Globalisation Flashcards
What is globalisation?
Globalisation is a process by which the worlds economies are becoming closely integrated. It refers to the increasing interdependence of economic agents.
Characteristics of globalisation
1) increase in trade of goods and services globally.
2) increase in foreign ownership of countries
3) Deindustrialisation in developed countries.
4) increased global media presence
5) migration
6) increase in technology.
Factors contributing to globalisation in the past 50 year
1) improvements in transport infrastructure and operations (eg containerisation)
2) increase in technology and IT (email, ecommerce)
3) increased freedom of movement for workers (fill in the skills gap)
4) trade liberalisation (reduction in barriers to trade)
5) decreased regulation of financial market
6) increased number of global companies (51 of top 100 largest economies were transnational)
What is a transnational company?
It’s a company that trades globally but doesn’t identify as working in one specific area. It reacts to local economic conditions.
What a company may want to become more multinational?
1) gain a cost advantage to increase competitiveness.
2) reach out to more consumer markets.
3) be closer to raw materials or suppliers.
What is foreign direct investment?
Investment made to have a lasting interest in enterprises outside of the economy of the investor.
It usually consists of a foreign partner and a parent company. The parent company must run the foreign partner.
Why may a country attract FDI?
1) high income per capita indicates increasing AD.
2) Government subsides or tax.
3) membership of a trade bloc.
4) stable economic conditions.
5) political stability.
6) well educated and stable workforce.
Possible benefits of FDI
1) injection into the economy
2) AD shift outwards
3) increased employment -> reduce inequality gap.
4) increased investment in training -> more efficient work force.
5) domestic producers incentivised to become more competitive.
6) increased productive potential.
Possible disadvantages of FDI
1) footloose business can cause unemployment
2) too dependent on it.
3) cut Corporation tax -> reduced tax revenue.
4) domestic firms become uncompetitive.
5) inflation may increase slightly.
What causes a global downturn?
1) financial crisis in one country could impact the world.
2) emerging countries affect world trade.
3) sharp rise in price of oil.
Advantages to businesses of globalisation?
1) source raw materials cheap
2) outsource production to country with low costs
3) can gain economies of scale by emerging internationally.
Disadvantages to a business of globalisation?
1) Increased transport costs
2) Structural unemployment
3) expanding too much can cause diseconomies of scale.
4) local producers pushed out by bigger brands.
Advantages to workers of globalisation?
1) job opportunities.
2) if business have increased profits the workers may see higher wages.
Disadvantages to the work of globalisation?
1) footloose business means less job security.
2) Structural unemployment if they don’t have transferable skills.
3) if countries relocate they lose jobs.
Advantages to the consumer of globalisation
1) wider product choice.
2) business can specialise leading to lower prices.
3) lower prices can increase standard of living.
Disadvantages to the consumer of globalisation
1) inequality - focus on countries with profit.
2) demand pull inflation
3) more dependency on that sector means if it fails the economy will suffer.
4) tariffs could increase prices.
Advantages of globalisation to the economy
1) economic growth
2) increased tax revenue.
3) is a country’s businesses are more competitive can lead to improvements in trade balance.
4) country feels more secure due to trading links.
Disadvantages of globalisation on the economy
1) unemployment
2) macroeconomic fragility
3) import more than you export can have trade deficit.
4) High tariffs can be damaging
