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MGMT 1035 Global business MIDTERM

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Terms in this set (25)

  • What are the three parts of globalization?
    Political: International political effects.
    Economic: Economic decisions impacting multiple countries.
    Cultural: Spread of cultural practices worldwide.
  • Name key tools that helped globalization.
    Container ships: Enabled easy international shipping.
    Telegram: Early global communication via Morse code.
    Telephone: Allowed global voice communication.
    Internet: Connected people and information worldwide.
  • What are the harms of tariffs on globalization?
    1. Retaliatory tariffs create cycles raising prices.
    2. Consumers pay more, reducing resource access.
    3. Slows economic growth by reducing trade willingness.
  • What are the benefits of tariffs on globalization?
    Tariffs protect small sectors by limiting foreign competition, allowing local businesses to grow and become competitive.
  • Who are the winners of globalization and why?
    Big businesses/MNEs: Influence governments to reduce taxes and standards.
    Powerful countries: Use political and economic influence globally.
  • Who are the losers of globalization and why?
    Small businesses: Face economic impacts without influence.
    Small countries: Vulnerable to economic shocks and cultural changes.
  • Why is the East India Company significant?
    It was the first multinational enterprise (MNE) using the joint-stock company model, operating across countries and influencing local economies.
  • What is the Big Mac Index and its importance?
    Measures currency valuation by comparing Big Mac prices worldwide; indicates if a currency is overvalued or undervalued relative to purchasing power parity.
  • What restrictions do MNEs face depending on the country?
    MNEs must follow local laws; large economies can enforce stricter rules, while smaller economies have less power to regulate MNEs.
  • Why are MNEs not extensions of a country's power?
    MNEs are independent entities with their own goals, which may differ from the interests of any single country.
  • Which companies are considered the start of MNEs?
    The East India Company and the Dutch East India Company (VOC).
  • What is mercantilism?
    An economic theory that wealth is fixed; nations should export more and import less to accumulate gold and silver.
  • How did mercantilism end?
    It failed as fixed wealth was disproven; trade benefiting both parties creates more wealth, leading to modern economic principles.
  • Difference between absolute advantage and comparative advantage?

    Absolute advantage: Producing more volume of goods while using fewer inputs. Comparative advantage: Producing at lower opportunity cost, enabling beneficial trade even if one is better at both.

  • Example of factor proportions theory?

    The idea that a country exports goods that intensively use its abundant and cheap baseline resources (like land, labor, or high-skill human capital) and imports goods that use resources it lacks.

    Analogy: You bake what you have the ingredients for.

  • What is new trade theory?
    Similar countries trade due to increasing returns to scale and first-mover advantages, like Coca-Cola's market dominance.
  • What is strategic trade theory?

    Government support (subsidies, tax breaks) helps domestic firms compete globally. (Especially when only a few large firms dominate.)

  • Why does Krugman support limited industrial policy for advanced tech?
    1. Positive spillovers in industry ecosystems.
    2. Geopolitical risks, e.g., dependence on Taiwan for chips.
  • What was Bretton Woods and its impact?
    Post-WW2 conference creating IMF and World Bank; established fixed exchange rates pegged to the US dollar, which was pegged to gold.
  • Types of trade agreements with examples?
    Unilateral: One-sided benefits (developed to developing country aid).
    Bilateral: Between two countries (Canada-US free trade).
    Multilateral: Many countries (NAFTA, WTO).
  • Pros and cons of fixed exchange rates?

    Pros: Stability and predictability. Cons: Difficult to change and requires constant government intervention.

  • Pros and cons of floating exchange rates?
    Pros: Automatic adjustment by supply and demand.
    Cons: Volatility and speculation risks.
  • Key institutions and their purposes?
    IMF: Monetary cooperation and crisis loans.
    World Bank: Infrastructure and development loans.
    GATT/WTO: Trade rules and dispute resolution.
  • Why and when did Bretton Woods end?
    Ended as US printed more dollars than gold reserves could back, making dollar-to-gold conversion unsustainable.

  • How are regional trade agreements (RTAs) obstacles/stepping stones?

    Obstacles: Create complex overlapping rules ('spaghetti bowl').
    Stepping stones: Promote faster market opening than stalled global talks.