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GLOBAL INTERDEPENDENCE

Visible and Invisible Trade

- Trade: the exchange of goods and services for money. basis of global interdependence
- trade results from: the unequal distribution of resources in earth that countries (despite
having abundance resources) cannot produce all the goods/service population desire
- Imports: goods/services purchased from other countries
- Exports: goods/services sold to other countries
- Balance of Trade: difference between the value (money) of import and exports
• deficit: more exports, surplus: more imports (favourable)
- Visible trade: the trade of goods that has physical existence (tangible)
- Invisible trade: the trade of services that includes travel, tourism, business and finance services,

- trade in goods/merchendise — dominated by manufactured goods (machnary and transport

equipments), fues and mining, and agricultural foods
- trade in service/commercial service — transport, travel, other commercial services

Factors Affecting Global Trade

1. Research Endowment —

• OPEC (organisation of petroleum exporting countries) objectives:

- coordinate and unify petroleum policirs of mrmbrt countries
- ensure stabilisation of oil market to ensure efficient, economis, and regular supply of
petroleum to consumer and a steady income to producers
- fair return on capital for those investing in the industry
2. Comparative Advantage

• different countries will specialise in producing goods and service they best endowed at

• each country will trade a proportion of these goods to other nations to obtain goods it needs
but it doesn't favourably endowed

• concentrate in producing goods and service they are best at producing = specialisation in
production and employment — global reputation for particular product

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3. Locational Advantage

• adavantageous for exporting country to be close to markets for its products — less transport
costs

• France — high tourism benefitting from neighbouring countries with large population (they can
reach france quick and cheaply, especially bounded by EU)

• Canada benefit from high demand from US

• Singapore — strategically located with trade route to both pacific and indian oceans

• Rotterdam, Holland — river rhine that connects it to 6 countries

4. Investment

• more investment will increase trade

• likeliness of investment (FDIs) depends on political, economical stability. risk of corruption and
crime will deter investments

5. Historical Factors

• historical relationship usually based on colonial ties

• trade dependency because of colonial ties is why LI/DCs have spare share in global trade
(dependency on other country)

• UK and the commonwealth countries (intergovernmental organisation of 53 member states

that are mostly former territories of the British Empire)

6. Terms of Trade

• countries with cheap export and in need to obtain expensive imports require them to sell
substantial amount just to get small amount of import - poor terms of trade

• primary product dependant — rely on one or a small number of primary products to obtain
foreign currency through export
- primary product are generally cheaper than manufactured goods and services
- also subject to variations from year to year (seasonal change, climate, natural dissters)
hence hard to manage, and sometimes leads to uncertain irregular income
- manufactured goods are generally higher in price and have a predictable rate, giving a
more regular income and less uncertainty
- this results in LDC LIC terms of trade to worsen compared to MIC HIC
7. Changes in the Global Market

• the West — mature economies that used to control the global economy but now falling as
result of the rapid growth of BRICs that overcome theirs
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• the Emerging Markets — high growing nations outside of the core group nations, including
BRIC (Brazil, Russia, India, China)

• US used to be the biggest creditors now the biggest debtor as they borrow from reserves of
emerging nations

• its likely that the “big four” continue to grow faster than the mature economies
8. Trade Agreements

• trade blocs: group of countries that share trade agreements between each other. joining
together to stimulate trade between themselves and to obtain other benefits from economic
cooperation

• types of integrations
- Free Trade Areas — no protectionism between members
- Custom Unions — common external tarrifs
- Common Markets — also allow free movement of labor and capital
- Economic Unions — adopt common economic policies


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International Debt and Aid
- External/Foreign Debt: part of the total debt a county owed to creditors outside the country
• affect the country’s creditworthiness hence economic vulnerability
• LICs many struggle to pay whilst providing basic services for the population (making new debt
to service interest payments on old debts) —> burden for the country
—> takes away high proportion of income that could've been spent on education,
healthcare, housing, transports, and social and economic priorities, for debt
• HICs like US has big debts yet they have huge assets (guarantee can pay back) hence debts
are manageable
- Unpayable Debt: external debt when the interest on the debt had exceeded the means of a
country, thus preventing the debt from ever being repaid
- Multilateral Debt: obligations to international financial institutions like World Bank or IMF. it
takes priority over private and bilateral debt service
- Debt Crisis: Arab israeli war 1973-74 cause rising oil price sharply —> other oil producing
countries invest on petrodollars (profit from oil sales) and are eager to earn profit from this —>
they set low interest rate loans for poor countries and buy their oils —> poor countries are
encouraged to exploit their raw materials and agriculture production of pay back their loans —>
recession however occurs —> raise in inflation and interest rate while crops exports are falling
in demand and price —> poor countries cant pay back their debts
- Odious Debt: debt loaned by HICs to dictators and corrupt leaders of LICs that hence, money
are wasted without any tangible use on the country’s development yet the country suffer from
the long-term debt
- Debts for legacy of Colonialism: colonials left former colonies with high and unfair level of
debt when they became independent, usually with very high interest rate
• 1949: Indonesia is required to handle Dutch colonial government debt as a condition for their
independence
• Haiti was requried to pay 150 million francs to the French colonials
- Debt Service Ratio: proportion of a country’s export earnings that it needs to use to meet its
debt repayments
• LICs usually put off 20-30% of exports for debt repayments and HICs 10-20%
• Causes of debt service ratio improvements:
1. increase exports earnings
2. debt restructuring (adjusment such as lowering IR) or outright debt relief from official or
private creditors
3. HICs opening their markets to export from the LICs

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- Debt Relief: cancellation of debt usually done to LICs
• supported or pushed by charity organisations like Oxfam, Islamic relief, CAFOD
• Christian Aid advertises the debt relief of Haiti that was very poor and had just suffer form
devastating earthquake in January 2010
• debt-reduction schemes: restructuring debt (renegotiate the repayment of its debt with bilateral
creditors), rescheduling, opening export markets, etc
• Countries can granted ‘rescheduled’ or now loans if they agreed to a strict “structural
adjustment programmes’ such as:
1. agreeing to free-trade measures — they must open up their market to intense foreign
competition
2. must have a severe cut in public service spending
3. privatisation of public company
• Indonesia suffer from this when the government is transferred under the new order regime
of President Soeharto
• its argued to brought temporary relief as interest is added with a longer time period and hence
overall debt increases — argued to be limited in nature and self-serving

• Strengths of debt-reduction schemes • Weaknesses of debt-reduction schemes
1. allow to reschedule and make them 1. shift of domestic food cultivation to
more manageable commodities (cash-crops) for exports
2. make the country’s economy more 2. reduction in spending means cutting
competitive social programmes
3. improve foreign investment potential as 3. privatisation of state enterprise would
they remove trade or investment result in less government funding and
restrictions assets may be sold to TNCs
4. reduce government deficit through 4. MICs are accused to protect their own
spending cut interest


• debt relief may include international aid designed to address the development needs of LICs
• additional fundings for programmes that can benefit the poor
• these countries used to spend more for debt serving than for developments, with HIPC
initiatives, they can spend more on education, health, etc

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- Heavily Indebted Poor Countries (HIPC) Initiative: established in 1996 by the IMF and World
Bank to provide a comprehensive approach to debt reduction for HIPC that suffer form
unmanageable debts
• countries may receive full and irrevocable reduction in debt available
• yet they have to maintain macro economic stability under the IMF programme (poverty
reduction and growth facility) and carryout key structural and social reforms
• requirements for countries to receive the assistance:
1. have a track record of macro-economic stability
2. prepared an interim Poverty Reduction Strategy Paper (PRSP)
3. cleared any outstanding arrears
• Countries in post-completion-point of the assistance: Afghanistan Benin, Bolivia, Chad,
Cameroon, etc. 30 of them are african countries.
• 44% funding is from IMF, other multilateral institution, and the rest form bilateral creditors

International Aid
• Aid: assistance in the form of grants or loans at below market rates
• Why LICs accept Aids:
1. foreign exchange gap: they lack the hard currency to pay for impairs which may be vital to
development (no longer able to import necessities)
2. savings gap: population pressure drains the expenditure, which prevents the accumulation
of capital to invest in industry or infrastructure. too much needed to be bought, no more left
to save for big investments
3. technical gap: shortage of skills needed for development
• Tied Aid: foreign aid is tied to the purchase of goods and services from the donor country often
for use on jointly-agreed projects
• Types of Intl Aid:
1. Official government aid: given by and who its given to is decided by government of an
individual country
- bilateral aid: directly from one country to another
- multilateral aid: from many countries organised by an international body
2. Voluntary aid: run by NGOs or charities (oxfam, action aid, CAFOD) collecting money from
individuals and organisations. many government money may also flow to NNGOs as they
run aid effectively
3. Short Term Emergency Aid: relief aid — to help cope with unexpected disasters
4. Long Term Development Aid: directed towards continuous improvement in the quality of life
in poorer countries
• Why aid may not do as much good
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1. fails to reach the very poor and may be short lived (corruption)
2. tied aid is common
3. the use of aid in large capital intensive projects may worsen the condition of the poor
people (erasing job increasing unemployment)
4. may delay the introduction of reforms
5. culture of dependency that is difficult to break (complacency)
• Why aid is Bad
1. encourage the growth of larger than necessary public sector
2. private sector us crowded out by aid funds
3. distorts the structure of prices and incentives
4. wasted in grandiose projects that has little/no benefit for majority
5. the west don't need aid to develop
• Alternative thats far more important than aid
- change in LIC Terms of Trade so they ca get a fair share of world trade benefit
- writing of debts (debt relief) of poorest countries


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Tourism
• Travel away from home with the purpose of leisure/recreation/holidays, visiting relatives and
friends, business or professional reasons.
• europe attracts half of all international tourists
• important contributor to economic growth and employment
• Factors affecting global tourism
• Economic
- raising real income (recession will decrease tourism)
- decreasing real cost of holidays
- widening rage of cheaper destination for middle income
- heavy marketing for short holidays
- expansion of budget airlines
- retail reward schemes from hotels, airlines such as ‘air miles’
• Social
- raised expectations of international travel with increasing media coverage of holidays,
trace; and nature
- high level of international migration — more relatives living abroad
- increase in average number of paid leave days
- increase in the desire to experience different cultures and landscapes
- ethical reasons may hinder certain travel destinations
• Political
- heavy investment to encourage tourism
- backing for major international events such as olympic, world cup, Asian Games 2018!!!
- likelihood of terrorists attacks will plummet tourism
- quota or restriction for inbound or outbound
- calls of pressure of NGO to boycott certain countries
• there’s fewer restrictions in tourism investments. recent LIC MIC promotions to encourage
tourism includes:
- soft measures: making websites
- hard measures: incentives for foreign investors
• VULNERABILITY towards external shocks: economic recession, unemployment, high interest
rate = falling demand for tourism
•

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• factors causing tourism fluctuations:

1. natural disasters 6. political uncertainties that results in
restrictions
2. natural processes that threat tourism
locations (coastal erosion) 7. international image such as in 2006 the
US made a film about tourists being
3. terrorism threat and scares kidnapped by organ traffickers in brail
4. health scares hence create a major fall in the brazil
tourism “Turistas”
5. exchange-rate fluctuations affects the
affordability for travelling 8. increasing competition from other
countries

• Impacts of tourism
• Negative Socio-Cultural
- loss of locally owned land being bought by foreign investing companies
- loss of local people housing availability and affordability
- displacement of people to allow tourism location developments
- abuse of human rights by governments to maximise tourism profit —> forcing people in
burma to move to build tourist sites, forced and exploitation of labor
- abandonment of traditional values and practice such as the influence of the worst of
western influence. culture clash. — alcoholism, drug abuse
- change in community structure — traditional hierarchy of authority is challenged as those
with higher income from tourism gain gets higher status. young people move to areas
closer to work in tourist enclaves. increasing importance in material wealth may also
swinish family close ties.
- crime and prostitution as result of the worsening local people’s income
- congestion in key locations
- denied access for the locals to provide exclusivity for tourists
• Amelioration of this: education for visitors to be aware of the host culture
• Positive Socio-Cultural
- dovelopment increase local facilities for the people
- greater undemanding between culture
- family ties strengthened by cysts to relatives
- develop foreign language skills
- positive global impact from major intl events like olympics
• Negative Economic
- economic leakages — more money spent by the tourists doesn't really go to the local
economy but to foreign investors or their home countries providing the tour package.
minimum benefit to the local economy as money is spent in foreign owned hotels, foreign
airlines, imported foods, etc.

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- labour intensive tourism provide range of jobs. — mosts are menial and low paying as big
owners any managerial positions are owned by overseas labor
- increase national debt by developing sites
- overdependency on tourism. prone to economic changes.
• Positive economic impacts:
- providing jobs and incomes, leading to multiplier effect of local economy
- positive flow in the balance of payments
- considerable tax revenue
- reduce urbanisation because of tourism employment
- stimulating economy from FDI
- encourage growth of small business as more buyers are available
- support many jobs in the informal sectors that its benefits goes directly to the local people

• Sustainable tourism: to not destroy what is set to explore. operate within the capacities for the
regeneration of future productivity of natural resources, recognise the contribution of local people
and their cultures, accept that the locals must have an equitable share in the economic benefit of
the tourism
• includes: waste minimisation, reuse and recessing, energy efficiency, water management
• difficult to achieve because:
- desereate for reefing currency hence reluctant to limit quota
- local people hard to cooperate with foreign investors, vice versa
• Negative environmental impacts
- pressure on carrying capacity of the location: consume large amount for scarce freshwater
- coral reef are blasted for watersport clearance
- overfishing and overgrazing
• Positive environmental impacts
- landscaping and sensitive improvements increase the QOL
- revenue used to begin and manage protected areas and conservation projects
- increasing international awareness of local nature
• solutions for the overtouristing:
- educations about the environment
- establish a sens of ownership, cleanliness and beautiful scenery is fundamental to their
experience

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