Economics Theme 4 Specialisation, Trade, Globalisation

-sell excess production and gain export revenue (injection into circular flow of income)

-gain access to goods and services that are not produced or are expensive to produce in their home country

-increased competition forces domestic producers to be efficient and improve quality

-to gain economies of scale from specialising

Demonstrates the ability of a country to produce a good more efficiently than any other country.

When countries have an absolute advantage in producing a product, it is logical to specialise in producing that good as it will increase world production.

No opportunity cost is used to work it out. Just look at who makes more.

They use the concept of comparative advantage to decide what they should specialise in

Used the concept of opportunity cost. The number of units of one good not madd in order to produce one unit of the other good. A country has comparative advantage if the opportunity cost of producing a good is lower than the opportunity cost for other countries

China has an absolute advantage in both Cloth and Shoes.

India has a comparative advantage in shoes while China has a comparative advantage in Cloth.

● UK- Financial Services

● New Zealand- Lamb

● Saudi Arabia- Oil

● USA- Soy

● Japan- Cars

● Taiwan- Manufactured Electronics

-Availability of raw materials

(Countries like Saudi Arabia have oil easily available)

-Climate

(Coconuts grow easily in Caribbean)

-Investment in R&D (Research and Development)

(High levels of technology in places like Germany Lower costs of production)

-Demographic I.e. availablity and cost of labour

(China has large population so has cheap labour)

-Higher labour productivity

(countries like USA)

-Not realistic as it assumes no transport costs, homogenous products, constant exchange rates and no negative externalities

-Doesn’t give ratio of trade which would detail who benefits more from trade. May not be fair.

-Doesn’t mean countries should always be open to competition as they are in different stages of development. Infant industries e.g. in South Korea may need time to grow.

Countries that specialise in agriculture are unlikely to benefit from technological progress as much as countries which specialise in manufacturing.

Countries may be trapped selling primary products which have volatile prices (e.g. wheat) and are possibly finite

-higher world output from economies of scale

-greater allocative efficiency as factors of production are being use for their most effective purpose

-comparative advantage is dynamic rather than static, and can be lost

-could create high levels of structural unemployment if workers cannot retrain

-Consumer tastes may change

-Countries May want to be self-sufficient in case of war or natural disaster (especially with regard to food)

-Other sectors of the economy may have an important social role e.g. farming hence CAP

-Resources may be non-renewable e.g. oil

Refers to the increasing interdependence and integration of economic actors internationally .

Increased interdependence

Increased Global Trade

Increased Levels of Migration

Outsourcing and Global Supply Chains

Global Capital Flows

Growth of MNCs

High Levels of FDI

Design of bigger ships has made it more efficient snd cheaper to move products all over the world

This makes it easier to sell abroad directly to consumers and cut firms communication costs, allowing outsourcing

Trading blocs such as NAFTA or the EU has meant more tariff areas. With lower tariffs the price of imports has decrease making them more competitive.

This makes it easier for firms to move money abroad in seconds for greater profit

The end of the Cold War and the opening of China meant more countries adopting an open market economy for trading.

Some countries such as China have made huge export revenues from selling abroad lifting millions out of poverty

Some feel it has threatened their way of life (cultural imperialism)

Other areas such as the north of England have seen a rage decline from the ending of the inefficient industries, which as lead to a rise in inequality

Growth of MNC’s has lessened the power of individual governments as countries will be pressured to lower taxes and water down regulations to attach FDI.

This increase of inter-governmental organisations and trade agreements has also reduced the sovereignty of governments. E.g. NHS

Producers can reduce costs from outsourcing and can also find new markets to sell their products.

In some countries high levels of migration has created a ‘brain drain’ where there are a lack of skilled workers

Increased choice from buying foreign products. Reduced tariff barriers and global competition lowers prices making goods more affordable.

Greater opportunities to migrate in search of higher wages

Imports may replace traditional industries leading to unemployment. Increased competition from abroad might also lead to lower wages.

Increased trade leads to more transport and hence pollution.

Increased communication could lead to less travel and it may be efficient to import products rather than use resources growing them domestically e.g. chilies in Iceland

The process of diminishing interdependence and integration between certain units around the world, typically nation-states. It is widely used to describe the periods of history when economic trade and investment between countries decline.

-Transport Costs not falling

-Falling FDI (especially from the Chinese)

-Services are hard to trade

-Increased Regulations

-China being self-reliant

Protectionism

Brexit

Decline of industry in U.K./US