Chapter 1 - Globalisation

Question 1

Define Globalisation

Answer 1

Globalisation is the creation of linkages between nations. It is a process in which barriers separating different regions of the world are reduced or removed stimulating the exchange of goods and services.

Question 2

Globalisation advantages

Answer 2

Promotes mutual reliance, able to enter new markets, opens up greater choice, lower prices for goods and services and labour/investment

Question 3

Globalisation disadvantages

Answer 3

Vulnerable to events in foreign economies, threat to domestic producers

Question 4

Indicators of globalization:

- Financial flows
- Migration

Answer 4

• International trade of goods and services through imports/exports
• Financial flows
  o Foreign indirect investment: Transfer of money capital across borders where firm uses money to purchase financial assets in another country
  o Foreign direct investment: Firm establishes, acquires or increases production facilities in a foreign control – full ownership and control over asset.
• Migration
  o Liberalization of labour flows between developed and developing countries
  o Voluntarily: To find work, earn higher wages, reunite with family
  o Involuntary: Forced to migrate due to political instability and violation of human rights

Question 5

Drivers of globalization:

Answer 5

• Political/ legal: Governments increase economic and political linkages but signing treaties
  o Free trade agreements: Member states remove tariffs for other members
  o Customs union: Free trade but members agree to levy a tariff from non-members
  o Common market: Customs union with addition member states allow free movement of goods/services, capital and labour
• Technological: Improvements in communication and reduction in transport has facilitated movement of goods and services
  o Can connect/interact over long distances
  o Easier for MNCs to control foreign operations
  o Firms may globalize if they have outgrown domestic market or reduce costs by achieving economies of scale

Question 6

Barriers to Globalisation:

Answer 6

• Government regulation – policies can hinder flow of goods/services and movement of capital and people across borders
• Tariffs/subsides – high on import of goods
• Controls on capital – foreign direct/indirect investment