Theme 4 A Global Perspective

Essay 20: Ben Staddon

Evaluate the impact of globalisation on developing economies. Refer to a developing economy (or economies) of your choice in your answer.

Economic globalisation refers to the increasing interdependence of world economies because of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. Benefits of globalisation can be broken down to benefits to workers and benefits to firms

Benefits of globalisation to workers in a developing country like Nigeria would include more jobs being created and higher wages These benefits come through the creation of wealth through foreign direct investment (FDI). One characteristic of globalisation is the increase growth and influence of multinational firms (MNCs). MNC investment into the Nigerian economy provides much needed foreign currency into the financial account of the balance of payments and creates new jobs for the Nigerian labour force. This will result in economic growth via higher levels of consumption as a result of more people working and receiving wages. This is depicted in the AS – AD diagram below, which shows AD1 shifting to AS2 as consumption, one of the components of AD, increases. One outcome of this is an increase in Real GDP (Q1 to Q2). This is due to the boost in consumption which results in growth in employment and job opportunities boosting the Nigerian economy. Since output is increasing due to the increased consumption, so the derived demand for Nigerian labour also increases.

On the other hand, globalisation may harm workers in Nigeria due to the exploitation of labour by MNCs An example of this would be the exploitation of Shell workers in Nigeria because they were being paid 137 to 257 dollars a month or even not being paid at all. They are also working 12 hour shifts which is overworking their staff meaning they are working like elephants and eating like ants. Exploitation will cause poor working conditions and poor pay this will mean workers are struggling to feed their families and could lead to poor mental health. This is an example of the race to the bottom as Nigeria allows MNCs to exploit workers as they are desperate to secure FDI to bolster the foreign currency reserves. In the same way, developing economies may compromise climate change policies and in a bid to secure investment. This would be harmful to workers and society in the future.

Benefits of globalisation to Nigerian firms would include the opportunity to increase profits via access to global markets. Globalisation is characterised by trade liberalisation, which means the removal of tariff and non-tariff barriers in trade. A tariff is a tax that has to be paid on a good that is either imported or exported from one country to another. Nigerian exporters can access larger global markets and increase their export revenues. In Nigeria there are two main exports which are crude petroleum and petroleum gas. Exports of crude petroleum are vital to Nigeria’s export economy and account for 70.8% of all its exports. The most popular export destinations for Nigerian crude petroleum were India $5.22 billion, Spain $3.67 billion, and South Africa $2.14 billion. Having fewer barriers to trade reduces the cost of goods sold in importing countries. There are many benefits to specialisations because there will be a larger quantity of goods and services that can be produced, improved productivity and quality and could also lead to firms having a comparative advantage over other firms.

The diagram above could represent the Indian market for oil. It can be seen that if there are tariffs in the market, then the quantity of imports is only Q4-Q3. However, if tariffs are removed then the price for oil in India falls to P1. The quantity of imports is now Q2-Q1. Since India is importing significantly more oil, Nigerian oil firms can benefit through increased export revenues.

However, trade liberalisation can benefit stronger economies but put weaker ones at a greater disadvantage. The existence of tariffs can be used to protect domestic businesses who are given a degree of market share of domestic markets by the tariffs. If the diagram above represented the

Nigerian car market, then Nigerian manufacturers can be protected from foreign competition through the imposition of tariffs. In this case a tariff raises the price of cars and increases domestic demand from Q1 to Q3. Trade liberalisation may bring benefits to exporters, but may also bring harm to domestic firms that are not ready to compete with foreign imports. The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature.

Overall, I believe that globalisation is good for Nigeria because while globalisation will increase trade and likely benefit Nigerian consumers and workers, there is scope for the government to protect domestic firms through selective tariffs in the short-run until international competitiveness can be secured.

Essay 21: Jamie Macleod

Evaluate the economic factors that might act as a constraint on the economic growth and development of a developing economy. Refer to a developing country of your choice in your answer.

Economic growth is an increase in a nation's actual and potential output over time. Economic development is improvement in the economic well-being and quality of life for a community. This is often seen with incremental improvements to an economy. The most common reasons for economic growth are increases in land, labour, or capital. Other reasons can be improvements in technology, increase in population and/or immigration, and investment. These increase economic growth as it can increase productivity.

A constraint on the economic growth and development of a country may be down to poor governance and corruption. Corruption is most present in the newly emerging economies and developing countries. The CPI is the Corruption Prediction index. Nigeria scored 24 on a scale from 0 ("highly corrupt") to 100 ("very clean"). When ranked by score, Nigeria ranked 150th among the 180 countries in the Index, where the country ranked last is perceived to have the most corrupt public sector. This is a useful measure in determining a government's corruption level; however, it is not always 100% accurate as corruption is hard to determine. This is often seen in Nigeria as government funds and foreign aid is not always put back into their country and instead into government pockets. This has an extremely negative impact on the Nigeria as 100 million Nigerians are still in poverty. Not only this but of all Nigerian citizens surveyed who had at least one contact with a public official in the 12 months prior to the 2019 survey, 30.2 per cent paid a bribe to, or were asked to pay a bribe by, a public official. This greatly increases the inequality gap in Nigeria. This makes their 10year agenda to reduce poverty drastically slower. Poverty puts an additional strain on families, which can lead to parental mental health and relationship problems, financial problems and substance misuse. This can have a negative impact on parenting behaviours which impact children's outcomes. This makes growth and development far slower than it should and can be.

A way this can be addressed is to enhance international cooperation and partnerships. This can be done through trade and aid. The role that trade and aid can play is crucial. Not only can it improve a country's technology, infrastructure, and security, it can strengthen relationships with other governments. One reason the UK gives so much aid to Afghanistan is to try build security and transparency. If corruption is present, aid could be withheld, and trade could be diverted if the corruption wasn’t cracked down upon. Outside governance prevents the country of origin from corruption. Resources are then allocated more efficiently. This therefore means that there is no longer a restriction of corruption on a developing country's economic growth. This depends on how much involvement a country has in the others government. If each country is transparent in what they are using their money for, this will work. If they do not crack down on corruption and are not transparent, it will not work.

A savings gap is another common constraint on economic growth and development. A savings gap is generally defined as the difference between “capital formation” and the “savings” of an economic sector over a given period and it measures the need of external funds of that sector. The savings gap in some developing counties has widened in recent years due to rising Capital Flight. Capital flight is when firms move their operations abroad, out of their original economy. Banks do not have loanable funds as their marginal propensity to save (MPS) is very low, and this means that businesses cannot borrow money for investment and cannot inject money into the circular flow, nor can they create jobs.

One way to overcome the savings gap is through government intervention. Government intervention can halt one of the stages of the poverty cycle The Harrod-Domar model model suggests that an injection of finance into the circular flow can result in increased savings. Where the Nigerian government spending takes place on the diagram, the knock-on effects are that there is clear that when there are increased savings, it means banks can loan out money to firms resulting in increased investment. This in turn creates a large capital stock, increasing outputs of economies and generating more income for Nigeria's residents. This cycle is like the poverty cycle is repeated. The difference being that governments encourage this. This, however, depends on the success of businesses and firms as if investment into new firms fails, money is instead wasted and an LIC could very easily fall back into the poverty cycle. Thus, in evaluation, the extent to which a savings gap acts as a constraint on growth will depend on the success of governments halting the poverty cycle by securing FDI, loans or aid.

Overall, there are many constraints on economic growth for low-income developing countries. Other common constraints include a lack of education or a lack of FDI to boost struggling economies. There are, however, clear ways in which these constraints can be removed despite many of these proving elusive to many LDCs. If these things go right, then growth/development can be slowed by corruption, which is a harder problem to solve.

Essay 22: Richard Wang

Evaluate the factors that might have caused an increase in the international competitiveness of the UK’s goods and services.

International competitiveness is the ability of a nation to compete successfully overseas and to sustain improvement of living standards and output. One factor that could increase the international competitiveness of the UK’s goods and services is deregulation, which is the removal of regulations. In 2016, after the Brexit vote, the UK was expected to get rid of some regulations because it no longer needed to follow the EU rules. Therefore, the UK is going to be less regulated compared to other EU countries. This could be in the form of workers maximum working hours, working conditions and so on. With longer maximum working hours allowed, output is likely to increase, this would lead to a decrease in unit cost which is calculated total costs divided by output. Therefore, firms would be able to increase their profitability, which would shift the SRAS curve outwards from SRAS1 to SRAS2, as shown on the diagram above. This then would make prices drop from P1 to P2 and outputs to increase from Y1 to Y2. Consequently, the UK could attract more foreign investment which would shift the LRAS curve outwards from LRAS1 to LRAS2. This would increase the UK’s international competitiveness both in the short run and the long run, because it would be more successfully competing overseas and sustained improvements of outputs.

However, deregulation in certain areas could cause negative effects. An example of this would be deregulation in the labour market. In 2017, the EU has followed a policy of liberalisation and deregulation of markets in order to open them up to competition. The reason for this is to be more international competitive. But this also alarms trade unions and employers to be wary that this could have a negative impact on the labour standards, wages and working conditions. This could further lead to demotivation of labour or even strikes. The consequence of these would be a distinct decrease of productivity, which further could add costs to the firms. This is because that with the decrease in productivity, the unit cost is likely to increase again. This could further influence international competitiveness negatively.

Another factor that could increase the UK’s international competitiveness could be wage costs. Data suggests that in 2016, the UK had a lower minimum wages ( 10.2 US dollars), than France, 12.6 US dollars and Germany, 11.8 US dollars. With lower wage costs, the UK could attract more firms to move over and therefore increase its international competitiveness. With lower wage costs, it could lead to higher foreign direct investment, which is a purchase of a particular organisation's interest by another foreign organisation. Therefore, as the graph shows, we have our original long run aggerate supply curve on where the LRAS1 is. Because factors of production are likely to increase therefore we would have a shift in the long run aggerate supply from LRAS1 to LRAS2. Then we would have an increase in potential GDP from Yp1 to Yp2. This means that the capacity of production, which is the maximum output a country can produce using all its available resources, would have increased in the UK. This could come in the form of an improvement in capital goods, increase in population and so on. Those factors could make us more efficient and productive which means that we could be more international competitive.

However, Brexit could increase the wage cost in the UK. Post Brexit, earnings have increased by around 4% annually across the UK. This is because Brexit caused a lot of European workers to leave the UK denying the UK access to cheap labour.

As the diagram shows, the UK labour market would shrink which would cause an inwards shift on the labour supply curve. We can see in the diagram that with the same amount of employment, the wage rate has increased from W1 to W2. This means that the UK has no longer got the advantage of low labour cost. This could cause the firms that came because of the low labour cost to leave now to find other countries that have lower wages. Therefore, the UK has become less internationally competitive.

In judgement, there are so many factors that could have caused the UK rank in global competitiveness to increase. The reason that we have gone from the 10th to the 8th most competitive economy could be that two other countries which were more internationally competitive than us are now worse off. For example, some of the European countries might have experienced a protest about minimum wage which makes their firms less internationally competitive because the cost has increased. Without further data, it is impossible to categorically state the reasons for the change.

Essay_23: Aaron Coleman

Discuss the economic implications of the UK leaving the European Union.

The EU started as a common market with free movement of people and goods and developed in a monetary union, a common market with a shared currency. The UK was only ever a part of the common market having opted out of joining the Euro Zone. The EU has four key freedoms: Free trade of goods, free mobility of labour, free movement of capital, and free trade services. The UK has recently deceived to leave the EU and will therefore not benefit from these freedoms. Brexit has been criticized by many for its economic implications.

One economic impact of the UK leaving the EU is the reduction of labour mobility. Labour mobility refers to how people are able to move from one job to another. Being in the EU gave the UK high labour mobility. This is due to one of the four key freedoms, free mobility of labour. Since we were in the EU, we were able to move to and from different counties to find new employment without having to pay or apply for a visa. This also meant that we could easily have foreign workers from other countries inside the EU to fill job vacancies in the UK. A great example of this was lorry drivers. Many lorry drivers in the UK came from other countries inside the EU, many eastern European countries, and this was because of the EU’s labour mobility. We greatly benefited from this. Lorry driving is not a highly sort after job for people living in the UK. This is because of its long hours and monotonous work. By looking at the diagram above labelled excess demand for lorry drivers, we see how being in the EU solved this issue. The original demand for lorry drivers was fulfilled by the UK supply, shown at Slab1 intersecting with Dlab1 causing the quantity of lorry driver to be at the point Q1. But with the growth of the UK the demand for lorry driver for the same price shifted to Dlab2 However lorry drivers coming in from the EU is shown by the shift of Slab1 to Slab 2, fulfilling the need for more lorry drivers at the same wage and removing the excess demand. Now we have left the EU we do not have returned to this excess demand and without lorry drivers there would be mass delays and many firms would be affected. This was not an issue when we were inside the EU. However, since we have now left the EU, we are already seeing the consequence of losing this free movement of labour. There have been lorry driver shortages, which has negatively impacted the economy. The removal of labour mobility has been the primary cause of this shortage, and the UK government are having to use subpar methods to try and deal with this issue. They have changed UK driving license laws to allow anyone that has passed to be allowed to toe and trailer and have also made it that lorry drivers will now only need to pass the practical lorry driving license test not the theoretical one. This may have been effective in reducing lorry driver shortages but has also made UK roads more dangerous due to them removing the lorry driving theory test. This demonstrates one of the negative impacts leaving the EU has had on the UK and shows the UK has struggled to find solution to its new problems.

However, one benefit to the removal of the free movement of labour is the reduction of occupational immobility of labour in the UK This is due to the UK new immigration policy. Following Australia, the UK will now implement a points-based immigration policy based on how much the British government believes the county will benefit from allowing someone to gain residency there. The UK will now be able to look at each person on a person to person bases and decide if they want them in the county or not. This means that the UK can be selective in who they want based on what the country needs. This will reduce the negative effect of occupation immobility of labour. Occupation immobility of labour exists when barriers stop workers from moving from one job to another. By reviewing people coming into the country we can grant access to people who will fill employment gaps caused by occupation immobility of labour, reducing unemployment.

Another implication of the UK leaving the EU is that there will now be an increase in cost for trading with counties inside the EU. This is because the UK will be leaving the EU customs union which allows for trading without tariffs. The diagram below shows how the price of goods from inside the EU will know cost more with the example of ships, something's the UK commonly imports from the EU. The diagram shows the price of ships while the UK was still in the EU, this is shown at p1 where the EU supply meets domestic supply and demand. Being in the EU cause the price of ships to go down from the original domestic (p) price, seen at the intersection of domestic supply and demand. The prices were pushed down due to an increase in supply of ships. However, since we have left the EU now, we will have tariffs on the ships we import. This tariff will push the prices of ships from P1 to P2.

However, this is only one side of the new trade deals the UK will have post Brexit. Since we have left the EU we can now make our own trade deals with non-member state countries. This will free up trade for the UK and countries like, the USA or Canada. Where before we were not able to import goods like beef from the US due to the higher 300% tariffs, we will now be able to make our own deals. The UK are likely to pursue bilateral free trade deals which we were not able to before. This also means that we can trade with emerging economies. This will likely increase our GDP, since it will shift our aggerate demand curve, which is affected by out net trade(exports-imports). The UK now has the potential to increase its revenue by trading with newly emerging economies like India and China. These countries will have increase demand for imports, since their population is growing and with their growth in GDP they will soon have more need for financial services, somethings the UK specialises in. On top of this, the UK will be able to reduce their spending. The UK had to pay £19 billion a year to be a member state of the EU. This money will know be able to be invested to further increase UK GDP.

The implications of the UK leaving the EU are famously hard to predict. The conclusion of the cost/ benefit analysis will only be shown in the coming years depending on if the UK is able to make beneficial trade agreement with non-EU states. If the UK is able to secure these deals it is likely that there will be a noticeable boost in UK exports leading to significant increases in UK GDP. Finally, Brexit should also be assessed for its non-economic impacts.

Essay 24: Gordon Fitzgerald

Evaluate the arguments that economies might put forward to justify the use of protectionist measures.

Protectionism occurs when the government enacts a policies such as quotas, tariffs, and subsidies in order to protect domestic industries/firms from foreign competition. This essay will assess whether protectionist measures are good or bad for an economy.

A government may use protectionist measures, such as tariffs, to raise government revenue. By doing this, the government can get a surplus in the government budget. For example, in 2019, the US government gained “100 billion dollars” as a result of imposing tariffs on imported Chinese goods.

The diagram above demonstrates how the government uses tariffs to artificially raise market prices to collect revenue. As tariffs are imposed, the price of the good, for example imported steel in the US, will rise and the quantity of imports will fall from QD1-QS1 to QD2-QS2. Although the quantity has fallen, this new quantity is taxed and raises revenue for the government of the amount QD2-QS2 x the value of the tariff. This is show in the diagram by the “Gov Rev” box. This revenue can be used to fund public goods/services, such as improved education in state schools. The improvement in education, funded in part by tariffs, can lead to an outward shift in AS (in the long term) because workers become more skilled. We can see from on classical diagram below, which shows an outward shift in LRAS, representing an expansion of the economy’s full potential. This outward shift occurs because the labour force becomes more educated and efficient.

However, the tariffs can be problematic because the country that has been slapped with tariffs can retaliate. In this example, China retaliated by introducing tariffs on US goods. This then causes US firms to suffer, which will lead to potential macroeconomic side effects. For example, when US firms can’t export their goods to China, they could go under, which will lead to increased unemployment. Additionally, Chinese retaliation to US tariffs can result in imports of US goods becoming more expensive for Chinese firms. This means that tariffs may not result in an improvement in the welfare of the US economy, as US exporters may lose revenue. The decrease in welfare, in the US, can be considered government failure (this is when government intervention causes a loss in net welfare), and the tariffs can be an example of government failure because the actions of the government led to unintended consequences which lead to a loss in national welfare.

Nonetheless, if tariffs are imposed on chosen imports, domestic corporations can thrive because there is less competition in the local market. This can cause firms to expand and grow, because markets become less contestable as a result of the weakening position of foreign firms. Less saturated markets can allow “infant industries”, such as the Rwandan textile industry to grow. If the Rwandan government imposes tariffs on foreign textile goods that flood the market, infant industries will gain more profit and can, as a consequence, use this money to grow and scale their businesses. As a result of expanding their operations and taking advantage of economies of scale will allow the firms to lower their LRAC, which will be beneficial for firm as it allows them to become more competitive, and for domestic consumer as they can take advantage of the lower costs via lower prices. So, tariffs can be used as a short-term measure to grow infant industries.

However, the introduction of tariffs can lead to a rise in prices and go against consumer interests

This is because when the market becomes less competitive due to the tariffs, inefficient domestic firms are being supported. In addition, firms do not feel the need to act competitively, discouraging