Theme 4 Topic 1 Flashcards
(22 cards)
What is globalisation
Process of greater integration and inter connectedness between countries.
How did the IMF define globalisation as ?
Process through which an increasing,g free flow of ideas, people, goods, services, and capital leads to the integration of economies and societies.
What does the IMF stand for ?
International Monetary Fund
What does globalisation include ?
- Growth of international trade
- Trade liberalisation
- Enhanced mobility of labour + capital
- Falling transport costs
- Increased outsourcing
- Growth of size and influence of multinational corporations (MNCs)
Which factors contribute to globalisation ?
- Trade agreements
- Reduced tariffs and protectionism
- Expansion of global trading blocs
- Improved technology
- Improvements in transport infrastructure and operations
- Trade liberalisation
- International financial markets
- TNCs
Trade agreements (factor)
World trade organisation (WTO) has assisted in the reduction of trade barriers and there has been a greater proliferation of trade agreements across the world.
Reduced tariffs and protectionism (factor)
Some protectionist measures remain in place, yet a large number of countries with significant global economic influence have lowered protectionist measures
Expansion of global trading blocs (factor)
The growth of trading blocs (e.g. EU, NAFTA) have reduced national barriers and promoted trade and integration
Improved technology (factor)
Advances in technology have revolutionised communications, lowered labour costs, and enabled businesses to access new foreign markets.
Improvements in IT and communication allow companies to operate globally.
Improvements in transport infrastructure and operations (factor)
There are quick, reliable, cheap methods to allow production to be separated around the world.
Trade liberalisation (factor)
As well as reduced protectionism, this has made it cheaper and more feasible to trade.
It has been occurring since 1945.
The breakdown of the Soviet bloc and opening China has shown a whole area of the world for business to expand into.
International financial markets (factor)
Provided the ability to raise money and move money around the world, necessary for international trade.
There has been significant relaxation on the rules and regulations surrounding the movement of capital, which can move either freely, or at very low cost, quickly across the globe.
TNCs (factor)
Large companies operating around the world.
Have led to globalisation by acting to increase their own profits as they want to take advantage of low labour costs.
They sell and produce their goods around the world and have the power to lobby markets.
Benefits of globalisation
Lower prices, greater choice
Economies of scale (lower prices)
Increased global investment
Free movement of labour
May reduce global inequality
Costs of globalisation
Structural unemployment
Environmental costs
Tax competition, avoidance
Less cultural diversity
Synoptic point
Globalisation has clear microeconomic effects: it has impacts on consumers and producers as well as leading to negative externalities for the environment.
It has also contributed to the increasing contestability of markets.
Impacts of globalisation on consumers
• Consumers have more choice since there are a wider range of goods available from all around the world, not just those produced in the UK.
• It can lead to lower prices as firms take advantage of comparative advantage and produce in countries with lower costs, (e.g. low labour costs).
• In other cases, it is leading to a rise in prices since incomes are rising and so there is higher demand for goods and services.
• Many consumers worry about the loss of culture.
Impacts of globalisation on workers
• In terms of employment, some people have gained whilst others have lost. There have been large scale job losses in the western world in manufacturing sectors as these jobs have been transferred to countries such as China and Poland.
• Increased migration may affect workers by lowering wages but migrants can also provide important skills and an increase in AD which increases the number of jobs.
• International competition has led to a fall in wages (or reduced growth) for low skilled workers in developed countries whilst increased those in developing countries.
• The wages for high skilled workers appear to be increasing, since there is more demand for their work; this is increasing inequality.
• TNCs tend to provide training for workers and create new jobs.
• Those working in sweatshops will see poor conditions and low wages, but this is better than other alternatives.
Impacts of globalisation on producers
• Firms are able to source products from more countries and sell them in more countries. This reduces risk since a collapse of the market in one country will have a smaller impact on the business.
• They are able to employ low skilled workers much cheaper in developing countries and can exploit comparative advantage and have larger markets, both of which can increase profits.
• Firms who are unable to compete internationally will lose out.
Impacts of globalisation on government
• The government may be able to receive higher taxes, since TNCs pay tax and so do the people they employ. However, they could lose out through tax avoidance.
• TNCs also have the power to bribe and lobby governments, which could lead to corruption.
• If the government uses the correct policies, they can maximise the gains and minimise the losses.
Impacts of globalisation on environment
• The increase in world production has led to increased demand for raw materials, which of which is bad for the environment.
• Increased trade and production has also led to more emissions.
• However, globalisation means the world can work together to tackle climate change and share ideas and technology.
Impacts of globalisation on economic growth
• Globalisation increases investment within countries; the investment of TNCs represents an injection into the economy, and which will have a larger impact due to the multiplier. It creates an incentive for countries to make supply-side improvements to encourage TNCs to operate in their countries.
• TNCs may bring world class management techniques and technology which can have knock on benefits to all industries as these techniques and technologies are available for them too.
• Trade will increase output since it allows exploitation of comparative advantage.
• However, the power of TNCs can cause political instability as they may support regimes which are unpopular and undemocratic but that benefit them or could hinder regimes which don’t support them
• Comparative cost advantages will change over time and so companies may leave the country when it no longer offers an advantage which will cause structural unemployment and reduce growth.
