4.1 - Content Flashcards
Definition of globalisation
4.1.1 - Globalization
Globalisation is a process by which economies and cultures have been drawn deeper together and have become more inter-connected through global networks of trade, capital flows, and the rapid spread of technology and global media
Key charateristics of globalisation
4.1.1 - Globalization
- Increase in ratio of the value of overseas trade to a nations GDP
- Expansion of financial capital flows from one country to another
- Increasing foreign direct investment flows moving across national borders
- More global brands – including a rising number from emerging countries
- Deeper specialization of labor in making specific component parts or technology transfers
- Creation of global supply chains & new trade and investment routes in the world economy
- High levels of labor migration across national borders (pre-pandemic)
- Increasing connectivity of people, communities and business through networks
Key factors driving globalization
- Containerization - the real prices/costs of ocean and air shipping have come down due to containerization & economies of scale in freight industries and the huge ports built to serve them
- Technological advances – which lowers the cost of transmitting and communicating information
- Differences in tax systems – Some countries have adjusted their corporate tax rates in a bid to attract inflows of foreign direct investment (FDI) - such as Ireland. Uk corporate tax rate is 25%
- Trade deals – overall, import tariffs have fallen – but we have seen a rise in non-tariff barriers such as import quotas, domestic subsidies and tougher regulations leading some to see a new period of de-globalization
Examples of technological advances
4.1.1 - Globalization
- Good internet connectivity allows people & businesses instantaneously to exchange information, ideas and data across borders has facilitated real-time communication.
- E-commerce has enabled firms of all sizes to access international markets without the need for extensive physical infrastructure.
- Payment systems have transformed the way goods and services are bought and sold, facilitating cross-border trade and opening new avenues for global economic participation
- Outsourcing/ Freelance services: Technological advancements have facilitated remote collaboration and outsourcing across borders. Firms can engage with talent and services from around the world without the need for physical presence
Benefits of Globalisation
4.1.1 - Globalization
- Globalization encourages both producers and consumers to reap benefits from division of labor and harnessing economies of scale across many industries
- More competitive markets reduces the level of monopoly profits and can incentivize businesses to seek cost-reducing innovations
- Trade can help drive faster economic growth which leads to higher per capita incomes. This has reduced extreme poverty in many lower income countries.
- There are advantages from the freer movement of labor between countries including helping to relieve skilled labor shortages and promoting the sharing of ideas from a more diverse workforce which can then promote innovation.
- Globalization has increased awareness among people of the many long-term challenges from climate change and the impact of wealth & income inequality
Costs of Globalisation
4.1.1 - Globalization
- Rising inequality – the gains from globalization are unequal leading to growing political and social tensions when inequality of income and wealth increases
- Threats to the global commons including irreversible damage to ecosystems, land degradation, deforestation, loss of bio-diversity and water scarcity. Globalization can lead to exploitation of the environment including the impact of trading toxic waste to countries
- Macroeconomic fragility – in an inter-connected world, external shocks in one region can rapidly spread to other centers (this is known as systemic risk)
- Trade imbalances - increasing trade imbalances (both surpluses and deficits) lead to protectionist tensions, more import tariffs and quotas and a move towards managed exchange rates – this can then lead to de-globalization
- Jobs - Workers may suffer structural unemployment from out-sourcing of manufacturing to lower-cost countries and a rise in the share of imports in GDP
- Brain drain
Deglobalisation
4.1.1 - Globalization
Refers to countries and regions becoming less integrated with the global economy
Involves the reduction in the value of the flow of goods, services, capital, information and people across international borders
Causes of de-globalisation
4.1.1 - Globalization
- Protectionism: Governments might implement protectionist measures such as tariffs, quotas, and trade barriers to shield domestic industries from foreign competition.
- Economic Shocks: Economic downturns or recessions can lead countries to focus more on domestic priorities and reduce their reliance on global trade and investment.
- Changing Trade Agreements: Countries might renegotiate or withdraw from trade agreements that were previously promoting globalization.
- Environmental Concerns: Growing concerns about climate change and environmental sustainability might lead to policies that prioritize local production and reduce the carbon footprint associated with long-distance trade.
- Health Crises: Global health crises, such as pandemics disrupt travel, trade, and supply chains.
- Economic Nationalism: Governments might adopt policies to protect domestic industries and jobs, even if it means reducing international trade.
What are external shocks
4.1.1 - Globalization
External shocks are unexpected and significant events or developments that originate from outside a country’s or region’s economy but have substantial impacts on it.
These shocks can disrupt economic activity, financial markets, and overall economic stability.
External shocks can be positive or negative and can affect various aspects of the economy, such as growth, inflation, employment, and trade. They are often difficult to predict and can lead to sudden changes in economic conditions.
Examples of external shocks include the COVID-19 Pandemic, financial crises, natural disasters, currency crises, geo-political shocks, commodity price fluctuations and unexpectedly large changes in global interest rates
Specialisation
4.1.2 - Specialisation and Trade
Where countries or regions focus on producing and exporting specific goods or services in which they have a comparative advantage, while importing other goods and services that they can acquire more efficiently from trading partners. It allows countries to allocate their scarce factors resources more efficiently, improve overall productivity, and hopefully benefit from the gains of trade across borders
Comparative advantage
4.1.2 - Specialisation and Trade
When one party can produce a good or service at a relatively lower opportunity cost than another party
So when a party is relatively more efficient at performing one activity compared to other activates
Limitations to comparative advantage
4.1.2 - Specialisation and Trade
- Over-dependence - Specialisation creates a dependence on other countries which generates vulnerability e.g. receiving gas supplies from Russia works well when relations are good but has proven otherwise in an unexpected time of war. There has been an over-dependence on Russian gas
- Environmental damage - The impact of negative externalities of production is not considered by the theory & these can significantly worsen the quality of life in towns, cities & countries
- Distribution of income -The GDP/capita is likely to increase, however the distribution of the extra income is likely to be uneven with the wealthier sections of the population gaining more
- Strucutral unemployment - Although there should be a net increase in employment, as countries specialize certain industries are likely to shut down resulting in unemployment for some workers. These workers may not be able to move into other occupations & if so the number of long-term unemployed will rise
Factors affecting comparative advantage
4.1.2 - Specialisation and Trade
- Natural resources
- Unit wage costs
- Infrastructure
- Non-price factors
- Import controls
- Exchange rate
Limitations to comparative advantages
4.1.2 - Specialisation and Trade
- Over-dependence - as relying on other countries for certain goods is making you dependent and therefore vunerable
- Environmental damage - Negative externalities of production aren’t considered by the theory - can worsen QoL
- Distribution of income - GDP/capita will increase but will be uneaven as the wealthy get wealthier
- Structural unemployment- there will be a net increase in employment but specialized workers whose industries are shut down will become strucutral unemployed and they may struggle to move into a new occupation
QOL - Quality of Life
