1- Globalisation Flashcards
Globalisation definition
The ever-increasing integration of the world’s local, regional and national economies into a single international market.
4 areas economic integration can be broken into
- Free trade across national boundaries of goods and services
- Free movement of labour between countries
- Free movement of capital between countries
- Free interchange of technology and intellectual capital
Causes of globalisation
- Trade in goods (for rich, developed countries increasingly being manufactured abroad).
- Trade in services (growing e.g. tourism)
- Trade liberalisation (growth of trading blocs, reduced tariff barriers)
- Improved transport
- Containerisation
- Improved technology
- Growth of MNCs
- Firms exploiting economies of scale (increased specialisation - essential feature of new trade theory
- Internet
- Increased mobility of capital and labour
- Growth of world media
- Financial systems growing in global nature
- Specialisation (comparative advantages)
- Capital availability
- Cooperate activity
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 and avoidance
- Brain drain from some countries
- Less cultural diversity
Globalisation impact on governments
- Tax revenues will increase, which may be used for public services but MNCS could avoid tax
Globalisation impact on producers
- Firms will be producing on a larger scale and so will benefit from economies of scale and higher profits
- TNCs are likely to introduce modern managerial techniques designed to increase productivity
- Local producers who aren’t competitive may be forced out of the market.
Globalisation impact on consumers
- Lower prices
- Greater choice
Globalisation impact on workers
- Increased employment opportunities
- TNCs may exploit workers in developing countries by paying lower wages for long working hours
Globalisation impact on the environment
- Increased external costs
- Increased trade will increase road and air transport and associated noise and air pollution
- FDI by countries in search of raw materials may result in exploitation and depletion of resources
Foreign Direct Investment (FDI) definition
Occurs when a company in one country established operations e.g. a factory in another country or when it acquires physical assets or a stake in an overseas country.
Capital flows definition
Refers to all the money moving between countries as a consequence of investment flows into and out of countries around the world.
Offshoring definition
Refers to falling in long-run average costs when output increases.
Globalisation impact on indivudual countries
- With lower trade barriers and increased trade, countries can specialise in producing goods in which they have a comparative advantage (leading to higher world output and living standards).
- Countries without a comparative advantage, could rely on imports, which could deteriorate its current account of the balance of payments.
- Increased inequality (demand for unskilled workers has decreased in developed countries- increasing pay gap between the rich and the poor.
- Risk of contagion
Transfer pricing definition
Refers to the price that has been charged by one part of a country for products and services it provides to another part of the same company. It enables TNCs to declare profits in which cooperation tax is lowest.
