6.1 Globalisation Flashcards
Define Globalisation
-Globalisation is the process by which economies have become more integrated and interconnected through global networks of trade, capital flows and through the rapid spread of technology and global media
What does globalisation involve?
-the free trade of goods and services,
-the free movement of capital and labour
-the free interchange of technology and intellectual capital.
Characteristics of globalisation
-increased trade to GDP ration
-increase in transfers of capital including FDI
-brands developed globally and labour has been divided between several countries.
-Increased migration
-more countries participate in global trade, such as China and India
-higher levels of investment
Additionally, countries have become more interdependent, so the performance of their own country depends on the performance of other countries.
This could be seen in 2008 and 2009, when the effects of the global credit crunch spread across the globe.
Factors contributing to globalisation in the last 50 years
-Trade in goods
-Trade in services
-Trade liberalisation
-Multinational corporations
-International financial flows
-Communications and IT
-Containerisation
Trade in goods…
-Developing countries have acquired the capital and knowledge to
manufacture goods.
-The efficient forms of transport make it easier and cheaper to transfer goods across international borders.
-Some developing
countries have the cost advantage of cheaper labour, so MNCs move their
production abroad.
-This causes developed countries to trade with these
developing countries, so they can access the same manufactured goods.
Trade in services…
For example, the trade of tourism, call centre services, and software
production has increased from developing countries to developed countries.
Trade liberalisation…
-The growing strength and influence of organisations such as the World Trade
Organisation.
-WTO advocates free trade and has contributed to the decline in trade barriers.
Multinational Corporations (MNCs)…
-MNCs are organisations which own or control the production of goods and
services in multiple countries.
-They have used marketing to become global,
-By growing, they have been able to take advantage of economies of
scale, such as risk-bearing economies of scale.
-The spread of technological knowledge and economies of scale has resulted in lower costs of production.
International financial flows…
-For example, the flow of capital and FDI across international borders has
increased.
-China and Malaysia have financed their growth with capital flows.
-The foreign ownership of firms has increased. There has been more
investment in factories abroad.
-The removal of capital controls has facilitated this increase.
Communications and IT…
-The spread of IT has resulted in it becoming easier and cheaper to
communicate, which has led to the world being more interconnected.
-There are better transport links and the transfer of information has been made
easier.
- This is sometimes referred to as the ‘death of distance’.
Containerisation…
-This has resulted in it becoming cheaper to ship goods across the world. -This causes prices to fall, which helps make the market more competitive.
-Containerisation means that goods are distributed in standard sized
containers, so it is easier to load and cheaper to distribute using rail and sea
transport.
-This helps to meet world demand.
-Cargo can be moved twenty times as fast as before, economies of scale can be exploited and less labour is required.
-However, it is mainly MNCs which have been able to exploit this, and it could
result in some structural unemployment.
Consequences of globalisation
-Individual countries
-Governments
-Producers and consumers
-Workers
-The environment
What is the impact on individual countries?
-There could be trade imbalances between countries.
-For example, the US runs a large current account deficit with China, who has a large current account surplus.
-There could be imbalances and inequalities in consumers’ and countries’ accesses to health, education and markets.
-Within individual countries, there could be income and wealth inequalities if the
benefits and costs of globalisation are not evenly spread.
-This is evident in China, where the population in the rural and urban areas have vastly different levels of income and living standards.
-Culture could spread across the globe. Some might say this has weakened culture and that there has been a loss of cultural diversity due to global brands.
-However, others will argue that the spread of culture has been positive and helped to improve their quality of life.
What is the impact on governments?
-Some governments might lose their sovereignty due to the increase in international treaties.
-Individual states would find it hard to resist the force of them, and if
countries become members of organisations, they will have to abide by their rules.
What is the impact on producers and consumers?
-Consumers and producers can earn the benefits of specialisation and economies of
scale as firms become larger.
-Firms operate in a more competitive environment, which encourages them to lower their average costs and become more efficient.
-Producers can also make their average costs lower by switching production to places with cheaper labour.
-The spread of technology has resulted in firms being able to
employ the most advanced machines and production methods.
Globalisation leads to a general increase in world GDP, which increases consumer
living standards and helps lift people out of absolute poverty.
-However, it is hard to calculate the proportion of growth which was due to globalisation.
-This rise in average consumer incomes could offset some of the lower costs of
production for firms.
-This is especially due to increased demand from China, which
has contributed to the increase in price of commodities, and therefore pushed up
the price of raw materials.
-Some consumers gain more from globalisation than others.
-There could be increased inequality.
-Consumers could take advantage of a wider range of goods and services because of
the increased availability of goods and services.
-However, some services might become homogenised, such as hotels.
