Unit 4: Developments in the Global Economy
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4.3.1 - Causes and effects of globalisation
4.3.1.1aIncrease in trade as a proportion of GDP. globalisation
Increase in trade as a proportion of GDP. globalisation
4.3.1.1bIncrease in importance of transnational companies (TNCs) and foreign direct investment
Increase in importance of transnational companies (TNCs) and foreign direct investment (FDI).
4.3.1.1cIncrease in migration
Increase in migration.
4.3.1.2aFactors contributing to increased globalisation in the last globalisation 50 years: •
Factors contributing to increased globalisation in the last globalisation 50 years:; trade liberalisation; increased number and size of trading blocs; political change (breakdown of the Soviet system and opening up of China); reduced cost of transport and communications; increased significance of TNCs.
4.3.1.2bFDI by TNCs: • reasons for FDI • the impact of FDI on recipient countries
FDI by TNCs:; reasons for FDI; the impact of FDI on recipient countries.
4.3.1.3aPossible benefits of globalisation: globalisation • increased economic growth •
Possible benefits of globalisation: globalisation; increased economic growth; increased tax revenue; economies of scale; lower prices and higher consumer surplus; more choice; higher living standards.
4.3.1.3bPossible costs of globalisation: • displaced workers • exploitation of workers •
Possible costs of globalisation:; displaced workers; exploitation of workers; environmental impact of increased trade; loss of tax revenue from transfer pricing; increased income inequality within countries; the influence of TNCs on domestic economic policy.
4.3.2 - Trade and the global economy
4.3.2.1aBenefits and costs of specialisation and trade in the international comparative
Benefits and costs of specialisation and trade in the international comparative context. advantage
4.3.2.1btheory of comparative advantage: • the distinction between absolute and comparative
The theory of comparative advantage:; the distinction between absolute and comparative advantage; assumptions underlying the theory of comparative advantage; limitations of the theory of comparative advantage.
4.3.2.2aFactors influencing patterns of trade between countries and causes volume of world of
Factors influencing patterns of trade between countries and causes volume of world of changes in these patterns: trade; impact of emerging economies; changes in comparative advantage; growth in trading blocs and bilateral trading agreements; changes in relative exchange rates; changes in protectionism between countries.
4.3.2.2bChanges in trade flows between countries, and the reasons for these changes
Changes in trade flows between countries, and the reasons for these changes.
4.3.2.3aUnderstanding and calculation of the terms of trade
Understanding and calculation of the terms of trade.
4.3.2.3bFactors influencing a country's terms of trade, changes in: • relative inflation rates
Factors influencing a country's terms of trade, changes in:; relative inflation rates; relative productivity rates; relative labour costs; the exchange rate; the prices of imports and exports.
4.3.2.3cimpact of changes in a country's terms of trade on: • export revenues • living
The impact of changes in a country's terms of trade on:; export revenues; living standards; balance of trade.
4.3.2.4arole of the World Trade Organization (WTO) in trade liberalisation and liberalisation.
The role of the World Trade Organization (WTO) in trade liberalisation and liberalisation. trading blocs
4.3.2.4bTypes of trading blocs: • free-trade areas • customs unions • common markets • economic
Types of trading blocs:; free-trade areas; customs unions; common markets; economic and monetary unions.
4.3.2.4cCosts and benefits of membership of a trading bloc: • trade creation • trade diversion
Costs and benefits of membership of a trading bloc:; trade creation; trade diversion; costs and prices; economies of scale; transaction costs; movement of factors of production.
4.3.2.4dPossible conflicts between trading blocs and the WTO
Possible conflicts between trading blocs and the WTO.
4.3.2.5aReasons for restrictions on free trade: free trade • to protect infant and geriatric
Reasons for restrictions on free trade: free trade; to protect infant and geriatric industries; to protect domestic industries and employment; to protect national security; to prevent dumping; to correct a deficit on the current account of the balance of payments; to raise revenue.
4.3.2.5bTypes of restrictions on free trade: • tariffs • quotas • non-tariff barriers •
Types of restrictions on free trade:; tariffs; quotas; non-tariff barriers; subsidies to domestic producers.
4.3.2.5cImpact of protectionist policies on: • consumers • producers • governments • living
Impact of protectionist policies on:; consumers; producers; governments; living standards; equality.
4.3.3 - Balance of payments, exchange rates and international competitiveness
4.3.3.1aComponents of the balance of payments: payments • the current account • the capital and
Components of the balance of payments: payments; the current account; the capital and financial accounts.
4.3.3.1bCauses of deficits and surpluses on the current account
Causes of deficits and surpluses on the current account.
4.3.3.1cMeasures to reduce a country's imbalance on the current account
Measures to reduce a country's imbalance on the current account.
4.3.3.1dsignificance of global trade imbalances
The significance of global trade imbalances.
4.3.3.2adistinction between fixed, managed and floating exchange rates
The distinction between fixed, managed and floating exchange rates.
4.3.3.2bGovernment intervention in currency markets through: • foreign currency transactions •
Government intervention in currency markets through:; foreign currency transactions; the use of interest rates; quantitative easing.
4.3.3.2cFactors influencing floating exchange rates: • relative interest rates • relative
Factors influencing floating exchange rates:; relative interest rates; relative inflation rates (purchasing power parity theory); current account of the balance of payments; strength of the economy; capital flight; expectations and speculation; global factors, e.g. falls in commodity prices.
4.3.3.2ddistinction between revaluation and appreciation of a currency
The distinction between revaluation and appreciation of a currency.
4.3.3.2edistinction between devaluation and depreciation of a currency
The distinction between devaluation and depreciation of a currency.
4.3.3.2fimpact of changes in exchange rates on: • the current account of the balance of
The impact of changes in exchange rates on:; the current account of the balance of payments (with reference to Marshall-Lerner condition and to the J-curve effect); the capital and financial accounts of the balance of payments; economic growth; employment and unemployment; rate of inflation; FDI flows.
4.3.3.2gCompetitive depreciations/devaluations and their consequences
Competitive depreciations/devaluations and their consequences.
4.3.3.3aMeasures of international competitiveness: competitiveness • relative productivity
Measures of international competitiveness: competitiveness; relative productivity rates; relative unit labour costs; relative export prices.
4.3.3.3bFactors influencing international competitiveness: • productivity • quality of human
Factors influencing international competitiveness:; productivity; quality of human capital; exchange rate; wage and non-wage costs; regulations; quality of infrastructure; non-price factors.
4.3.3.3cMeasures to increase international competitiveness: • policies to improve education and
Measures to increase international competitiveness:; policies to improve education and training; investment incentives; privatisation and deregulation; measures to reduce the exchange rate of the currency; trade liberalisation.
4.3.3.3dsignificance of international competitiveness: • advantages for an economy of being
The significance of international competitiveness:; advantages for an economy of being internationally competitive; problems for an economy of being internationally uncompetitive.
4.3.4 - Poverty and inequality
4.3.4.1adistinction between absolute and relative poverty
The distinction between absolute and relative poverty.
4.3.4.1bMeasures of absolute and relative poverty
Measures of absolute and relative poverty.
4.3.4.1cCauses of changes in absolute and relative poverty: • economic growth • education and
Causes of changes in absolute and relative poverty:; economic growth; education and training; welfare benefits; changes in tax structure; structural changes in the economy; aid; civil wars and conflict.
4.3.4.2adistinction between wealth inequality and income inequality
The distinction between wealth inequality and income inequality.
4.3.4.2bMeasurements of inequality: • the Lorenz curve • the Gini coefficient
Measurements of inequality:; the Lorenz curve; the Gini coefficient.
4.3.4.2cCauses of inequality in income and wealth within countries and between countries
Causes of inequality in income and wealth within countries and between countries.
4.3.4.2dimpact of inequality on: • enterprise • incentives • savings • education • migration •
The impact of inequality on:; enterprise; incentives; savings; education; migration; life expectancy.
4.3.4.2eimpact of economic change and development on inequality
The impact of economic change and development on inequality.
4.3.4.2fsignificance of the free market economy (capitalism) for inequality
The significance of the free market economy (capitalism) for inequality.
4.3.5 - The role of the state in the macroeconomy
4.3.5.1adistinction between capital expenditure, current expenditure and transfer payments
The distinction between capital expenditure, current expenditure and transfer payments.
4.3.5.1bReasons for the changing size and pattern of public expenditure in an international
Reasons for the changing size and pattern of public expenditure in an international context:; changing incomes; changing age distributions; changing expectations.
4.3.5.1csignificance of differing levels of public expenditure as a proportion of GDP on: •
The significance of differing levels of public expenditure as a proportion of GDP on:; productivity and growth; crowding out; levels of taxation.
4.3.5.2adistinction between, and examples of, direct and indirect taxes
The distinction between, and examples of, direct and indirect taxes.
4.3.5.2bdistinction between progressive, proportional and regressive taxes
The distinction between progressive, proportional and regressive taxes.
4.3.5.2ceconomic effects of changes in direct and indirect tax rates on: • incentives to work •
The economic effects of changes in direct and indirect tax rates on:; incentives to work; tax revenues: Laffer curve analysis; income distribution; real output and employment; the price level; the trade balance; FDI flows.
4.3.5.3adistinction between: borrowing and • fiscal deficits and fiscal surpluses public sector
The distinction between: borrowing and; fiscal deficits and fiscal surpluses public sector debt; automatic stabilisers and discretionary fiscal policy; a fiscal deficit and the national debt; structural and cyclical fiscal deficits.
4.3.5.3bFactors influencing the size of fiscal deficits and national debts
Factors influencing the size of fiscal deficits and national debts.
4.3.5.3csignificance of the size of fiscal deficits and national debts: • impact on interest
The significance of the size of fiscal deficits and national debts:; impact on interest rates; debt servicing; intergenerational equity.
4.3.5.4agovernments use fiscal policy, monetary policy, exchange- policies rate policy,
How governments use fiscal policy, monetary policy, exchange- policies rate policy, supply-side policies and direct controls to:; reduce fiscal deficits and national debts; control the rate of inflation; respond to external shocks in the global economy; reduce poverty and inequality.
4.3.5.4bUse of demand-side policies in response to the global financial crisis of 2008
Use of demand-side policies in response to the global financial crisis of 2008.
4.3.5.4cMeasures to control TNCs: • to reduce tax avoidance • the regulation of transfer
Measures to control TNCs:; to reduce tax avoidance; the regulation of transfer pricing; limits to government ability to control TNCs.
4.3.5.4dimpact of policy changes on: • local economies • national economies • the global economy
The impact of policy changes on:; local economies; national economies; the global economy.
4.3.5.4eProblems facing policymakers when applying policies: • inaccurate information • risks
Problems facing policymakers when applying policies:; inaccurate information; risks and uncertainties; inability to control external shocks.
4.3.6 - Growth and development in developing, emerging and developed economies
4.3.6.1athree components of the Human Development Index (HDI): economic education, health,
The three components of the Human Development Index (HDI): economic education, health, income; how they are measured. development
4.3.6.1bAdvantages and limitations of the HDI in comparing living standards between countries
Advantages and limitations of the HDI in comparing living standards between countries and over time.
4.3.6.1cOther measures of development: • the percentage of adult male labour in agriculture •
Other measures of development:; the percentage of adult male labour in agriculture; access to clean water; energy consumption per capita; access to internet per thousand of population; access to mobile phones per thousand of population; access to doctors per thousand of population.
4.3.6.2aimpact of economic factors in different countries: growth and • volatility of commodity
The impact of economic factors in different countries: growth and; volatility of commodity prices development; primary product dependency (the Prebisch-Singer hypothesis); savings gap (the Harrod-Domar model); foreign currency gap; capital flight; demographic factors (size and age distribution of population; migration); debt (household and overseas); access to credit and banking; infrastructure; education and skills.
4.3.6.2bimpact of non-economic factors in different countries: • corruption • poor governance •
The impact of non-economic factors in different countries:; corruption; poor governance; civil wars; migration; terrorism.
4.3.6.3aimpact of market-orientated strategies: promote growth • trade liberalisation and
The impact of market-orientated strategies: promote growth; trade liberalisation and development; promotion of FDI; removal of government subsidies; privatisation; floating exchange rate systems; microfinance schemes.
4.3.6.3bimpact of interventionist strategies: • development of human capital • protectionism •
The impact of interventionist strategies:; development of human capital; protectionism; managed exchange rates; infrastructure development; promoting joint ventures with TNCs; buffer stock schemes.
4.3.6.3cimpact of other strategies: • industrialisation (the Lewis structural dual-sector
The impact of other strategies:; industrialisation (the Lewis structural dual-sector model); development of tourism; development of primary industries; debt relief; aid.
4.3.6.3drole of international institutions: • the World Bank • the International Monetary Fund
The role of international institutions:; the World Bank; the International Monetary Fund (IMF); non-government organisations (NGOs).