4.1.1 Globalisation

Question 1

Globalisation

Answer 1

Refers to the increasing international interdependence of economic agents (producers, consumers, entrepreneurs, governments)

Question 2

Globalisation (Peter Jay’s definition)

Answer 2

The ability to produce any g/s anywhere in the world, using raw materials, components, capital & tech from anywhere, sell the resulting output anywhere & place profits anywhere

Question 3

Factors contributing to globalisation

Answer 3

• improvements in transport infrastructure & operations
• trade liberalisation & reductions in trade barriers
• improvements in communications
• transfers of money
• improved mobility of labour
• transfer to tech
• FDI encouragement

Question 4

Factors contributing to globalisation (improvements in transport)

Answer 4

• containerisation and the transportation of goods: reduced costs, high security & increasingly rapid transit times

Question 5

Factors contributing to globalisation (trade liberalisation)

Answer 5

• trade liberalisation & reductions in trade barriers through multi-lateral agreements facilitated by the World Trade Organisation & regional trading blocs (e.g MCA which replaced NAFTA)

Question 6

Factors contributing to globalisation (improvements in communications)

Answer 6

Improvements in communications tech & IT (especially the internet, allowing a global media presence - from telex to fax to email/social media)

Question 7

Factors contributing to globalisation (transfers of money)

Answer 7

Transfers of money are secure & straightforward (the developments of international financial markets)

Question 8

Factors contributing to globalisation (mobility of labour)

Answer 8

Improved mobility of labour: skilled workers are more able to move around

Question 9

Factors contributing to globalisation (transfer of tech)

Answer 9

Transfer of tech: creativity & processes (& expertise) may emanate in one country & be applied to another

Question 10

Factors contributing to globalisation (FDI)

Answer 10

FDI encouragement (the increased number & influence of global transnational companies)

Question 11

MNCs

Answer 11

Multi national corporations

Question 12

Positive impacts of globalisation

Answer 12

1) increased global output
2) increased living standards
3) has allowed LDCs access to world markets
4) MNCs are no longer restricted by geography

Question 13

Positive impacts of globalisation (increased global output)

Answer 13

• it has stimulated global output through specialisation (comparative advantage)
• e.g manufactures in China, extractive resources in SSA, agricultural commodities in Latin America)

Question 14

Positive impacts of globalisation (increased living standards)

Answer 14

• access to a global market means a larger market = greater quality, greater consumer choice & lower prices due to more competition so domestic firms must compete internationally
• international competitive pressure has put a downward pressure on prices, increased consumer surplus and decreased inflation (pre covid)
• owner prices also due to greater economies of scale in production & supply

Question 15

Positive impacts of globalisation (help LDCs)

Answer 15

• export-oriented growth strategies have been pre-eminent in allowing LDCs access to world markets.
  Generally LDCs have benefitted from this process as global demand for primary produce increase
• e.g de-industrialisation in developed countries, combined with a global search for new sources of energy (especially oil/gas reserves) and the growth of economies such as China has left many ‘Western’ countries concerned about their future & their power in the global economy

Question 16

Positive impacts of globalisation (increased global output) evaluation

Answer 16

• However not all workers have transferable skills, causing unemployment
• globalisation = increased footloose companies = unemployment as they move from country to country; global sourcing should be considered in the light of activity by TNCs

Question 17

Positive impacts of globalisation (increased living standards) evaluation 1 (covid)

Answer 17

However, post covid disruption of supply chain & stock shortages on the supply side have crashed against pent up demand (lock-down resulted in a surplus of unspent incomes) & inflation has spiked
- close to 10% in the developed world

Question 18

Positive impacts of globalisation (increased living standards & LDCs access to world markets) evaluation 2

Answer 18

• However, not everyone will face increased living standards. Some LDCs have missed out on the beneficial aspects of globalisation & countries who retained trade barriers have missed out on (lower prices, greater choice & quality)
• benefits only disproportionately enjoyed by consumers in MDCs & low skilled workers in countries that have seen their jobs move to areas able to produce at lower cost (E.g central USA)
• differences in geolocation climate, infrastructure & human capital aspects has meant uneven benefits

Question 19

Positive impacts of globalisation (LDCs access to world markets) evaluation 1

Answer 19

Also workers from LDCs may be exploited by larger global (transnational) countries. Countries might take advantage of lower labour costs in LDCs & tech expertise in HDCs.

Question 20

Globalisation impact of relationships

Answer 20

Globalisation has causal a revised world economic dear with more of a pivot to Asia as well as tensions between EU/USA & Chin. The speed of the rise of China as a global economy superpower is without precedent & outstrips even GB’s dominance in the industrial revolution of the 1860s, let alone the USA’s rise post 1945
- more recently, globalisation process was running in reverse (deglobalisation due to nationalism, populism & geopolitical tensions

Question 21

Positive impacts of globalisation (LDCs access to world markets) evaluation 3- culture

Answer 21

Cultural homogenisation has been apparent. Local cultures can be diluted by ‘Americanisation’ & an Anglo-centric way of operating. Some states are particularly sensitive to this e.g Saudi Arabia, France

Question 22

Negative impacts of globalisation

Answer 22

• increasing environmental destruction & other neg externalities e.g rising greenhouse gases from increased transportation of goods associated with the increase in international trade
• good being transported large distances may have a detrimental impact

Question 23

Vietnam Economic growth

Question 24

Advantages of buffer stock scheme

Answer 24

reduced commodity price fluctuations, there is a greater certainty in the market leading to more investment. There is also ensured provision of commodities for consumers even in years of poor harvest.

Question 25

Disadvantages of buffer stock scheme

Answer 25

the costs for storage and security of the stockpiles which leads to an opportunity cost as the government cant spend money in other sectors. If supply continues to increase without disruption then it will mean the government has to purchase more surplus stock and store which may become more expensive. Conversely their may be an event which causes a decrease in the supply which would mean the government has to use up its stockpile, if this continues and the government runs out of stock then the market price will eventually exceed the maximum price and so render the buffer stock system inept. The price range may be inaccurately set in the first place which would also cause problems. The stocks may be perishable over a long period of time which means the government can lose money if it has to destroy stock.

Question 26

How may globalisation lead to income inequality?

Answer 26

• through the increasing specialisation & trade
• higher profits for mullitnational corporations
• increasing demand for higher skilled workers

Question 27

How can globalisation increase inequality through specialisation?

Answer 27

• specialisation in comparative advantage = stimulate growth = rise in per capita income = per capita income
• if a country can import cheaper steel from elsewhere = a contraction in domestic supply & fall in employment & real incomes in the industry = higher rates of structural unemployment = decline in real living standards
• real wages come under downward pressure & inequality can increase

Question 28

Example of globalisation increasing income inequality

Answer 28

• in regions of the UK where de-industrialisation has taken place = much higiher rates of long-term unemployment & worsening of economic/social deprivation

Question 29

Evaluation of globalisation increasing inequality through specialisation

Answer 29

• the benefits of globalisation can be used to offset this
• if trade generates faster GDP growth = increase in tax revenue = used to fund capital investment in public/merit goods (e.g improvements to infrastructure in economically-depressed areas)
• depends on whether a govt has sufficient resources & political will to implement an industrial policy to improve employment prospects for those negatively affected by globalisation

Question 30

How can globalisation increase inequality due to multinational corporations?

Answer 30

• leads to higher profits for multinational corporations e.g Apple, Google and Facebook which feed into generous pay-outs for senior executives and increasing dividends for shareholders.
• Multinationals matter - they generate 10 percent of the world’s annual GDP and more than 50 percent of the value of world trade
• the ability of businesses operating in more than one country (a transitional company) to use shadow pricing and other forms of legal tax avoidance to reduce their liability to pay tax and thereby increase the return to those with an equity stake. Because of tax avoidance, national governments do not generate the revenues needed to pay for public services and welfare systems - both of which can have a progressive effect on the final distribution of income. T

Question 31

Evaluation of globalisation increasing inequality due to multinationals

Answer 31

• governments can increase their tax take by introducing country-by-country financial reporting = clearer where the profits are being made or to introducing restrictions on interest rates charges from one subsidiary of a TNC to another.
• In the US, introduced a one-off tax on the off-shore cash held by US businesses after it was found that US companies had built up almost $2.6tn in untaxed cash held offshore.

Question 32

How can globalisation increase inequality by demand for higher skilled workers?

Answer 32

• increasing the demand for & returns to higher-skilled work & lowering the expected earnings of people in relatively low-skill and low-knowledge occupations.
• One of the driving forces of FDI is that resources tend to flow where the unit cost of production is lowest.
• This is the case with light manufacturing e.g where a lot of investment is flowing to countries e.g Vietnam, Bangladesh,
• FDI creates more formal employment and incomes for people employed in these sectors but perhaps at the expense of similar workers in higher-income countries whose skills are no longer in such demand. T
• hey are therefore at greater risk of unemployment and persistent relative poverty;