Factors contributing to increased globalisation Flashcards
Define globalisation.
Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange.
The biggest companies are no longer national firms but multinational corporations (MNCs) with subsidiaries in many countries.
Global markets are international markets created by firms exporting, importing or offshoring
Define trade liberalisation.
Trade liberalisation is the process by which international trade is made easier through relaxation of tariffs and barriers
In 1947 General Agreement on Tariffs and Trade (GATT) was created
The world felt the benefits of many rounds of multilateral trade liberalisation
It raised living standards around the world as it allowed developing nations to export their goods to more industrialised ones, without having to pay huge tariffs
What are the benefits of the GATT?
GATT meant new jobs for unskilled workers
Countries enjoyed trade benefits of between $250 and $680 billion dollars income a year
Labour intensive production manufacturers in developing nations, enjoyed comparative advantage because of low labour costs
What is the World Trade Organisation?
WTO was created by GATT in 1994 and exists to reduce barriers to trade and to ensure that countries keep to the agreements they have made
The organisation also deals with complaints between members, organising negotiations and, if necessary, making judgements against a country
It encourages trade liberalisation by operating a system of trade rules and by providing a forum for the negotiation of trade disputes
Why are tariffs imposed?
Governments want to protect their domestic businesses so they use; tariffs, quotas and legal regulations to slow the rate of imports coming into a country
They might want to stop imports which will compete with state monopolies
Tariffs also generate important sources of income for poorer countries
Liberalisation is the easing or dropping of these measures
What are the benefits of trade liberalisation?
Trade liberalisation is the process of taking down the barriers to trade between nations, removing quotas and tariffs
Consumers ultimately benefit because liberalised trade can help to lower prices and broaden the range of quality goods and services available – because they are now allowed to buy imported goods
What are the benefits to business of trade liberalisation?
Companies can benefit because liberalised trade diversifies risks and channels resources to where returns on investment are highest
Trade openness also means; competition, investment and increases in productivity
The main industries in Uganda that have benefitted: Sugar , beverages, tobacco , cotton textiles, cement and steel production
What are the drawbacks of trade liberalisation?
Competition can intensify between businesses, between nations and profit margins can end up being squeezed
Employment that has been created by lower trade barriers, may only be temporary or menial
Increased trade can mean pollution or over-cultivation of land to keep up with new demand
Developing nations can become economically dependent on industrialised ones
How has political change led to increased globalisation of markets?
Politics used to be only carried out by individual governments who wanted to protect the interests of their country.
Politics now happens on a global scale with regular meetings between heads of state, summits, where power devolved to governments in trading blocs such as the EU and organisations such as the WTO.
This has led to less protectionist policies (tariffs quotas etc) and more open trade between nations. The planet is now one market.
What are the G7 countries?
The Group of 7 (G7) is a group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
These countries are the seven major advanced economies as reported by the International Monetary Fund: the G7 countries represent more than 64% of the net global wealth ($263 trillion).
A very high net national wealth and a very high Human Development Index (HDI) are the main requirements to be a member of this group.
Explain the impact of reduced transportation costs on globalisation?
Cost of transporting goods long distances between countries has been reduced by cargo containers
Can gain a business EOS as they can ship huge quantities at once
There are also cheaper air flights for business people needing to attend meetings in other countries
Explain the impact of reduced communication costs on globalisation?
Communication and trade via the Internet has meant an explosion in globalisation and has been a huge catalyst for change
Messages can be sent instantly and for free via telecommunications systems such as e-mail or Skype
Far flung countries are no longer isolated from the global marketplace
Explain the impact of increased significance of MNCs on globalisation?
Globalisation has been caused by some large companies setting up or buying existing businesses in other countries
These businesses that operate in other countries are called MNCs and are from the developed countries (G7)
E.g. Starbucks, Coca Cola
Explain globalisation caused by FDI.
Businesses outside of important market trading blocs will invest in a business or set up production inside the trading bloc to get round tariffs, e.g. Honda, Nissan and Toyota manufacturing in the UK.
This has lead to globalisation, more companies in more countries.
Can give a country income generation, jobs, GDP growth, skills transfer, and the local businesses will experience the multiplier effect etc.
Explain globalisation caused by migration.
Many countries maintain extensive legal barriers to prevent foreigners seeking work or residency from entering their national borders.
But in the EU there is free movement of people between nations to work (at the moment, may change after Brexit)
Immigration provides a source of low income, able bodied workers
