Globalisation Flashcards
(22 cards)
Define globalisation
The process of deeper economic integration and interdependence between countries
What are the characteristics of globalisation?
Expansion of global trade
Increasing number of MNCs
Development of global brands
International out-sourcing and off-shoring of production
Greater labour migration
What are the causes of globalisation?
Containerisation
Technology and communications
Reduced protectionism
Increased international financial flows
Multinational Companies (MNCs)
Foreign ownership of firms
How does containerisation cause globalisation?
Lower transport costs due to containerisation
Shipping is on a larger scale and more efficient
Leads to an increase of trade in goods
How does technology and communications cause globalisation?
Easier, faster and cheaper exchange of knowledge and ideas
E.g. allows call centres to operate in India
Leads to an increase of trade in services
How does reduced protectionism cause globalisation?
GATT then WTO led the way on more open trade
Average tariff levels have fallen massively
Steady rise of number of countries that are members of WTO
How do increased international financial flows cause globalisation?
E.g. China has financed part of its fast economic growth through inward flows of international financial capital
How do Multinational Companies (MNCs) cause globalisation?
MNCs have an increasing significance to global trade
Responsible for significant amounts of global Foreign Direct Investment (FDI)
Offshoring and outsourcing of production adds to economic integration between countries
How does the foreign ownership of firms cause globalisation?
Increasingly common for large firms (and governments) to buy foreign companies
How does globalisation affect consumer choice?
Massive increase in the range of goods and services that can be bought
Goods – diversity in food in supermarkets
Services – wide range of holiday destinations
However, globalisation can lead to the homogenisation of culture
How does globalisation affect prices for consumers?
Prices fall for some goods
Off-shoring production to regions with lower wage rates, falling shipping costs, EoS
Prices rise for other goods
Higher global demand puts global pressure on scarce resources, e.g. commodities
How does globalisation affect incomes for consumers?
Globalisation has generally raised incomes worldwide
Higher incomes allow for greater consumption
However, the affluence is not evenly spread
Workers could lose jobs due to offshoring, many incomes have become stagnant in the developed world in recent decades
How does globalisation affect employment for workers?
Transfer of manufacturing, to e.g. China, has seen job losses in Europe and US
Some find new work in services, others remain unemployed
Service industry workers may not have the same rate of pay as before
If manufacturing can be replaced by higher value industry (e.g. tertiary and quaternary sectors) then in the long run workers may be able to take higher paid jobs, however, workers may not have the skills for these jobs
How does globalisation affect migration for workers?
Migrant workers compete in job markets with domestic workers, native workers may perceive them to be ‘taking their jobs’
However, many migrant workers take jobs that domestic workers are unwilling to take
Migrants add to the AD of the economy creating additional demand for other goods and services, this may create jobs in other parts of the economy
How does globalisation affect wages for workers?
Low skilled workers are effectively in competition with the rest of the world, leading to a general depression of low skilled wages in the developed world
Higher skilled workers have seen wages rise significantly over time, due to demand for their skills from around the world, and a limited number of workers with equivalent skills around the world
Globalisation has tended to lead to a rise in inequality in developed countries, however, wages of low-skilled workers in developing countries have increased, lowering inequality
How does globalisation affect specialisation for producers?
Firms are increasingly dependent on each other around the world
Firms are reliant on uninterrupted supplies from around the world to keep their production going
Disruption of production or trade sanctions in another part of the world may impact a domestic firm
However, globalisation means greater opportunities to find new suppliers and new customers
How does globalisation affect costs and markets for producers?
Firms can move production to other parts of the world to reduce costs (offshoring)
Globalisation creates more opportunities to create contracts with other companies to complete an element of the business that used to be completed internally (outsourcing)
However, businesses that produce their goods ‘at home’ use this as part of their marketing strategy
How does globalisation affect tax avoidance for producers?
Firms operating in several countries have the possibility of tax avoidance:
transfer pricing, setting up offices in low-taxed countries, move production facilities to low-tax countries
However, greater inclination for countries to work together to reduce tax avoidance
How does globalisation affect governments?
Governments attempt to adopt policies that capture the benefits and minimise the losses from globalisation, e.g. low taxes for businesses to attract FDI
Government may be susceptible to bribery from foreign MNCs, particularly in developing economies where corruption is a big problem
How does globalisation affect the environment?
Extra global production leads to extra demand for materials and increased emissions from production, e.g. greenhouse gas emissions and rising global temperatures
MNCs dominate extraction industries such as oil and gold mining which has a large environmental impact due to the profit maximisation nature meaning MNCs consider what is best for their profits rather than the long term interests of the environment
How does globalisation affect the LEDCs vs MEDCs?
Exploitation of developing countries by MNCs? Speeding up growth via FDI? Developing countries might lack the institutions to regulate the MNC behaviour
Trade system skewed against developing countries
MEDCs put up high trade barriers to LEDC goods, pressure put on LEDCs not to match this protectionism
LEDCs have outperformed MEDCs on economic growth over the last 50 years and particularly in the last 15 years
But, starting from a much lower base
Evaluate impacts of globalisation?
Difficult to say that globalisation caused these effect
Correlation isn’t causation
