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YOUR NOTES
A Level Economics A Edexcel
4. A Global Perspective
CONTENTS
4.1 International Economics
4.1.1 Globalisation
4.1.2 Specialisation & Trade
4.1.3 Pattern of Trade
4.1.4 Terms of Trade
4.1.5 Trading Blocs & the World Trade Organisation (WTO)
4.1.6 Restrictions on Free Trade
4.1.7 Balance of Payments
4.1.8 Exchange Rates
4.1.9 International Competitiveness
4.2 Poverty & Inequality
4.2.1 Absolute & Relative Poverty
4.2.2 Inequality
4.3 Emerging & Developing Economies
4.3.1 Measures of Development
4.3.2 Factors Influencing Growth & Development
4.3.3 Strategies Influencing Growth & Development
4.4 The Financial Sector
4.4.1 Role of Financial Markets
4.4.2 Market Failure in the Financial Sector
4.4.3 Role of Central Banks
4.5 Role of the State in the Macroeconomy
4.5.1 Public Expenditure
4.5.2 Taxation
4.5.3 Public Sector Finances
4.5.4 Macroeconomic Policies in a Global Context
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4.1 International Economics YOUR NOTES
4.1.1 Globalisation
Characteristics of Globalisation
Globalisation is the economic integration of different countries through increasing
freedoms in the cross-border movement of people, goods/services, technology & finance
This integration of global economies has impacted national cultures, spread ideas,
speeded up industrialisation in developing nations & led to de-industrialisation in
developed nations
Globalisation has been increasing for thousands of years - it is not a new phenomenon
Improvements in technology & the speed of global connections have exponentially
increased the level of interdependence between nations in the past 50 years
Consumers now source products globally recognising global brands wherever they
travel
The Four Main Characteristics of Globalisation
Increasing movement of labour & technology
Increasing foreign ownership of companies
across borders
Free trade in goods/services Easy flows of capital (finance) across borders
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Factors Contributing to Globalisation YOUR NOTES
In 2000 the value of global trade was approximately $6.45 trillion. By 2020 this figure was
at $19 trillion
Numerous factors have contributed to the rapid increase in the pace of globalisation but
perhaps two of the most significant are the improvements in containerised shipping & the
innovation in communication technology
Factors Contributing to Globalisation in the Last 50 Years
The improved ability for firms to The Increased effectiveness of
easily connect and to the World Trade Organisation
promote themselves (WTO) in negotiating new trade
Economies of scale internationally as a result of agreements & in helping
generated by containerisation the internet & improvements countries to open up to free
in the shipping industry to communications trade (trade liberalisation), thus
technology e.g Skype, increasing international
WhatsApp, WeChat etc specialisation & the volume of
trade
A rapid growth in the number & The end of the cold war In the 1990's there was
influence of transnational between Russia & the West in deregulation of many financial
corporations 1990 opened up former markets which resulted in the
communist countries around expansion of global financial
the world enlarging the global services & provided more
supply of labour e.g. more access to capital
than 800,000 people
migrated from East Germany
to West Germany between
1990 and 1991
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Impact of Globalisation on Stakeholders YOUR NOTES
Many of the impacts of globalisation have been positive, however there have been some
very negative ones too
When considering the impacts, it is useful to acknowledge all of the stakeholders
including individual countries, governments, firms, consumers, workers & the environment
The impacts of Globalisation on Stakeholders
Two of the more recent criticisms of globalisation include
The lack of action by some governments to help workers unable to find new jobs as a
result of structural unemployment
The use of legal mechanisms (e.g. transfer pricing) & corruption by transnational
corporations is stripping developing countries of their assets & has been called 'new
colonialism'
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4.1.2 Specialisation & Trade YOUR NOTES
Absolute & Comparative Advantage
International trade decreases prices & increases the variety of goods/services available
to a nation
This results in a higher standard of living
Comparative advantage is the theory developed by David Ricardo in 1817 which states
that a country should specialise in the goods/services that it can produce at the lowest
opportunity cost
By specialising, the volume of production increases
Excess production can be exported
Goods/services which are not produced in the country can be imported
Absolute advantage occurs when a country is able to produce a product using fewer
factors of production than another country
A country may well have absolute advantage but still not have comparative
advantage
It should produce goods/services in which it has comparative advantage
The Assumptions of Comparative Advantage
As with any economic model, there are underlying assumptions to the theory of
comparative advantage
1. Transport costs are zero: it does not account for moving the goods/services between
countries. Depending on a nation's location this is more or less of a problem
2. There is perfect knowledge: each country knows what it has a comparative advantage in
& also the comparative advantages of other countries
3. Factor substitution is easily achieved: economies can quickly adjust to changing global
market conditions by switching from capital to labour - and vice versa
4. Constant costs of production: the theory does not take into account the economies of
scale that can be achieved with an increase in output
Using Production Possibility Frontiers to Illustrate Comparative & Absolute
Advantage
Production possibility frontiers can be used to illustrate these concepts
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YOUR NOTES
The production possibility frontiers for 2 countries who both produce t-shirts & computer
chips
Diagram Analysis
Country A has an absolute advantage as it can produce more of both products
Country A can produce either 200,000 t-shirts or 100,000 computer chips
To produce 100,000 computer chips, it gives up production of 200,000 t-shirts
t− shirts 200 ,000
The opportunity cost of producing 1 computer chip is = = 2
computer chips 100 ,000
t-shirts
computer chips 100 ,000
The opportunity cost of producing 1 t-shirt is = = 0.5
t− shirts 200 ,000
computer chip
Country B can produce either 80,000 t-shirts or 80,000 computer chips
To produce 80,000 computer chips it gives up production of 80,000 t-shirts
t− shirts 80,000
The opportunity cost of producing 1 computer chip is = = 1 t-
computer chips 80,000
shirts
computer chips 80,000
The opportunity cost of producing 1 t-shirt is = = 1 computer
t− shirts 80,000
chip
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