Factors contributing to increased globalisation

Question 1

What is globalisation?

Answer 1

• a process in which economies have become increasingly integrated and inter-dependent
• not inevitable- it can reverse, indeed the growth of world trade in goods and services slowed in recent years following the global financial crisis

Question 2

What is trade liberalisation?

Answer 2

“Freeing up” trade between nations

Removed trade barriers- tariffs, quotas

Question 3

Examples of trade liberalisation

Answer 3

• reducing regulations (deregulation)
• lessening/ removing restrictions- FDI
• removal of subsidies for domestic producers

Question 4

Strengths of trade liberalisation

Answer 4

• provides greater choice, better quality
• injection into economy
• address skill shortages
• access to wider markets
• diversify risks and allocate resources more efficiently

Question 5

Factor: containerisation

Answer 5

• costs of ocean shipping have come down, due to containerisation, bulk shipping and other efficiencies
• the lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacturer closer to those in exports
• makes markets more contestable globally

Question 6

Factor: technological

Answer 6

• rapid and sustained technological change has reduced the cost of transmitting and communicating information
• sometimes known as “the death of distance”- a key factor behind trade in knowledge products using web technology

Question 7

Factor: EOS

Answer 7

• many economists believe that there has been an increase in the minimum efficient scale associated with some industries
• if the MES is rising, a domestic market may be regarded as too small to satisfy the selling needs of those industries
• many emerging countries have their own transnational corporations

Question 8

Factor: differences in tax systems

Answer 8

• the desire of businesses to benefit from lower unit labour costs and other favourable production factors has encouraged countries to adjust their tax systems to attract FDI
• many countries have become engaged in tax competition between each other in a bid to win lucrative foreign investment projects

Question 9

Factor: shift from protectionism towards open trade

Answer 9

• old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled
• borders have opened and average import tariff levels have fallen
• however, in the last few years, there has been a rise in non- tariff barriers such as import quotas as countries have struggled to achieve real economic growth and as a response to persistent trade

Question 10

Factor: growth of MNCs

Answer 10

• in their pursuit of revenue and profit growth, increasingly global businesses and brands have invested significantly in expanding internationally
• this is particularly the case for businesses owning brands that have proved they have the potential to be successfully globally, particularly in faster growing economies fueled by growing numbers of middle class consumers

Question 11

Who benefits from globalisation?

Answer 11

• encourages producers and consumers to benefit from deeper division of labour and EOS
• competitive markets reduce monopoly profits and incentivise businesses to seek cost reducing innovations
• gains from sharing skills/ ideas/ technologies across national borders

Question 12

Drawbacks of globalisation

Answer 12

• inequality: rising inequalities in income and wealth- political tensions and financial instability
• inflation: strong demand for food and energy has caused a steep rise in commodity prices
• threats to environment: irreversible damage to ecosystems, land degradation, loss of bio diversity and the fears of a permanent shortage of water