International Trade & Globalisation

International Trade & Globalisation

1. Economic Integration

   • Types of Preferential Trading Agreements
     • Free Trade Area
       • Tariffs + trade barriers are removed
     • Custom Union
       • Works like Free Trade Area, but there are common external tariffs on non-members
     • Common Market
       • Works like Custom Union, but there are free movement of FOP
     • Economic Union
       • Common economic policies and common currency. ie. Euro.
   • Trade Creation & Trade Diversion
     • Creation
       • Consumption shifts high-cost producer to low-cost producer by removal of trade barriers
     • Diversion
       • Consumption shifts from a low-cost producer outside the union to a high-cost producer in the union by subjecting non-members to tariffs.
   • FTAs and Singapore
     • FTAs aim to remove barriers to trade and investments to increase competitiveness and investments.
     • Free Market System
     • Outward Orientation
       • Developing an integrated manufacturing centre in the region
       • Nurturing a knowledge-based economy
       • Driving a services hub
       • Multilateral and regional Fora

2. Globalisation

   • Describes the increased mobility of goods, services, labour, technology and finance & capital throughout the world. Globalization means increasing interdependence, connectivity and integration on a global level w.r.t social, cultural, political, technological, economic and ecological levels.
   • Causes
     • Improvement in transport and communications and growth of global media.
     • improvements in transport and communications lower costs of travel, thus increase interconnectedness
     • Growth of multinational companies with a global presence.
     • Growth of global trading blocs which have reduced national barriers ie. EU
   • Variables to measure globalisation
     • (Export/GDP) x 100
     • (Import/GDP) x 100
     • [(Export+Import)/GDP] x 100
     • (FDI/GDP) x 100
   • Key Dimensions
     • Free movement of capital
       • Trade barriers to investment and capital flow are reduced. Rules on foreign ownership of business in domestic economy is relaxed
       • Benefits
         • Increase domestic employment
           • Inward FDI leads to greater job creation. or it increases investment expenditure hence AD.
         • Increase in outward investment
           • Domestic firms investing in productive activities abroad, benefitting GNP.
       • Disadvantages
         • Tendency for domestic firms to outsource or offshore their production to other countries. Hence reducing labour demand, causing unN.
     • Free flow of G&S
       • Goods produced in one country can be sold in another (Trade).
       • Benefits
         • Wider Variety of goods enjoyed at lower prices
           • With each country trading based on CA, it promotes economic efficiency by providing larger variety at lower prices. Specialisation reduces average COP, cost savings passed on to consumers in terms of lower price. Goods produced at lower cost help domestic firms gain export competitiveness. Hence consumers able to enjoy more G&S from wages they earn.
         • Increase in quality of products
           • Due to competition from imports, domestic firms will need to invest in R&D to improve quality and compete
         • Rise in Income of Developing Countries
           • FDI from MNCs generate economic growth.
         • Reduction in poverty & rise in SOL of Low-Income Countries.
           • Export led EG can bid up wages in Low-Income countries, hence I increases and purchasing power increases and better marketed products.
       • Disadvantages
         • Technological progress replace low-skilled workers, worsening unemployment in traditional sectors.
         • Income inequality wides between lowly-skilled & highly-skilled workers in Developed countries.
           • Outward FDI have reduced demand for lower-skilled workers in domestic country. Given limited supply of higher-skilled workers, there is a higher demand and thus wage increases instead for them.
         • Income inequality between countries.
         • Decline of domestic industries
         • exposure to economic and medical risks.
         • Increases environmental degradation and allocative inefficiency.
     • Free movement of Labour
       • Foreign labour employed in domestic firms
       • Disadvantages
         • May cause social tension due to competition to labour market & cultural differences.
         • Brain drain
       • Benefits
         • Increase labour force
           • Countries that lack labour resources can increase labour force to produce more G&S. Existence of FT lead to greater sharing of knowledge and expertise.
         • Improve export competitiveness
           • Increase in foreign workers lower COP as these workers have lower wage expectations. Allowing firms to gain export competitiveness to invest in R&D to improve products & also attract FDI.
     • Transfer of Technology and Ideas
       • Technological changes like communication technologies (transfers ideas, images instructions etc) and transportation technologies (transfer materials, products and tangible entities)
       • Benefits
         • As information becomes more accessible, consumers more aware of the latest technology in the market. Thus firms have greater incentives to invest in R&D to improve efficiency