Please enable JavaScript.

Coggle requires JavaScript to display documents.

GLOBALISATION: Closer integration of economies and people of the world…

- - - - Trade creation and diversion:
        
        RTAs and trade creation: economic integration leads to a shift in pdt origin from dom. pdr whose resource costs are higher to a member pdr whose costs are lower
        
        RTAs and trade diversion: leads to shift in pdt origin from a non-member pdr whose resource costs are lower to a member pdr whose costs are higher; occurs when trade restrictions are imposed, causes trade from outside to be replaced by trade from within
        
        Singapore
        
        In WTO, and also has network of 20 FTAs with 31 trading partners
        
        FTAs allow SG-based exporters and investors to enjoy benefits like tariff concessions, faster entry to mkts
        
        SG's economic integration with many regions reduces dependency on export demands from any one region
    - - Benefits
        
        Trade creation
        
        Decrease M tariffs = increase access to more mkts
        
        Increase X comp and allows cty to X to member ctys (enlarging their X mkt)
        
        e.g. SG FTAs with Gulf Nations enabled more SG gd mfgrs to reach conrs in Mid East
        
        Increase X, increase NX, increase AD, NY, increase N in X-related sectors, improve CA position (link to 4 goals!)
        
        Cheaper Ms of final G&S and inputs
        
        For firms, decrease M tariff = decrease Px of Med inputs, decrease COP, reduce cost-push and Med inflation, maintains X compet. for Xs that have high M content
        
        For conrs: Cheaper final G&S that are imported and better qly pdts as firms now innovate to compete w cheaper Ms
        
        Greater FDI = actual + potential growth
        
        FTA = decrease admin restrictions, encourages potential investors to set up operations in SG
        
        Presence of MNCs in SG generates bz. opps for dom SMEs, e.g. SMEs can provide logistic svcs for MNCs
        
        MNCs may bring along w it better mgment techs/sophisticated tech, transfer tech hence
        
        SR: FDI = Increase I, AD, NY, Actual EG
        
        LR: FDI = Increase qty and qly of FOP, LRAS, potential EG
        
        FA position also improves
        
        Dom firms can more easily outsource their pdn process to overseas to exploit cheaper lbr
      - Costs
        
        High risk of structural unN
        
        FTA = Increase exposure to foreign compn + removal of protectionist measures that used to protect dom industries
        
        If dom industries pdc G&S in direct competition w the Ms, and they cnot compete in terms of Px and qly,
        
        Dom firms suffer fall in mkt share in the SR, may be driven out of bz in LR
        
        Wkrs in affected industries become structurally unN if they lack the skills to transit to another industry
        EV
        
        BUT FTAs make it easier for dom firms to outsource pdn process, to take adv of lower lbr costs
        
        Income ineqly
        
        Wkrs who become structurally unN suffer fall in wages if they take up jobs that pay less than before
        
        While wkrs possessing relev. skills take on jobs brought in by MNCs, enjoying higher wages
        
        Y ineqly widens
        
        Increase vulnerability to external shocks
        
        Member ctys are "interlinked" via trade and k flows
        
        Increase frequency of experiencing external shocks
        
        e.g. recession in 1 member cty decrease X of another, possible decreases FDI in other ctys
        
        If substantial, this results in fall in AD, NY, Cyclical UnN
        
        May worsen BOP position
- - - - Host country
        
        Increase AD, higher actual EG via multiplier
        
        Increase LRAS due to FDI:
        
        Increase in capital stock and transfer of tech. due to higher FDI
        
        Transfer of mngment skills to the locals
        
        Growth of SMEs due to opportunities to provide support services to TNCs - not a good pt to write unless there's a good eg!
        
        EV:
        
        If the investments are lbr-intensive; transfer of skills and tech. is insig.
        
        Transfer of skills and knowledge limited due to little/no recruitment of local wkrs for high positions and low mobility of wkrs from TNCs to local firms
        
        Foreign firms stifle efforts to develop home-grown industry; SMEs may have difficulty competing against large TNCs; may be driven out of mkt (i.e. instead of utilising SMEs, TNCs compete)
        
        Also: May lead to pollution in the host cty where there is less stringent anti-pollution standards; impact on SOL
        
        e.g. MNCs like Rolls Royce invested 700 mil in mfg plant and trng facilities in SG aerospace industry; led to transfer of advanced tech and training of wkrs
      - Source country
        
        Effects on BOT/BOP: e.g. A setting up mfging plant in B
        
        A no longer X cars to B but Xs more components to B: BOT may increase if increase in X in intermediate gds > decrease in X of finished gds for sales; BOT will increase as offshoring leads to competitive pricing
        
        A no longer X cars to B but now X components to B and imports finished cars from B
        
        BOT increase if increase in X of intermed. gds > decrease X of cars and increase M
        
        BOT likely to suffer
        
        Other possible benefit
        
        Company from source cty may learn abt pdtion processes in host cty and transfer it back; net gain for the source cty economy