. This is why most recessions are not determined until after the eco event has taken place. Gross world product (GWP) tends to go through upswings, booms, downswings, and troughs. IBC, international business cycle, refers to fluctuations in the level of eco activity in the global eco over time. Although the levels of eco growth each year often differ greatly between countries, for most countries, eco growth is stronger when the rest of the world is growing strongly. General trend of world output is to grow 4% annually. This rose substantially due to Global Resources boom 2004-2008. GFC occurred in 2009 resulted in sig fall. Recovery since 2010 has been affected in 2013 due to European Sovereign Crisis and USA fiscal cliff.

G8 and G20

These organisations are government economic forums for world leaders that allow economic policies of major economies to be coordinated in response to economic and social issues. The G8 was formed in 1976 and has been the most important economic forum in recent decades. It consists of the 8 largest and most industrialised economies in the world and is unofficial for coordinating global macroeconomic policy as it contains 8 wealthiest economies. However, the G8 is now in decline as power now shifts to rapidly emerging economies like China which have a large population. Though the G8 still contains 60% of world GDP it only represents 14% of the population and as a result its economic importance has now shifted to other issues like global security. In the aftermath of the GFC, the G20 emerged as the major forum for economic cooperation. It includes the 19 largest economies in the world plus the EU, hence covering 80% of GWP and 2/3 of the world population. The G20 helped greatly during the GFC when it allowed major economies to form an agreement for fiscal stimulus as well as a plan for increased supervision of global financial markets. In 2010 the G20 allowed for the cooperation as economies balanced the need to stimulate the global economic bounce back from the GFC and the need to reduce large fiscal deficits.

Quotas

- A quota is a limit on the number of imported goods allowed into the country. - The higher the quota, the more imports allowed in and hence the lower the level of protection provided to domestic producers. Aus no longer uses quotas. - A quota has a similar effect to a tariff in that by restricting the number of M coming into the country, it raises the price (Because at P1 (WP) domestic demand > domestic supply and M are Q1 and Q4. If the quota restricts M to Q2-Q3 this will force the price up to P2. Price rise = same effect as tariff. - Definition: Refer to restrictions on the amounts of values of various kinds of goods that may be imported. - Eco effects: ○ Domestic producers supply a greater quantity of the good, therefore the quota stimulates domestic production and employment in the protected industry, ○ More resources in that eco are attracted to the protected industry leading to reallocation of resources from other sectors of the eco (where production and employment will fall) ○ Consumers pay a increased price and receive fewer goods. This redistributes Y away from consumers to domestic producers in the protected industry and results in lower overall levels of eco growth. ○ Unlike tariffs quotas don't directly generate revenue for the gov. However gov can sometimes raise a small amount of revenue from quotas by administering the quota through selling import licences allowing firms to import a limited number of goods. ○ As with tariffs the imposition of a quota on imports can invite retaliation from the country whose exports may be reduced because of the quota. This can result in lower exports for the country that initiated the import quota. - Tariff quotas: Countries sometimes use a system of tariff quotas. Under this protectionist method goods imported up to the quota pay the standard tariff rate whereas goods imported above the quota pay a higher rate. In the past many of Aus' most highly protected industries, eg: textiles, clothing, were shielded from foreign competition in this way.

Tariffs

- A tariff is simply a tax imposed by the government in imported goods. Such a tax (tariff) has the effect of raising the price of imported goods, making it easier for domestically produced goods to compete. Consequently the - demand for imported goods falls, and the demand for domestically produced goods increases. - Free trade situation: No tax or tariff impose in this diagram. - This is the domestic demand and supply of a good diagram. Domestic demand (Dd), supply domestic (sd) - There has been a contraction in supply after free trade. - Law of supply and demand displayed here when free trade comes, free trade = lower prices = more demand. - Q1 and Q2 are the imports net this difference. - Figure 1 shows the free trade position for Great Southern Land, a domestic company that sells hockey equipment. - Fgure 1 indicates the domestic market supply (Sd) and demand (Dd) before a tariff is imposed on imported hockey sticks. - With no international trade in the domestic market the price of hockey sticks is at the equilibrium price of Pe and the equilibrium quantity is Qe. - With free international trade, the company will have to accept the world price. - If the world price is P1 then free trade will cause domestic prices to fall to this level. Always going to be lower than market eq here, as there is more competition in world market = less price. - At a price of P1 local producers will only supply Q1 hocket sticks, however consumers demand Q2. The difference Q1Q2 will be made up of imports. - Total expenditue by consumers is P1BQ2. Domestic producers receive P1AQ1 and foreign producers receive Q1ABQ2. - Simply a tax imposed by the government in imported goods. - Effect of raising the price of imported goods, making it easier for domestically produced goods to compete. - Consequently the demand for imported goods falls, and the demand for domestically produced goods increases. - Effects: ○ Revenue effect is the taxation raised by the gov, imports x tariff ○ Redistribution effect is the transfer of income away from consumers and importers towards domestic producers and the gov. ○ Reallocative effect additional local resources have been attracted to the industry to raise output from Q to Q2. ○ Retaliation effect which arises when one of our trading partners retailiaes by placing a tariff on one of our exports to them, thus causing some local exporters to join consumers as 'losers in the production stakes', - Tariff will provide complete protection for local producers only if it is raised to a level which makes the domestic price equal to the eq price.

Effects of tariffs on the domestic and global economies

- ABCD: gov revenue fom tariff. Calculated by tariff (t) X quantity of imports. Eg: tariff of $20 x 100 of quantity. - Gov don't put tariff in place to raise revenue, it is a by-product. If the gov imposes a tariff of PP1, all of which is passed on to the consumer, demand will contract to Q3 and domestic suppliers will now supply Q2, ie: the level of imports is cut from Q1 to Q2Q3 and local producerss gain a bigger share of the market. This is called the Protective effect of the tariff. - The revenue effect: is the taxation raised by the gov (imports x tariff) (ABCD) - The redistribution effect: is the transfer of income away from consumers (price increases) and importers (made less profit) towards domestic producers (sell more at a increased price = more profit) and the gov. - The re-allocative effect: additional local resources have been attracted to the industry to raise output from Q TO Q2. Re-allocation towards domestic producer, resources moving from effiectn industry to protected/inefficient and therefore not effective in long run. - The retaliation effect: which arises when one of our trading partners retaliates by placing a tariff on one of our exports to them, thus causing some local exporters to join consumers as losers in the production stakes. The tariff will provide complete protection for local producers only if it is raised to a level which makes the domestic price equal to the equilibrium price.

Intentional division of labour, migration

- Although movement of labour around the world is slower than the movement of products, finance, I, it's a sig factor in globalisation - Except for a reduction in the late 2000's, labour migration (movement of people between countries on a permanent or long term basis) has steadily increased (now approx 3% of world pop.) - 70% of these migrants live in high Y countries. Movement of labour is concentrated at the top (highly skilled workers attracted towards richest eco for better pay opps eg: to USA, can lead to 'brain drain', eg: Aus) and bottom (low skilled labour is in advanced eco to do certain work and often filled by migrants, eg: Eastern Europeans to Western Europe) ends of the market. - International division of labour: occurs whereby people move to jobs where their skills are needed. Barriers to migration still exist; immigration restrictions, language, cultural factors, incompatible education and professional qualification. - Corporations also shift between eco in search of most efficient and cost effective labour, hence 'Global Supply Chain' with production facilities in several countries and 'offshoring' to shift production between countries to lower costs. - 'Offshoring' is occurring not only in production but also with IT support, data management and accounting. International Division of Labour reflects the eco concept of 'comparative advantage' ie: eco should specialise in the production of G and S that they can produce at the lowest opportunity cost, ie: labour-intensive manufacturing in developing eco and specialised services in advanced eco. Specialised= IT, finance. - Migration more info found on sheet with date 26.10.17 titled 'Migration', has a mindmap on the front.

Quota def

- Definition: Refer to restrictions on the amounts of values of various kinds of goods that may be imported.

Gross world product statistics

- Developing eco GWP growth rate in 2015 was 4.3% - Advanced eco GWP growth rate in 2015 was 3.5% - Developing eco GWP growth rate has slowly decreased from 8.2% in 2006 to 4.3% in 2015 - The global eco is steadily increasing in 2016 by 3.2%, 2017 by 3.5%, 2018 by 3.6% - The relatively smaller number of advanced economies dominate the global production of G and S compared to the larger number of emerging and developing eco. - Emerging and developing eco are sustaining higher rates of growth and are steadily increasing over time.

Difference between global financial flows and global investment flows

- Difference between global financial flows and global investment flows: ○ One measure of the globalisation of I is the expansion of foreign direct I (FDI) which involves the movement of funds that are directly invested in eco activity or in the purchase of companies. FDI's are strongly influenced by eco activity. They have traditionally favoured developed nations, but this is now changing to developing and emerging. For first time in 2012, developing received more FDI flows than developed, cause China and India, etc. TNC's play a vital role in global invest flows = design in one country, produce in another, package in another. International financial flows: money moves between eco.

Reasons for differences between nations

- Different levels of eco development between nations has been a central issue of economic debate for over half a century - During globalisation era, differences in living standards between rich and poor countries have come into sharper focus because of the increased interaction between the more prosperous and less prosperous regions of the world. - Widespread political corruption, weak institutions, a low level of skills development or high rates of population growth. - Assumed that developing simply lac the requirements for growth or have implicitly been seen as the cause of their own problems.

Eco development is a process of structural change

- Eco development is a qualitative process, involving the development of an eco's eco and social infrastructure. A major structural change with eco development is the transformation of an economy from a rural based agricultural society to an industrial and service based urban society. The composition of the workforce also changes, due to increasing specialisation of production.

Eco development is a process of structural change:

Eco effects of a subsidy

- Eco effects of a subsidy: ○ Domestic producers supply a greater quantity of the good, therefore the subsidy stimulates domestic production and employment in protected industry. ○ More resources in that eco are allocated to the protected industry leading to reallocation of resources, from other sectors of the eco (where production and employment will decrease) ○ Consumers pay a lower price and receive more G because the subsidy shifts the supply curve for the sector to the right. However consumers still pay indirectly for subsides through increased taxes. ○ Subsidies impose directly costs on gov budgets because they involve payments from gov to the producers of G and S. This means that govs have fewer resources to allocate to other priorities, eg: education and health. ○ Economists are opposed to protectionist policies they often prefer a sub to a tariff because sub tend to be abolished more quickly, since they impose costs on the budget rather than generating revenue.

Eco effects of quota

- Eco effects: ○ Domestic producers supply a greater quantity of the good, therefore the quota stimulates domestic production and employment in the protected industry, ○ More resources in that eco are attracted to the protected industry leading to reallocation of resources from other sectors of the eco (where production and employment will fall) ○ Consumers pay a increased price and receive fewer goods. This redistributes Y away from consumers to domestic producers in the protected industry and results in lower overall levels of eco growth. ○ Unlike tariffs quotas don't directly generate revenue for the gov. However gov can sometimes raise a small amount of revenue from quotas by administering the quota through selling import licences allowing firms to import a limited number of goods. ○ As with tariffs the imposition of a quota on imports can invite retaliation from the country whose exports may be reduced because of the quota. This can result in lower exports for the country that initiated the import quota.

Difference between eco growth and eco development

- Economic growth is a narrower concept than economic development. It is an increase in a country's real level of national output which can be caused by an increase in the quality of resources (by education, etc), increase in the quantity of resources and improvements in technology or in another way an increase in the value of goods and services produced by every sector of the economy. Economic growth can be measured by an increase in a country's GDP (gross domestic product). Quantitative , increase quantity every year. - Economic development is a normative concept. The definition of economic development is a broad measure of welfare in a nation that includes indicators of health, education and environmental quality, as well as material living standards. - The most accurate method of measuring development is the Human Development Index (HDI) which takes into account the literacy rates and life expectancy which affect productivity and could lead to Economic growth. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment. It implies an increase in the per capita income of every citizen. - Economic growth doesn't take into account the size of the informal economy. The informal economy is also known as the black economy, which is unrecorded economic activity (drugs, doing something for free, vegetables growing, pay cash) - Development alleviates people from low standards of living into proper employment with suitable shelter. - Economic growth doesn't take into account the depletion of natural resources which might lead to pollution, congestion and disease. - Development however is concerned with sustainability, which means meeting the needs of the present without compromising future needs. These environmental effects are becoming more of a problem for governments now that the pressure has increased on them due to global warming. - Economic growth is a necessary but not sufficient condition of economic development. ○ Growth is required for development. Growth alone doesn't lead to development, eg: in China growth but pollution results in no development. - Natural disaster and war boost GDP. - Eco growth = doesn't tell about welfare of people in country - Eco development = measure of welfare, well-being in country. Education, health, social indicators. - Developing eco = faster eco growth than developed eco, eg: China 7.8% and Aus 2.75% - Eco growth = quantitate, eco development: qualitative - Economic growth occurs when there is a sustained increase in a country's productive capacity over time. This is commonly measured by the percentage increase in real GDP. - Economic development is a broad measure of welfare in a nation that includes indicators of health, education and environmental quality as well as material living standards.

- Differences between economic growth and economic development

Export incentives

- Give domestic producers assistance such as grants, loans or technical adivce, such as marketing or legal information and encourage businesses to penetrate global markets or expand their market share. - Popularity of such programs has grown considerably in recent years as nations have moved to a greater focus on capturing foreign markets rather than protecting import-competing businesses as a strategy to achieve higher rates of eco growth and employment. - Eg: Aus has program known as 'Export Market Development Grant (EMDG)' which provides direct funding and general assistance to local manufactures looking to break into intenational markets. - Technically don't protect businesses from foreign competition but are artificial barrier to free trade.

UNHDI

- HDI is a measure of eco development devised but the United Nations Development Program. It takes into account life expectancy at birth, levels of educational attainment and material living standards (as measured by Gross National Income per capita) - The origins of the HDI are found in the annual Human Development Reports produced by the Human Development Reports Office of the UN Development Programme. These were devised and launched by Pakistani economist Mahbub ul Haq in 1990. - Classifies countries by ○ Very high human development, eg: Norway and Aus ○ High human development, eg: Cuba, Belarus ○ Medium human development, eg: Philippines, Nepal ○ Low human development, eg: Chad, Niger - Millennium Goals: ○ At UN Summit in 200, 189 countries agreed to eight Millennium Development Goals ○ Guide efforts by international org to improve eco development in poorer countries ○ Many goals had measureable targets to be achieved by 2015 ○ These goals reflect the importance of Y, education, health and environment to improving quality of life ○ At the end of 15 years, progress of goals mixed § Between 1990 and 2015, global proportion of people living in extreme poverty fell from 1.9 billion to 987 million in 2015. However, due to China with people living in extreme poverty reduced from 61% to 41% in 1990-2015. Masking extreme poverty in regions such as Sub-Saharan Africa § Progress in child mortality § Access to safe water § Targets not met were universal primary education, reducing maternal mortality

Disadvantages of free trade

- Increased in unemployment may occur as some domestic businesses may find it hard to compete with imports. The short term rise in un should correct itself in the long term as the domestic eco redirects res to areas of production in which it has a comparative adv - May be more difficult for less adv eco to est new bus and industries if they aren't protected from larger foreign competitors. - Production surpluses from some countries may be 'dumped' (sold at unrealistic low prices) on domestic market which may hurt efficient domestic industries. - May encourage environmentally irresponsible production (negative externalities) methods because producers in some nations may win markets by undercutting competitors prices, may not dispose of waste safely. - Infant industries find it difficult to compete against more efficient and est foreign firms.

Reasons for protection

- Infant industries (good economic argument): ○ Protect with a subsidy during formation phase and then phase out. ○ New industries face trouble in early years, with small scales and relatively high costs, then competitors overseas. They may need to be shielded and achieve eco of scale = compete on global market. ○ Used mainly in new industrialising eco. ○ The protection has to be removed over time to ensure they are motivated to reach level of efficiency so that they can compete. ○ Govs should only provide temporary assistance to industries who will have good chance at competing and achieving comparative advantage. - Protection of dumping (good economic argument): ○ Stopping another country selling g in your country cheaper than they sell in their markets to diminish competition. ○ Sell at unrealistic low prices. ○ May be used to dispose of large productions surpluses or est. market position in another country. ○ Low price = only temporary usually, hurt domestic producers, may be forced out of business = loss in country's productive capacity and increase unemployment. - Protection of domestic employment (poor eco argument): ○ If local producers are protected from competition with cheaper foreign imports, the demand for local goods will be greater = more domestic employment. ○ However, economists say that protection distorts allocation of resources as they move away from more efficient production to areas that are less efficient = increased unemployment in long run. - Defence and self-sufficiency (non-eco argument, more about military and isolationism): ○ Major powers want to retain their own defence industries so that when war comes they are confident that they can still produce defence equipment. ○ Eg: USA not buy crucial defence equipment from overseas even if they were cheaper = become reliant on other countries for national security. ○ Self sufficiency of food supplies, eg: Japan are very inefficient in producing own food but retains high tariffs on rise imports because it wants to retain its own food supply. ○ May result in decreased standards of living. - Protection of foreign workers from poor conditions (non-eco argument): ○ Due to large difference in wage levels between high and low Y economies, some economists argue that producers should be protected from competition with countries that produce G with low cost labour = low costs are artificially low in developing eco due to weak labour standards (no right to unions and low safety standards). ○ Reason that it is important to protect living standards of workers in high Y eco through protectionist. ○ Also protect human rights, gov = not trade goods produced with forced labour. - Protection of environmental in production country (non-eco argument): ○ Countries sometimes block trade in G due to environmental factors, eg: envir harm involved in production. ○ Overseas producers may produce more cheaply due to envir irresponsible practices.

Summary of globalisation

- International eco integration is integration between the world's largest eco and between eco in the same geo region. - It underpins growth in international trade and investment. - Main factors responsible for greater international eco integration include: ○ Cost reductions resulting from rapid tech (ICT and transport) advancements. ○ Reductions in barriers to inter trade in the form of cuts to tariffs and subsidies by gov both unilaterally and through signing bilateral, regional and multilateral trade agreements. ○ More freedom of movement of labour and capital through migration and relaxation of capital controls and the deregulation of financial markets. - Main forms of inter eco integration: ○ Free trade area: Most basic form of eco integration among countries. All trade barriers, eg: tariffs, are removed, but each member nation maintains its own trade barriers to non-member countries. ○ Customs union: Features of a free trade area, good and services traded freely. However, has a common trade policy est. against non-member in the form of a common external tariff. ○ Common market: Features of customs union, but also factors of production, eg: labour, are mobile, ie: restrictions on immigration are largely abolished. ○ Eco/monetary union: Has free movement of g and s, labour, capital integration of monetary and fiscal policies, common currency. - International Monetary Fund (IMF) classifies the world's 192 economies according to their level of development ad geo region. ○ 39 advanced, 153 emerging/developing. ○ Advanced: 41.9% of world GDP in 2016 and 64.4% of world output. ○ Emerging/developing: 58.1% contribution of world output and 35.6% to world exports in 2016. - Globalisation and eco integration proceeded at a rapid pace in early to mid 2000's, until GFC, when world growth and trade contracted. Also due to below trend world growth and opposition to further global eco integration by conservative political parties and leaders, eg: Trump. They have highlights the de-industrialisation of manufacturing in advanced countries as evidence of the large cost of globalisation in terms of structural unemployment and declining industries. ○ Nationalist and protectionist sentiment. FDI rose in 2015, but global FDI flows fell by 2% to US $1.47 trillion in 2016, amid weak eco growth. A modest recovery in global FDI flows is forecast for 2017, although flows are expected to remain below their peak in 2007. FDI flows are expected to increase by about 5% in 2017 to US $1.8 trillion. However, geopolitical risks and policy uncertainty could have an impact on the scale of the FDI recovery in 2017.

Financial flows

- International finance is the most globalised feature in the global economy because the money moves between eco more easily and quickly than G and S. International financial flows have increase due to factors such as: ○ Following financial deregulation around the world, which in most countries occurred in the 1970's and 1980's. Controls on foreign currency markets, flows of foreign capital, banking ir and overseas I in shore markets were lifted. ○ Tech change also played an important role. It has linked financial markets throughout the world, allowing events in major international markets to produce immediate results. ○ STATISTICS IN BOOK, DATE 17.10.17 - Exchange rate is the value of currency is expressed in terms of another currency and is known as the exchange rate between 2 currencies. It is the price of one currency in terms of another currency. - The main benefit of greater global financial flows is that it enables countries to obtain funds that are used to finance their domestic I. In particular, investors in countries with low national savings levels wouldn't otherwise by able to obtain the necessary finance to undertake large scale business and I projects of their eco were closed off to achieve higher levels of I and therefore eco growth than would otherwise have been possible. - The negative eco impacts are speculative behaviour can create sig volatility in foreign exchange markets and domestic financial markets. Because speculators are often accused of acting with a herd mentality, meaning that once an upward or downward trend in asset price is est, it tends to continue.

Trade in goods and services

- International trade in G and S is an important indicator of globalisation because it is a measure of how G and S produced in an eco are consumed in other eco around the world. - It has grown rapidly in recent decades, increasing from $US8.7 trillion (38% of global output) to 1990 to over $US46 trillion (60% of global output) in 2014. - GWP is now over ten times it level in 1950, volume of world trade has grown to almost 50 X its 1950 level. - The GFC in 2009 halted a high growth in world output, trade and foreign investment. Between 1988 and 2007, average annual growth output was 4.2%. In 2009 output contracted by -0.1% which caused deep recessions in most advanced eco. Following this, the European Sovereign Debt Crisis (country unable to pay bills) and fiscal cliff (increase taxes and decrease spending plan) in the USA, saw a deceleration. - The high volume of global trade reflects the fact that eco didn't produce them as efficiently as other eco and have to import G and S. - Grown strongly in recent decades because of new tech in transport and communications = reduce cost of moving G between eco and providing services to customers in distant markets. - Govs have encouraged trade by removing barriers and joining international and regional trade groups. - Exports increase by 7.8% annually between 1998 and 2007. Growth in exports was greater in developing countries. By 2009, there was a decline in exports due to recession. Since 2010-15, world exports recovered and grew by 5% anually, slowing to 2.2% in 2016, due to slower growth in China, and falling commodity prices. - The main composition of global exports of G are food, agricultural raw materials, fuels, ores, metals and manufactured goods. Main exports of services are commercial, transport, travel, insurance, financial, computer information and communications. - Govs have encouraged trade by removing barriers and joining international and regional trade groups. - In the long term, it's expected that trade in services like finance and communication services will be the fastest growing category as while services make up 2/3 of global output, they still make up 1/5 of global exports.

Globalisation

- The breakdown of geographical and artificial barriers between countries and economies. - The reduction in protectionist policies, e.g.: tariffs, quotas and subsidies means increased trade between nations. - The process of increased integration between different countries and economies and the increased impact of international influences on all aspects of life. - The key indicators of integration between economies include: - International trade flows: Has grown rapidly in recent years. GWP is now 8 times larger than in 1950 but world trade is 28 times larger. Much of this rapid increase can be attributed to the influence of TNC's, global companies which dominate the global product and factor markets. TNC's often structure production so that different stages of the production process occur in different economies, depending on cost. - Financial flows: Globalization of finance has played a major role in linking eco around the world. The most 'globalized' feature of the world eco because money can move quickly between countries compared to goods and services. Tech has helped link the global financial market. The main drivers of global financial flows are speculators who buy and sell financial assets with the aim of making profits in the short term (they are criticized for creating volatility). - International investment: Since the 1970's, massive growth in investment between countries. The expansion of foreign direct investment between countries (movement of funds between countries for the purpose of buying companies, firms, or a large proportion of shares in a company) has contributed to the globalization of investment. FDI flows are mainly concentrated in developed countries from the Organization from Economic Cooperation and Development (OECD), but are becoming increasingly integrated to other economies. - Technology, transport and communication: New developments in these areas have directly resulted in the expansion of trade and investment. Internet can reduce business costs such a communication costs that were once barrier to integration between countries. Developments in freight tech, more reliable cargo vessels and high speed transport have seen expansion in world trade. Businesses corporations which develop new tech also often expand directly into OS markets to sell their products to global consumers, also increasing investment. International division of labor and migration: Although much less internationalized then other measures of globalization, people are moving overseas to take advantage of better working conditions then their own country more than ever before. These movements are concentrated amongst the top (high skilled) and bottom (unskilled) of the labor market. Globalization of labor mostly seen through shift of production of businesses between economies in search of the most efficient and cost effective labor, rather than the movement of people. - Globalisation refers to the increasing eco integration of countries through increasing trade and investment, leading to the emergence of a global world market. - Increasing eco inter has also led to an increasing in the movement of people and the increasing sophistication and speed of transport and communication networks.

Main sources of growth in an eco

- The increased use of resources such as land, l, c, e due to improved tech, population and labour force growth or management techniques Increased productivity of existing resource use through rising labour and capital productivity. Capital widening occurs when the capital stock keeps pace with the growth in the labour force. Capital deepening when the capital stock outstrips the growth in the labour force.

Gross world product

- The size of the global or world economy is measured by the International Monetary Fund (IMF) through the compilation of data which values countries' Gross Domestic Products (GDP) at purchasing power parities (PPP). - World GDP at PPP is the total market value of all goods and services produced by all countries over a given time period (usually a year), adjusted for national variations in prices and different exchange rates. - World GDP at PPP is valued in US dollars as this is the world's reserve currency and is a measure of the value of world output or production in real terms. - Sum of the output of good and services of all economies over a period of time. - Also use GDP at PPP, this is basically the same as GWP adjusted for national variations in prices and different exchange rates. - GWP at the moment is around $70 trillion US, and expected to increase.

The World Bank

The World Bank mainly focuses on helping developing countries with their economic development. It funds investment in infrastructure, reduces poverty and helps developing countries adjust to the demands of globalisation. The World Bank also has specific institutions which aim to financially help developing countries by providing 'soft loans' with little or no interest, attracting private sector investment and providing risk insurance to private investors (in the case of economies with civil and political instability that may threatened the success of investments). In recent years the major aim of the World Bank's Millennium Development Goals has been to reduce poverty from its 1990 levels to half that by 2015, i.e from 29% to 14.5%. Other objectives highlighted in the Millennium Development Goals are to ensure global primary education, improve child morality and reduce epidemics like HIV/AIDS and malaria. During the GFC the World Bank tripled lending to developing countries to $35billion and a further $100billion was earmarked for developing nations due to a sudden lack of liquidity on global financial markets. Currently the World Bank supports the Heavily Indebted Poor Countries Initiative which aims to reduce the debt in the 46 poorest nations in world. However it has attracted criticism for this as debt relief is seen as an irresponsible economic policy. This is because debt relief created the impression that one day all debt will be cleared without any economic innovation and so provides no incentive for these countries to improve their infrastructure and education. Furthermore, it is in doubt whether the relief funds actually go to poverty reduction, instead often going to military budgets. This issue extends deeper as developing countries suffer greatly from corruption and any funds given to developing countries may be incorrectly used. In 2006 the World Bank froze all payments to Cambodia and demanded that the Cambodian government repay $7million to US which were lost to corruption.

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