WEC14 Developments in the Global Economy

Lessons in WEC14

1. What globalisation is
   Globalisation: rising trade as a share of GDP, more TNCs and FDI, more migration. FDI gives lasting control; portfolio investment does not. Use volume data to s
2. Causes of globalisation and FDI
   Drivers: trade liberalisation, trading blocs, political change, cheaper transport and communication, TNC influence. TNCs invest abroad to reach markets, cut cos
3. Effects of globalisation: benefits and costs
   Benefits: growth, tax revenue, economies of scale, lower prices, choice, living standards. Costs: displaced and exploited workers, environment, transfer pricing
4. Specialisation and comparative advantage
   Absolute advantage: more output from the same resources. Comparative advantage: lower opportunity cost. Specialise by comparative advantage and trade at terms b
5. Patterns and volume of world trade
   Trade patterns change with emerging economies, shifting comparative advantage, trade agreements, exchange rates and protectionism. Explain with a chain from cos
6. The terms of trade: calculation and causes
   Terms of trade = export price index / import price index x 100. Above 100 or rising = improvement. Influenced by relative inflation, productivity and labour cos
7. Effects of changes in the terms of trade
   An improvement raises revenue only if export demand is price inelastic. A favourable movement can raise living standards (more imports per export) but may refle
8. The WTO and types of trading bloc
   WTO (1995, replacing GATT): negotiates liberalisation, applies non-discrimination rules (MFN, national treatment) and settles disputes. Blocs: FTA < customs uni
9. Trading blocs: costs, benefits and conflicts with the WTO
   Trade creation: switching to a cheaper member producer (efficiency gain). Trade diversion: switching from a cheaper non-member to a dearer member (efficiency lo
10. Why countries restrict trade
    Reasons: infant and geriatric industries, jobs, national security, anti-dumping, current account, revenue. Weaknesses: inefficiency, retaliation, higher costs f
11. Tariffs, quotas, subsidies and their impact
    Tariffs, quotas, non-tariff barriers and subsidies all protect domestic producers. A tariff raises the price, raises domestic output, cuts imports and consumpti
12. The balance of payments
    Current account = goods + services + primary income + secondary income. Financial account: FDI, portfolio, other investment, reserves. A current account deficit
13. Current account imbalances: causes, cures and global significance
    Deficits come from strong growth, poor competitiveness, low saving and overvalued currencies. Cures: expenditure-reducing, expenditure-switching and supply-side
14. Exchange rate systems and government intervention
    Floating: market-determined. Fixed: pegged by the central bank. Managed: floats with intervention. Appreciation and depreciation are market moves; revaluation a
15. What moves floating exchange rates
    Floating rates move with interest rates, inflation (PPP), the current account, economic strength, capital flight, speculation and global shocks. Convert by mult
16. Effects of exchange rate changes: Marshall-Lerner and the J-curve
    Marshall-Lerner: a depreciation improves the current account if |PEDx| + |PEDm| > 1. J-curve: it worsens first because short-run demand is inelastic, then impro
17. International competitiveness
    Measures: relative productivity, relative unit labour costs, relative export prices. Determinants: productivity, human capital, exchange rate, labour costs, reg
18. Absolute and relative poverty
    Absolute poverty: below a fixed line ($3.00 a day in 2021 PPP since June 2025). Relative poverty: below a share of median income (often 60%). Causes of change:
19. Inequality: income, wealth, the Lorenz curve and Gini coefficient
    Income is a flow, wealth a stock; wealth is more unequal. Lorenz curve: cumulative % of households against cumulative % of income; further from the diagonal = m
20. Causes and consequences of inequality
    Causes within countries: skills, wealth, labour markets, taxes and benefits, technology and globalisation. Between countries: capital, human capital, institutio
21. Public expenditure
    Capital spending builds assets; current spending runs services; transfers redistribute without output. Spending changes with incomes, ageing and expectations. I
22. Taxation: types and economic effects
    Direct taxes on income and wealth; indirect on spending. Progressive: average rate rises with income; regressive: falls. Rate changes affect incentives, revenue
23. Public sector borrowing and debt
    Deficit = annual shortfall (flow); debt = accumulated borrowing (stock). Automatic stabilisers change with the cycle; discretionary policy is chosen. Cyclical d
24. Macroeconomic policies in a global context
    Tools: fiscal, monetary, exchange rate, supply-side, direct controls. Uses: deficits and debt, inflation, external shocks, poverty and inequality. After 2008: r
25. Measuring development: the HDI and other indicators
    HDI: life expectancy, expected and mean years of schooling, GNI per head (PPP, logged); geometric mean of three indices. Broader than GDP, but ignores inequalit
26. Constraints on growth and development
    Constraints: volatile commodity prices, primary product dependency (Prebisch-Singer), savings gap (Harrod-Domar g = s/k), foreign currency gap, capital flight,
27. Market-oriented and interventionist strategies for development
    Market-oriented: trade liberalisation, FDI, removing subsidies, privatisation, floating exchange rates, microfinance. Interventionist: human capital, protection
28. Industrialisation, tourism, primary industries, debt relief, aid and international institutions
    Lewis: surplus rural labour moves to industry, profits reinvested until surplus labour runs out. Tourism and primary industries earn foreign currency but have l
29. Unit 4 exam technique
    80 marks in 2 hours: 6 MCQ, a 34-mark data response, two 20-mark essays (12 KAA + 8 evaluation). Show working with correct units. Build multi-stage chains of re

Next exams for WEC14

• January 2027: Wed 20 Jan 2027, afternoon, 2h 00m
• Summer 2027: Fri 4 Jun 2027, morning, 2h 00m

From Pearson's final timetables. All exam dates. Always confirm your entries with your exams officer.