Extract One Flashcards
Globalisation Definition
The process in which national economies have become increasingly integrated and interdependent.
Factors promoting Globalisation
- Reduction in protectionism
- Reduction in international capital movement restrictions
- Fall in real transport costs
- Developments in IT and communication
Reduction in protectionism
Removal of tariff’s, quotas ect that remove trade to allow trade/globalisation, more integration.
Reduction in international capital movement restrictions
Foreign direct investment to flow from developed countries to developing countries, more freely, where emerging economies have benefitted from FDI/MNC.
Fall in real transport costs
Incredibly easy for firms to transport their goods, with the increasing economies of scale of shipping/air cargo, getting larger.
Developments in IT and communication
Global supply chains can be managed in an effective way, across the world.
Costs of Glabalisation
- Income inequality
- Structural unemployment
- Greater effect of external shocks
- Environmental costs
Income inequality
Certain governments through corruption, higher growth rates may not transpire to higher incomes to all, macro objective of fair distribution of income not met, parts stay in poverty.
Structural Unemployment
The greater competition may lead to decline in infant industries, may not have economies of scale or capital to compete internationally. Macro objective of low unemployment increase poverty/dependancy.
Environmental Costs
High costs, high FDI an increasing focus on growth creating negative externalities with air pollution, resource depletion and degradation, not sustainable for future generations.
External Shocks
More reliant/dependant on each other, reducing incomes/prosperity levels, unemployment increase benefits, harm the balance of payments.
Benefits of Globalisation
- Improved allocation of resources
- Higher GDP growth
- Technology transfer
- Reduced trade restriction
- Lower costs
Higher Growth
Allows countries to exploit their comparative advantage, where specialisation maximises export revenue. AD (component)/demand increases unemployment reduce.
Improved allocation of resources
Countries export their specialised comparative advantage and import the things they cannot produce efficiently, resources are diverted to best producers, solving economic problem.
Reduced trade restriction
Reduces protectionism increases market size and consumer welfare increases from greater access to g/s and allocative efficiency.