Globalisation

Question 1

Define Globalisation.

Answer 1

The shift toward a more integrated world economy, where interconnectedness is widening and speeding up in all aspects of social life, from cultural to the financial.

Question 2

Give 3 negative’s of Globalisation?

Answer 2

1. Undermined labour and environmental standards.
2. Exacerbated the gap between rich and poor, both among and within countries.
3. Critics warn of a destructive “race to the bottom”, as advanced nations are forced to weaken labour and environmental standards to compete with less-regulated producers in developing nations.

Question 3

Give 2 characteristics of Globalisation.

Answer 3

1. Shifts within countries towards market-driven systems of production.
2. The increasing international economic integration of countries through trade, investment and migration.

Question 4

What aspect of Globalisation do Economists focus on?

Answer 4

The growth of international trade and increase in international capital flows.

Question 5

What aspect of Globalisation do Political Scientists focus on?

Answer 5

A process that leads to the undermining of the nation state and the emergence of the nation state and the emergence of new forms of governance.

Question 6

What aspect of Globalisation do Sociologists focus on?

Answer 6

The rise of a global culture and the domination of the media by global companies.

Question 7

What aspect of Globalisation do International relations experts focus on?

Answer 7

The emergence of global conflicts and global institutions.

Question 8

What drives Globalisation?

Answer 8

1. Economic pressures
2. The finance industry
3. Trans-National Corporations
4. Neo-Liberal Politicians/Governments

Question 9

Why do businesses go global?

Answer 9

• Domestic Markets Saturated
• Production Costs
• Economies of Scale
• Minimum Efficient Scale
• Better Profits in Foreign Markets
• Product Life Cycles
• Taxation Policies

Question 10

Economic factors for going global?

Answer 10

• Comparative Cost Advantages
• Removal of Trade Barriers
• Internationalisation of Finance
• Search for ever higher Profits
• Rising Incomes around the world
• Technology & Communications
• Lower Transport Costs (containerisation)

Question 11

What are MNC’s?

Answer 11

1. A corporation that has its facilities and other assets in at least one country other than its home country.
2. They will control the stages of production & distribution.
3. They take advantage of geographical differences in the distribution (& cost) of factors of production and of differing government policies (esp. re tax/labour laws)

Question 12

Key Aspects of Globalisation.

Answer 12

• The 20% of the world’s population living in rich countries still get 85% of its GDP.
• The poorest 20% have 1% of world GDP
• One in five live on less than 2$ a day
• The gap between rich and poor widening.

Question 13

Why has Globalisation increased?

Answer 13

1. Developments in ICT, transport and communications have accelerated the pace of globalisation over the past 30 years.
2. Increasing capital mobility has also acted as a stimulus to globalisation.
3. The development of complex financial products, such as derivatives, has enabled global credit markets to grow rapidly.

Question 14

Why has Globalisation increased? (2)

Answer 14

4. Trade has become increasingly free, following the collapse of communism, which has opened up many former communist countries to inward investment and global trade.
5. The growth of multinational companies (MNCs) and the rise in the significance of global brands like Microsoft, Sony, and McDonalds.

Question 15

Advantages of Globalisation (1)

Answer 15

1. It provides an incentive for countries to specialise and benefit from the application of the principle of comparative advantage.
2. Access to larger markets means that firms may experience higher demand for their products, as well as benefit from economies of scale, which leads to a reduction in average production costs.
3. Enables worldwide access to sources of cheap raw materials, and this enables firms to be cost competitive in their own markets and in overseas markets.

Question 16

Advantages of Globalisation (2)

Answer 16

4. Avoidance of regulation by locating production in countries with less strict regulatory regimes, such as those in many (LCDs).
5. It’s led to increased flows of inward investment between countries, which has created benefits for recipient countries.
6. In the long term, increased trade is likely to lead to the creation of more employment in all countries that are involved.

Question 17

Disadvantages of Globalisation (1)

Answer 17

1. The over-standardisation of products through global branding - leads to a lack of product diversity, as well as presenting barriers to entry to small, local, producers.
2. Large multinational companies can also suffer from diseconomies of scale.
3. The increased power and influence of multinationals - MNCs can operate as local monopsonies of labour, and push wages lower than the free market equilibrium.

Question 18

Disadvantages of Globalisation (2)

Answer 18

4. The potential loss of jobs in domestic markets caused by increased, and in some cases, unfair, free trade.
5. Can also increase the pace of deindustrialisation, which is the slow erosion of an economy’s manufacturing base.
6. The increased risk associated with the interdependence of economies - As countries are increasingly dependent on each other, a negative economic shock in one country can quickly spread to other countries.

Question 19

The impact of globalisation on the UK economy. (1)

Answer 19

1. Growth
   Globalisation is likely to increase UK growth in the long term because aggregate demand (AD) is likely to increase through increased exports (X), and aggregate supply (AS) is likely to increase because of higher levels of investment, both domestic and foreign direct investment (FDI).

The recent credit crunch is evidence that unstable growth is a possible consequence of globalisation.

Question 20

The impact of globalisation on the UK economy. (2)

Answer 20

2. Employment
   Long term, jobs may be destroyed in the manufacturing sector and created in the service sector, hence creating structural unemployment, which could widen the income gap within countries.

The net effect of the impact on employment depends upon the speed of labour market adjustment, which itself depends upon mobility and flexibility. Improvements in labour productivity may be needed to close the productivity gap.

Question 21

The impact of globalisation on the UK economy. (3)

Answer 21

3. Prices
   Increased competition is likely to reduce the price level, for traded manufactures. Because UK firms can source from around the world costs may be held down, and this may be passed on in terms of reduced domestic and export prices.

Question 22

The impact of globalisation on the UK economy. (4)

Answer 22

4. Trade
   The volume of both imports and exports is likely to increase, with trade representing an increasing proportion of GDP.
   The effect on the balance of payments is uncertain and depends upon relative growth rates, inflation, competitiveness, and the exchange rate.

Question 23

Define Economies of Scale.

Answer 23

A proportionate saving in costs gained by an increased level of production.

Question 24

Define Foreign Direct Investment (FD).

Answer 24

An investment made by a company or entity based in one country, into a company or entity based in another country.

Question 25

Give an example of an economic crisis from Globalisation

Answer 25

Asian Financial Crisis (1997)
-Ration of financial company debt to GDP in the US soared from 16% to nearly 116% between 1975 and 2007.

-The trigger was the bursting of the US real estate bubble which peaked in 2006. - It rapidly spread into a global crisis with the failure of several large financial institutions, the bailout of banks by national governments and dramatic falls in the values of stock markets.