4.1 international economics Flashcards
Globalisation
‘increasing integration of the world’s local, regional, and national economies into a single international market’
Characteristics of globalisation
- Free trade of goods and services
- Free movement of labour
- Free movement of capital
- Free interchange of technology and intellectual capital
Factors contributing to globalisation in the last 50 years
- Trade in goods/services
- Trade liberalisation
- Multinational companies
- International financial flows
- Foreign ownership of firms
- Communications and IT
Causes of globalisation - Trade in goods
- For developed countries, googs are increasingly being manufactured abroad in developing countries like China and India.
- Trade is occurring because developing countries are acquiring the capital and know-how to produce manufactured goods, transport is improving, and developing countries have the advantage of low wage rates.
Causes of globalisation - Trade in services
- Trade in services is also growing.
- For instance, tourism is increasing due to more disposable income, call centres for customers in developed countries are being located in developing countries, and India has become a world leader in software engineering.
Causes of globalisation - Trade liberalisation
- Trade in goods and services is growing because of trade liberalisation.
- In the 30s, the depression caused international trade to collapse and individual countries misguidedly tried to boost domestic demand by enacting fiercely protectionist policies.
- Since the end of WWII, these barriers have gradually fallen, encouraging growth in global trade.
Causes of globalisation - Multinational companies
- Multinational companies have grown in number and size.
- In industries like oil and car manufacturing, this is because only multinational companies have the economies of scale to be competitive and technologically advanced.
- In other industries, successful marketing has created global brands such as Coca-Cola, McDonald’s, and Magnum.
- Many of these companies also have political and economic power, as they have vast monopoly power.
- They can also engage in anti-competitive practices, and have strong lobbying power with governments, especially by threats of disinvestment and promises of investment.
Causes of globalisation - International financial flows
- Financial flows are becoming far greater between countries.
- For instance, China and Malaysia have financed some of their vast growth via inward flows of international capital.
Causes of globalisation - Foreign ownership of firms
- Foreign ownership of firms is increasing.
- For instance, many MNCs have investments in factories in China, French firms have bought US firms, and a company founded in India is now the biggest steel producer in the world after buying several steel producers in the developed world.
- Some oil rich states like Qatar and Norway have state investment funds which buy stakes in foreign companies.
Causes of globalisation - Communications and IT
- Developments in communications and it have shrunk the time needed for economic agents to communicate with each other.
- In industries such as software production, programmers are effectively just as near to a client’s office located in, say, London if they themselves are located in India or Kent.
Impact of globalisation on consumers - Consumer choice
Wider variety of goods and services generally available as they can be transported around the world, with globalisation leading to greater consumer choice
Impact of globalisation on consumers - Homogeneity
Absolute variety potentially decreasing as goods become increasingly homogenised.
Impact of globalisation on consumers - Prices
Prices are generally driven down by increased supply, but consumers whose incomes are hurt by globalisation may still be worse off
Impact of globalisation on consumers - Tourism
Holiday to Peru is the same as a holiday to Spain apart from scenery
Impact of globalisation on consumers - Goods
Clothes made in China may be bought in UK, USA, Japan, etc
Impact of globalisation on workers - Employment and unemployment
The transfer of much of the manufacturing of products from Western Europe and the USA to countries like China and Poland has led to a large scale loss of jobs in this sector in the developed world whilst the opposite has been happening in the developing world.
Impact of globalisation on consumers - Incomes
- Incomes have generally increased incomes round the world, allowing consumers to buy more goods.
- However, not every consumer has gained, e.g. a worker in south Wales whose job has moved to China is likely to be worse off.
Impact of globalisation on workers - Wages
- In a perfect labour market where all workers are homogeneous, all workers will earn the same wages. Globalisation is shifting workers and placing workers. This makes workers compete more.
- This has tended to depress the wages of unskilled workers. There is also upward pressure on wages of high-skilled workers in developed countries, leading to an increase in inequality.
Impact of globalisation on workers - Migration
- Majority of migrants are economic migrants who believe that by moving they can achieve a better standard of living for themselves and their families in other countries.
- First-generation economic immigrants tend to be successful in gaining jobs and increasing their incomes furthermore they can fill skill gaps in the economy and so raise the productivity of existing workers.
- By forming businesses, some immigrants even create jobs.
- However, economic immigrants are competing in the job market with workers from the host country. - Immigrants are sometimes perceived by native workers as ‘taking their jobs’ or lowering wage rates because of competition in the labour market.
Impact of globalisation on workers - Multinationals
- Multinationals create jobs wherever they set up operations. They are sometimes criticised for creating only low-skilled jobs while using high-skilled workers from overseas.
- However, increasingly multinational companies are training up new workers in countries they invest in, in order to make an investment in that country that will reap later results.
- Training given to employees also spills into the local economy, raising human capital. This happens when workers leave the multinationals for local industry.
Impact of globalisation on producers - Specialisation and economic dependency
Economic agents are increasingly specialised so they become more dependant on each other. This means that some operations are far riskier because they rely so heavily on business in other countries. Equally globalisation helps reduce risk as firms can source their production elsewhere if a problem should arise.
Impact of globalisation on producers - Costs and markets
Globalisation gives firms a wider variety of businesses to buy goods and services from, along with for firms to buy precursors to their products from.
