4.1.1 Globalisation Flashcards
What is Globalisation
is a process by which economies and cultures have been drawn deeper together and have become more interconnected through a global network of:
Trade, capital flows, rapid spread of tech + media
What are the key benefits of globalisation
allows businesses and countries to specialise in producing goods/services where they have a comparative advantage (i.e. able to produce at a lower opportunity cost)
Specialisation and trade enables what
gain in economic welfare
i.e. lower prices can increase consumers real income + greater range of good/serivces
Characteristics of Globalisation
- Trade to GDP ratios are increasing for many countries
- Expansion of financial capital flows across international borders
- Increasing FDI + cross border acquisitions
- More Global brands
- Deeper specialisation of labour
- Global supply chains and new trade + investment routes
- Higher levels of cross-border labour migration
- Increasing connectivity of people + businesses through networks
What are the factors contributing to globalisation in the last 50 yrs
Containerisation - reduced unit cost of transporting products across the world. Real prices of ocean/air shipping have come down due to widespread use of standardised container reaping economies of scale
Technological advances - cuts cost of transmitting and communicating information
Differences in tax systems - some nations have cut corporate taxes to attract FDI as a strategy to drive growth
Less protectionism - average import tariffs have fallen (however in more recent years import quotas/domestic subsides/regulations have hit)
What is a transnational corporation
base their manufacturing, assembly, research and retail operations in a number of countries
Examples include: Nike, Facebook, Apple, Netflix
How do TNC effect globalisation
They are a key driver of globalisation due to re-locating manufacturing to countries with relatively lower unit labour costs to increase profits and returns to shareholders
Some countries will have a comparative advantage at producing some types of good, therefore it makes sense to produce them there
Advantages from globalisation
- encorages produces/consumers to reap benefits from division of labour and economies of scale = gains in economic welfare
- More competitive markets reduces monopoly supernormal profits and incentives innovation
- drive faster economies growth = higher per capita incomes, reducing poverty in world economy
- freer movement of labour = stoping labour shortages
- Increases opportunities for LIC’s to borrow money to overcome savings gaps
- awareness of modern issues, like climate changes and income gaps
- May prompt governments to improve standards of labour protection etc
Disadvantages from globalisation
- Rising inequality leading to social/political tensions
- Environmental damage and exploitation of natural resources
- Macroeconomic fragility due to interdependency
- Trade imbalances
- Importing nations may suffer from structural unemployment
- Domination of global brands affecting smaller retailers
Impact of globalisation on the UK economy
- Expanded choice and higher consumer surplus
- Effects retail prices and rate of inflation
- Impact of UK firms relocating to lower-wage economies
- Impact on net migration on real wage and on UK gov revenue
- Impact of inward investment into UK on employment
- Impact on share prices and profits of UK companies
What would be examples of external shocks in a globalised world
- Global financial crisis
- Euro-zone economic crisis
- Volatile world commodity price
- Growth slowdowns in emerging nations
- International & Regional trade & investment deals
- Currency volatility and policy changes e.g. devaluations
- Extreme weather events
- Geo-political uncertainty from terrorism
What are external shcoks
are events that come outside a domestic economic system
Biggest, most recent examples: 2008 global financial crisis
External shocks could be bother negative and positive - like emergence of widespread adoption of technologies used by businesses and households in many countries
