11 Globalisation and exchange rates Flashcards
What is globalisation?
It is the process in which national economies have become increasingly integrated and interdependent. This means u come closer together and more reliant on each other for growth and development
What have been the causes of globalisation? What are the pros and cons?
Trade liberalisation - WTO it has lead to trade boundaries reducing and more free trade taking place between nations.
More trading blocs, NAFTA EU etc
Growth of MNC’s bigger they got the more they spread around the world
Technological advancements
Mobility of labour and capital which may be through trading blocs or gov policy.
Pros:
Lower prices benefits everybody from consumers and businesses. This has come from the fact there is much more international competition which puts downward pressure on prices and increases efficiency which reduces costs. Consumers benefit from greater surplus, welfare, market size and choice and quality and innovative products and more technology etc. Businesses benefit too by being able to access raw materials from diff places.
Benefits of trade occur due to lots of trade blocs and a greater role of the world trade organisation. Greater tax revenue etc.
Greater employment - as market size gets bigger and more countries become integrated, you can expect firms to grow in size and they realise their potential for growth has increased. Hire more workers in order to supply more output. Higher incomes will lead to higher living standards and can enjoy greater luxury in their life etc
Benefits from large EOS as market size gets bigger. Companies can increase output and lower costs which means higher profit which can be invested and stimulate more investment later on
Free movement of labour and capital - people can move freely in a trade bloc and work where they want to. Moving around the world has become easier and cheaper. For workers and businesses
Cons:
Growing inequality - higher incomes don’t translate to higher income for alls and the trickle down effect that free market economists hasn’t been seen yet. Needs to be a greater push for politicians to focus on alleviating poverty
Higher structural unemployment - You lose out to international competition and you can’t compete which means people lose their jobs and incomes etc
Environmental costs - there is a lack of sustainability when you have growth as your main objective
Trade imbalances - relying on export lead growth can be a very lucrative way of developing and growing.
Greater risk of external shocks. Banking crisis in a nation can spread all around the world and can take down banking industries in all countries which can lead to deep recessions
Less cultural diversity - you see the same MNC’s littered on every other street and the sam egoods and services for everyone to buy
