4.1.1 - Globalisation (Impact of Globalisation) Flashcards
Stakeholders of Globalisation
. Consumers
. Workers
. Producers
. Governments
. Environment
. Individual Countries
Explain Consumer Choice (Impacts Consumers)
. Availability of goods and services has increased leading to more consumer choice.
. Better for economy as more spending, hence more tax revenue
. Some argue that goods have become homogenised (e.g. McDonaldization)
Explain Prices (Impact Consumers)
1.) Globalisation leads to fall in price of some goods and services
. This is as production is being switched by high cost locations to low cost locations
E.g. If apple phones were produced in China instead of USA, costs of phones will fall and cost of production is lower due to Chinese workers willing to work for lower wages. Also China has a larger market for phones, due to a larger population
2.) However some goods and services increase in price.
This is as globalisation leads to increased wages by providing jobs through MNCs. This results in demand pull inflation and increase price
Explain Income
(Impacts Consumers)
. Globalisation has raised wages around the world and therefore more goods are bought
. But some workers may lose their jobs and lose income if factories are off-shored to different locations. This happened during deindustrialisation of the UK.
Explain Employment and Unemployment
(Impacts Workers)
. Transfer of manufacturing factories to developing countries has led to job losses in developed countries and increased employment in developing countries such as China
. This is structural unemployment
Explain Migration
(Impacts Workers)
. Economics migrants are people who move from one country to another in search of jobs to improve their standard of living
. Globalisation increase migration due to job opportunities abroad and better standard of living
. Skill gaps can be filled in certain sectors. Migrants can also set up businesses, which can create more jobs
. But immigration places strains on housing, education, healthcare, etc.
Explain Wages
(Impacts Workers)
. Globalisation shifts workers and places of work to different locations
1.) Unskilled workers compete for jobs against other residents of the UK as well as other unskilled workers abroad (e.g. factory workers). This depresses the wages of unskilled workers in developed countries.
. Inequality increases in developed countries as their downward pressure on low - skilled workers and upward pressure on high skilled workers
2.) But workers in developing countries (e.g. India), regardless of their skills are in high demand and have see wages increases
. MNCs provide more jobs in developing countries. Workers are also trained and educated, which increase their human capital and productivity. This benefits the country.
. Inequality decreased in developing countries
Explain Costs and Markets
(Impacts Producers)
1.) Globalisation allows firms to source products and cheap labour from a variety of countries and firms
. Wider networks mean the lower the price at which firms buy and lower costs for labour
2.) Globalisation also opens markets by selling to countries that had previously closed trade or had insufficient incomes to buy goods.
E.g. Since Iphones are manufactured in China, Apple (US company) can easily sell to the Chinese market with lower costs.
Explain Specialisation
(Impacts Producers)
. Globalisation results in increased specialisation and trade resulting in economic agents dependent on each other
. Specialisation can increase risks because trade links can break down. For example, if trade sanctions on a country such as Russia are imposed, it can destroy a market for a UK firm selling or manufacturing in Russia
Explain Tax Avoidance
(Impacts Producers)
Firms operating in several countries (i.e. TNCs) can avoid tax in three ways:
1.) Transfer production facilities to a low tax country such as Ireland.
2.) Set up office in low tax country like Bahamas. Ownership of key production like patent is then assigned to that country.
Then a significant proportion of costs is assigned to that key production element, which eliminates all profit made in other countries.
The revenues are then taxed in the tax haven country at a low percent. The MNC avoids tax
3.) Transfer Pricing : when a firm produces good x in country A, then transports to country B to turn into good y to sell.
Country A has high taxes on profit, but country B has low taxes on profit
MNC reduces profit tax by selling goods at low price for product made in Country A before sending to Country B.
Profits are then reduced in country A and increased in country B, resulting tax saving
Impact on Environment
. More pollution if there is more trade, people working, demand for goods
Impact on Individual Countries
1.) Countries benefit if globalisation leads to rising incomes, better and more quality jobs, lower prices , more tax revenue and more choice
2.) They lose out if globalisation leads to loss of industry, higher unemployment, less tax revenue and lower wages.
. For example, a MNC moving car manufacturing site from UK to China results in fewer jobs, fewer exports and less tax revenue
. A government may adopt by lowering taxes for companies or giving subsidies to multinationals to set up facilities in the country
