Please enable JavaScript.

Coggle requires JavaScript to display documents.

Unit 6: International Trade and Globalisation, MNC refers to a business or…

- - - - Goods balance
        
        Visible exports
        
        Visible imports
    - - When inflow > outflow → net income inwards transfer
      - total income inflow after netting off total income outflows.
        (wages, interest, rental and profit)
      - Primary income --> comprises of income earned by individuals (compensation of employees) and firms (investment income)
      - When inflow < outflow → net income outwards transfer
      - Secondary income --> transfers of money, goods or services that are sent out or come into the country without return for anything else eg. donations
    - - Service balance
        
        Invisible exports
        
        Invisible imports
    - - Anything in the nature of a capital good
  - - - Direct investments (long term in nature)
        
        Direct investment refers to expenditure incurred by firms when they set up business operations in a country, involving the purchase of physical assets
        
        FOR EXAMPLE, when google sets up a new office in harbourfront
      - Portfolio investments (does not involve any purchase of physical capital and is a shorter term type of investment compared to direct investments)
        
        Short term capital flow
        
        Transient movements of financial capital between countries in response to changes in exchange rates and interest rates
        
        When the federal reserve of the United States increases interest rate, there will be a credit item into the US capital and financial account KFA under the short term capital flow component.
        
        Refers to the expenditure incurred in the purchase of stocks, bonds and other investment grade financial assets
    - - Refers to capital transfer, non-produced non-financial assets (humanitarian efforts) selling a train, tractor or truck → accounting takes place in capital account
- - - - An example of perfect competition
  - - - Higher demand for exports / low demand for imports
        
        Current account surplus(Exports rise)
        
        Higher interest rates
        
        Speculation
      - Rise in the value of a currency
        
        Increased demand, lower supply
    - - Lower interest rates
        
        Lower quality of home goods
        
        Less foreign demand for exports
        
        higher domestic demand for imports
        
        Higher domestic GDP
        
        Higher purchasing power of individuals at home
        
        potential higher demand for imports
        
        Lower foreign GDP
        
        Less purchasing power of overseas countries
        
        lower demand for exports from home country
        
        Excess supply of currency
        
        Speculation
- - - - Restriction of consumer choice
      - Restrict revenue and employment
        
        Local firms cannot seek out new foreign markets to export their goods to
        
        Increasing the cost of borrowing imported raw materials can cause imported inflation
      - Inefficient domestic firms may be protected
        
        A lack of competition causes x-inefficiency as firms have no incentivise to be more productive or efficient
      - Foreign retaliation
        
        Other countries may setup their own barriers, reducing exports and AD subsequently
    - - Sunrise industry argument
        
        These firms are given the chance to develop, grow and become globally competitive.
        
        If not protected, they may be quickly eliminated by firms from low-cost overseas economies and large firms with significant market share and economies of scale
        
        However, these firms may become reliant on government protection
      - National security (justified reason)
      - Protect local firms from dumping
        
        This is a form of predatory pricing and unfair competition. A country floods another with a large surplus of goods at significantly lower prices than market prices. Once local businesses have been closed down, the predatory firm with monopolistic market share can jack up the price.
      - Cure a trade deficit
        
        Export revenue being less than import expenditure (x-m) is negative
        
        Therefore, country’s aggregate demand is decreasing
        
        In addition, it also implies that the country’s balance of payments is weakening
        
        Protectionism is justified as it helps to reduce the trade deficit which benefits the country as a result of the macroeconomic advantages conferred. This includes higher AD and therefore economic growth and more employment as well as an improved trade balance in the balance of payments account.
      - Generate revenue for government
      - Sunset industry argument
        
        These industries tend to employ many people and their closure can cause high unemployment
        
        Trade barriers protect them from cheaper imports, slowing down the decline of these industries and allowing employees to seek new work
    - - Tariffs
      - Subsidies
      - Quotas
      - Embargos
      - Excessive quality checks and bureaucracy
      - S.T.E.E.Q
  - - - Job creation
        
        Helps to create more jobs in home country due to expansion of business operations especially in terms of higher roles created such as marketing the sale of exports.
      - Economic growth
        
        When MNCs expand overseas, they typically repatriate some of the profit back to the home country. In doing so, this indirectly contributes to more income flow back to the Singapore economy.
    - - Jobs created may end up becoming Low value jobs  
        
        The more senior jobs may be assigned to the MNC’s home country workers
      - Unethical behaviour
        
        environmental degration
        
        FREE PORT —> mining company in the Philippines has been accused of environmental damage because of their mining operations  
        LG, a South Korean MNC’s chemical plant in India was environmentally harmful and killed 12 people. 
        
        labour exploitation
        
        MNCs may often create substandard working conditions in an effort to cut costs. This can include the creation of unsafe working conditions such as in chemicals plants, whereby workers do not have enough protective equipment. They may also force their workers to work overtime without extra pay and exploit more child labour
    - - Skills transfer
        
        This increases the country’s quality of labour. With higher quality of labour, the country’s productive capacity will rise, leading to higher supply (potential growth)  
        
        Singapore in the 1960s to 1980s —> deliberately attracted many Japanese firms to invest in Singapore. Because of the Japanese firms being in SIngapore, they transferred manufacturing and engineering knowledge and skill sets to Singapore.  
      - Real economic growth
        
        With higher GDP and income levels, this leads to more real GDP. As more people are employed, they will spend more, leading to higher C + higher I from the MNC = higher AD. There will be a trickle down effect to the smaller firms in the host country.  
        For example, when DBS set up in China, they typically outsourced certain services such as cleaning, gardening and security from local firms, creating more jobs for locals.  
      - Job creation
        
        When MNCs set up production and distribution facilities in these countries, more job positions are made available to run factories and shops, helping to lower unemployment in the host country and can stimulate higher aggregate demand because when MNCs invest, it leads to higher investment spending in the host country. Furthermore, with more people employed, their incomes will increase which stimulates more consumption expenditure. Therefore, it leads to higher aggregate demand and stimulates higher growth via the multiplier effect.
    - - Access to various large markets to sell goods to
      - Avoid trader barriers by locating production in protectionist countries
        
        Can also help reduce transport costs
      - Economies of Scale
      - Can move financial capital in between countries to take advantage of higher interest rates
  - - - Increases consumer choice
      - Allows countries to benefit from specialization
      - Raises competition and efficiency
      - Additional business opportunities
    - - Rapid resource depletion and climate change
      - Reduced opportunities for growth in less-developed countries
        
        Firms may be unable to compete with large MNCs
- - - - International trade can help firms to exchange information and technology
      - Obtain high quality raw materials at low cost
      - Bigger market through international trade could encourage economies of scale
    - - Higher real GDP due to better utilization of resources instead of using it’s own resources which are less suitable for its products
      - Allows the economy to consume outside of its PPC curve
        
        It could focus on one type of product which it specializes at and import the other for a cheaper price as well
        
        This raises living standards and could reduce absolute poverty
      - Efficiency in using resources
        
        Countries with a large supply of unskilled labour could focus on labour-intensive industries
        
        Reduces unemployment and increases economic growth
        
        Low inflation rate
        
        Economies will be producing at low costs and import lower cost products
      - Build up a reputation for a certain product
        
        This increases sales and attracts ancillary industries
    - - Enjoy more quantity of goods and services due to higher output which increases living standards
      - Lower cost of production may be passed on as low prices for consumers
      - Higher quality products
      - Greater variety of goods
  - - - Dependency on the raw materials from other countries
        
        Easily affected by foreign events such as taxes on exports imposed by foreign governments
      - Tastes in products could change and other countries could produce better products
    - - Structural unemployment could occur as countries get more specialized
      - Over-specialization
      - Dependency on other countries to supply essential goods and services
      - Risk of the over-exploitation of certain resources
      - High transportation costs on exports
    - - Foreign countries may not follow health and safety standards in the home country
      - A country could gain control of most of the global market for a product and restrict supply or push up the price
      - Any event in other countries producing a product like a natural disaster would result in the product not being available
  - - - If a country can produce machinery better while another produces agricultural products, each country can specialise in the one they can produce better and import to each other to maximise outputs
        
        This improves the international allocation of resources
  - - - Comparative advantage changes over time as relative costs change
      - It could change due to new resources, technology, education and training