4.1 A global perspective Flashcards
Define globalisation
Process in which national economies have become increasingly intergrated and inter- dependent
Causes of globalisation
- Growth of MNCs (multinational corporations)- Undertaken FDI, which frequently involves moving manufacturing to a country where production costs are lower (offshoring)
- Trade liberalisation (WTO)
- Trading blocs- free trade in G/S
- Technological advancements- low transportation costs e.g. containerisation= E.O.S + falling LRAC
- Mobility of labour and capital
Why is the internet a significant cause of globalisation
- Decrease in cost of communication
- Firms can access world markers more easily by advertising on the internet
- Easier for conumers to buy goods from other countries
How does globalisation lead to grater employment
- Market size gets bigger
- More countries become integrated
- Sharing resources and accessing each other’s markets freely
- Firms grow in size so hire more workers to supply output
- Increase in incomes= increased S.O.L = grater luxury
Pros of globalisation
- Free movement of labaour and capital (FDI)- increase in migration, attracts FDI
- Technological transfer and innovations
- Benefits of trade -trade blocs & WTO- greater tax revenue, provides economic development
- Lower prices
- Benefit from large E.O.S
- Greater employment
How does globalisation lead to lower prices
- Due to increased int. competitivness
- Increases efficiecny + lower costs
- Greater choice, greater quality of G/S, more innovative products being developed= increased consumer surplus
- Firms can access raw materials at lower prices = lower costs
- Firms benefits from large E.O.S & higher profits (increased ouput at lower costs)- more innovation and investment
Cons of globalisation
- Trade imbalances- relying on X-led growth leads to CA deficits/surplurses= trade wars, protectionism
- Greater rish of external shocks (risk of contagion) such as Great Depression, Financial Crisis
- Loss of cultural diversity- succumbing to same demand for evergy single person in economy/ tastes and fashion
- Some TNCs/MNCs engage in a form of tax avoidance called transfer pricing
- Environmental costs
- Higher structural unemployment
- Growing inequality
How does globalisation lead tax avoidance
Some TNCs/MNCs engage in a form of tax avoidance called transfer pricing
The use of legal mechanisms (e.g. transfer pricing) & corruption by transnational corporations is stripping developing countries of their assets & has been called ‘new colonialism’
This means lex tax revenues for govt, which couldve been used on public services such as NHS, infrastructure education
How does globalisation lead to environmental costs
- Increased trade= increase road and air transport and associated noise and air pollution
- FDI by countires in search of raw materials may result in expolitation and depletion of resources
- Lack of sustainability and increased external costs
- Future generations cannot acrrue same benefits we currently benefit from
How does globalisation lead to greater inequality
- Demand for unskilled labour has decreased in developed countries, so increasing the earnings gap between the highest-paid and lowest-paid workers
- Top 1% of top earners in the economy own 55% of the total global wealth
- TNCs/MNCs might expoit workers in developing countries by paying lower wages for long working hours
Define absolute advantage
Occurs when a country can produce a product using fewer FoP than another nation
Define comparative advantage
A country could specialise in the G/S it can produce at the lowest possibe opportunity cost., and then trade with another country
The assumptions of comparative advantage
- Transport costs are zero
- There is perfect knowledge
- Factor substitution is easily achieved
- Constant costs of production
Define economic integration
Process whereby countries coordinate so reduce trade barriers and to harmonise monetary and fiscal policy
Define trading blocs
A group of countries that join together and agree to increase trade between themselves
