4.1.1 Globalisation

Question 1

What are developed countries?

Answer 1

Richer, industrialised countries such as the UK, Japan and Australia. They have high GDP per capita figures.

Question 2

What are developing countries?

Answer 2

These countries largely rely on manufacturing, agriculture and other labour-intensive industries. They’ll have low GDP per capita figures are lower standards of living than developed countries.

Question 3

What are emerging countries?

Answer 3

Developing countries which are not yet developed - but they are further along the development process than other developing countries.

Question 4

Globalisation

Answer 4

The increasing integration of economies internationally.

Question 5

Main characteristics of globalisation

Answer 5

• The free movement of capital and labour across international boundaries.
• Free trade in goods and services between different countries.
• The availability of technology and intellectual capital (e.g. knowledge of employees) to be used (and patented) on an international scale.

Question 6

Examples of how globalisation involves political and cultural factors?

Answer 6

• For example, international bodies, such as the United Nations (UN), tend to lead to a convergence of political decisions – i.e. there are more joint decisions made between countries, and more international cooperation.
• Examples of cultural globalisation include the spread of things such as McDonalds and Yoga across the world.

Question 7

TNCs

Answer 7

Firms which function in at least one other country aside from their country of origin – e.g. Nissan and KFC.

Question 8

Factors which attract TNCs to invest in a country

Answer 8

• The availability to cheap labour and raw materials
• Good transport links
• Access to different markets
• Pro-foreign investment government policies

Question 9

Trade liberalisation

Answer 9

The reduction or removal of tariffs and other restrictions on international trade (i.e. reducing protectionism). Countries might negotiate these trade agreements using the World Trade Organisation (WTO).

Question 10

How has globalisation made communication easier

Answer 10

The internet is making the communication needed for international trade easier and cheaper.

Question 11

Foreign direct investment (FDI)

Answer 11

Where a firm based in one country makes an investment in a different country.

Question 12

Positives effects of TNCs

Answer 12

• FDI by MNCs creates new jobs and brings new skills and wealth to an economy.
• MNCs also buy local goods and services, leading to inflows of foreign currency. Local suppliers to a particular MNC may be able to expand their business by exporting their goods to branches of that MNC in other countries.
• MNCs can benefit from economies of scale, helping them to be more efficient, i.e. they can produce products more cheaply.
• Some people believe MNCs raise living standards by providing employment.

Question 13

Negative effects of TNCs

Answer 13

• Some people argue MNCs exploit workers in developing countries by paying them low wages.
• MNCs can force local firms out of business – for example, because local firms might be unable to obtain similar economies of scale, they’ll be less competitive.
• MNCs can relocate rapidly and cause mass unemployment.
• They can withdraw profits from one country and place them in another with low tax rates – so the former country won’t be able to gain tax revenue from other profits.
• They can use their economic power to reduce choice and increase profits.
• MNCs can influence government policies in other countries to their advantage, which can be unfair to local people or unhelpful to the domestic economy.
• Governments may be forced to reduce corporation tax levels to attract of keep MNCs in their country.

Question 14

Benefits of globalisation

Answer 14

• Trade encourages countries to specialise in the goods and services they’re best at producing/providing, which increases output.
• So globalisation can allow countries to produce the things where they have a comparative advantage, leading to an improvement in efficiency and the allocation of resources.
• Lower production costs are also sometimes passed on to consumers in the form of lower prices.
• Globalisation provides consumers with a greater choice of goods and services to purchase.
• World GDP has risen as a result of globalisation due to many factors – for example, increased efficiency means firms can increase output. Countries which aren’t open to trade have seen a reduction in their growth rates.
• Globalisation has also helped to improve living standards and reduce the levels of absolute poverty in the world. A key reason for this is because levels of world employment have increased, as increased output has led to the creation of more jobs.
• Increased growth and employment help governments to achieve two of their macroeconomic objectives.
• There has been an increased awareness of, and quicker response to, foreign disasters (e.g. earthquakes) and global issues (e.g. deforestation) and their consequences.

Question 15

Drawbacks to globalisation

Answer 15

• Globalisation is causing the price of some goods and services to rise – increasing world incomes lead to increasing demand for goods and services, so when supply is unstable to meet this demand, prices rise.
• Globalisation can lead to economic dependency (i.e. countries’ economies being dependent on each other), so this can lead to instability in economies – for example, if the US economy goes into a recession and reduces its imports, this may cause European economies to go into a recession too.
• Increasing world trade has led to global imbalances in the balance of payments current account. Some countries (e.g. USA) have large deficits, whilst others (e.g. China) have large surpluses. These balances are unsustainable, leading to calls for increased protectionism.
• Specialisation can lead to overreliance on a few industries by an economy, which is risky.
• Individual firms may be outcompeted by foreign firms and go out of business.

Question 16

Impact of globalisation on the environment

Answer 16

• Deforestation – from logging for wood and the clearing of forests for factories or farmland.
• Increasing depletion of other non-renewable resources, e.g. metal ores.
• Environmental degredation. For example, international trade leads to an increase in the international transportation of goods – this means more fossil fuels are used, contributing to climate change and causing resource depletion.
• Carbon emissions are also increased by, for example, rising production levels of manufactured goods to meet rising global demand.

Question 17

Consequences of globalisation for developing countries

Answer 17

• Most of the profits of TNCs return to their home countries, rather than staying in host countries. This doesn’t help to tackle poverty and may increase inequality.
• Skilled workers often leave developing countries to work in more developed countries. This reduces the developing country’s potential for economic growth.
• Local companies may suffer if they’re competing with TNCs.
• However, globalisation creates jobs, reducing unemployment. MNCs may create skilled, relatively well-paid jobs in developing countries, and may also offer a more reliable income than other jobs. However, MNCs may exploit less skilled workers by offering very low wages.
• MNCs often bring more efficient production methods and technology to developing countries, having positive knock-on effects on their productivity and economy.
• There’s an increase of investment in developing economies – e.g. through FDI.

Question 18

Consequences of globalisation for developed countries

Answer 18

• Cheap overseas production of goods has led to a severe reduction in some industries in developed countries, causing structural unemployment. For example, cheap clothes from countries such as Bangladesh have contributed to the collapse in the textiles industry in the UK.
• Such collapses lead to de-industrialisation, which has further impacts on economics – such as a fall in exports.
• The success of emerging economies, e.g. China and India, impacts on developed countries – for example, emerging economies’ share of global GDP has increased at the expense of more developed nations.
• Increased levels of imports result from increased trade and have a negative effect on a country’s balance of payments.
• Globalisation gives countries greater access to cheap raw materials and semi-manufactured goods from other countries, which can be used in the production of domestic goods. These goods can be exported or sold domestically.
• MNCs gain access to cheap labour, which leads to lower production costs and lower prices for consumers.