Globalisation

Question 1

State + explain the micro causes of globalisation.

Answer 1

• MNCs Seeking Profit Maximisation: firms move production abroad to exploit cheaper / lower taxes.
• Technological Innovation By Firms: use of digital platforms, automation to cut costs + reach global markets.
• Economies of Scale: firms expand into global markets to lower AC via larger output.
• Consumer Demand For Variety: increased desire for international goods / services incentivises firms to expand globally.
• Competition: firms go global to remain competitive / gain first-mover advantage in new markets.

Question 2

State + explain the macro causes of globalisation.

Answer 2

• Trade Liberalisation: gov reduce tariffs + trade barriers, enabling freer flow of goods + services.
• Capital Market Liberalisation: deregulation of financial markets allows capital to move freely across borders (e.g. FDI, I flows).
• Technological Progress: I in infrastructure + communications promotes global linkages.
• Role of International Institutions: WTO, WOrld Bank - encourages open trade, resolve disputes, + supports development.
• Regional Integration: economic blocs (e.g. EU, NAFTA) facilitates free movements of goods, capital, + people.
• Government Support For Export-Led Growth: many countries (e.g. China, Vietnam) adopt policies to integrate into global markets.

Question 3

State + explain the micro effects of globalisation.

Answer 3

• Increased Consumer Choice: access to greater variety of goods + services. More competition reduces P - allocative efficiency.
• Lower Prices: due to EoS + competitive pressure. Consumers benefit from lower C M.
• Greater Efficiency: firms face international competition, encouraging productive efficiency. Specialisation according to comparative advantage.
• Labour Market Impacts: access to foreign workers reduce W pressures. L migration can fill skill shortages.
• Increased Inequality: skilled workers benefit more than unskilled ones, job losses in declining industries (e.g. manufacturing in high-income countries).
• Monopoly Power of MNCs: dominance of MNCs may reduce competition - lead to exploitation of workers / suppliers in developing countries.
• Environmental Externalities: global trade may increase carbon emissions. Firms may relocate to countries with lax environmental regulation - carbon leakages.

Question 4

State + explain the macro effects of globalisation.

Answer 4

• Economic Growth: through trade, I + tech transfer - allows countries to benefit from comparative advantage.
• Lower Inflation: cheap M reduces cost-push inflation pressures. Global competition restrains W growth.
• Improved Balance of Payments: X led growth strategies (e.g. China), remittances from workers abroad boost CA.
• Foreign Direct Investment (FDI): brings in capital, skills, + employment - boosts productivity + infrastructure development.
• Development Opportunities for LICs: access to capital, technology, + X markets.
• Worsening Current Account: deindustrialization in high cost economies - leads to rise in M - trade deficits may widen.
• Vulnerability to External Shocks: highly open economies are exposed to global recessions / financial crises.
• Structural Unemployment: domestic industries may decline if they can’t compete, skills mismatch in L force.
• Dependency on Global Markets: over reliance on X / FDI may limit domestic policy options.