Globalisation

Question 1

Define globalisation

Answer 1

Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange.

Question 2

What are MNC’s?

Answer 2

Multinational corporations are large and powerful businesses that have factories that make products and offices that sell products in different countries.

Question 3

What are the results of globalisation? (5)

Answer 3

• Increased international trade.
• A company opperating in more than one country.
• A greater dependence on the global economy.
• Freer movement of capital, goods, and services.
• Recognition of companies, such as Mc Donalds, in loss economically developed countries.

Question 4

What are the indicators of globalisation? (5)

Answer 4

• Rapid advances in communications and transport.
• Growth of MNC’s.
• Access to new markets.
• Opening up of international boarders to the flow of trade, workers, tourists and investment.
• Development of computers and the internet.

Question 5

What are factors attracting transnational corporations? (5)

Answer 5

Factors attracting Transnational Corporations (or MNC’s) to a particular country may include cheap raw materials, cheap labour supply, good transport, access to markets where goods are sold, and favourable government policies.

Question 6

Is globalisation helping to close the gap between the world’s poorest and richest countries?

Answer 6

Globalisation is helping to create more wealth in developing countries, however, it is not helping to close the gap between the world’s poorest and richest countries.

Question 7

What are the four main reasons for globalisation?

Answer 7

1) Improvements in transportation.
2) Freedom of trade.
3) Improvements in communication.
4) Labour availability and skill.

Question 8

Explain why improvements in transport is a reason for globalisation.

Answer 8

Larger cargo ships means that the cost of transporting goods between countries has decreased, and the goods and people can also travel more quickly.
The cost per item is reduced when operating on a larger scale.

Question 9

Explain why freedom of trade is a reason for globalisation.

Answer 9

Organisations like the World Trade Organisation (WTO) promote free trade between countries, which helps to promote free trade between countries.

Question 10

Explain why improvements in communication is a reason for globalisation.

Answer 10

The internet and mobile technology have allowed greater communication between people in different countries.

Question 11

Explain why labour availability and skill is a reason for globalisation.

Answer 11

Counties such as India have low labour costs and also high skill levels. Labour intensive industries such as clothing can take advantage of cheap labour costs and reduced legal restrictions in less economically developed countries.

Question 12

What does globalisation involve? (6)

Answer 12

• Greater free trade.
• Greater movement of labour.
• Increased capital flows.
• Growth of multinational companies.
• Increased integration of the global trade cycle.
• Increased communication and improved transport, effectively reducing barriers between countries.

Question 13

What are the five key benefits of globalisation?

Answer 13

1. Free trade.
2. Free movement of labour.
3. Increased economies of scale.
4. Greater competition.
5. Increased investment.

Question 14

What are economies of scale?

Answer 14

Due to globalisation, production becomes increasingly specialised and enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers. E.g. Apple.

Question 15

What are the five costs of globalisation?

Answer 15

1. Free trade can harm developing countries.
2. Environmental costs.
3. Labour drain.
4. Less cultural diversity.
5. Tax competition and tax avoidance.

Question 16

What is the definition of free trade?

Answer 16

Free trade is a way for countries to exchange goods and resources. This means counties can specialise in producing goods where they have a comparative advantage (where they can produce goods at a lower opportunity cost).

Question 17

What are the five key gains from free trade?

Answer 17

1. Lower prices for consumers.
2. Greater choice of goods.
3. Bigger export market for domestic manufacturers.
4. Economies of scale through being able to specialise in certain goods.
5. Greater competition.

Question 18

Why is the free movement of labour controversial?

Answer 18

Some are concerned that free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have to respond to this problem by actively trying to prevent migrants from other counties.

Question 19

Explain the concept of environmental cost.

Answer 19

One problem of globalisation is that is has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can outsource production to where environmental standards are less strict. However, arguably, the problem is not so much globalisation is failure to set satisfactory environmental standards.

Question 20

Does investment by multinational companies play a big role in improving the economies of developing countries?

Answer 20

Yes.

Question 21

Explain some benefits associated with globalisation.

Answer 21

• Countries that trade with other countries have stronger economies than those that don’t.
• Countries which have faster economic growth have been able to improve living standards and reduce poverty. Cheaper imports also make a wider range of products accessible to more people.
• Improved wealth of a country can lead to improved health care and clean water which increases life expectancy.
• Improved environmental awareness and accountability has contributed to positive environmental outcomes.
• Improved technology has dramatically reduced costs and prices.
• Modern communications have contributed to the toppling of undemocratic regimes and a growth in liberal democracies around the world.
• Adoption of workplace standard has made an important contribution to respect of international labour standards in developing countries.
• International migration has led to greater recognition of diversity and respect for cultural identities which is improving democracy and access to human rights.

Question 22

Explain some of the problems associated with globalisation.

Answer 22

-Countries that don’t participate in the global economy have to make changes to their economies to stay competitive, which can be costly.
-Some countries have been unable to take advantage of globalisation and their standards of living are dropping further behind the richest countries.
Increased trade and travel have facilitated the spread of human, animal and plant disease.
-Globalisation has enabled the introduction of cigarettes and tobacco to developing countries, which has major adverse health and financial costs associated with it.
-The environment has been harmed as agricultural, forest, mining, and fishing industries exploit inadequate environmental codes and corrupt behaviour in developing countries.
-Making international trade easier and technological advancements change the economy of a country, destroying traditional agricultural communities and allowing cheap imports of manufactured goods. Can lead to unemployment if not carefully managed.
-Modern communications have spread an awareness of the differences between countries, and increased the demand for migration to richer countries.
-Globalisation can force a ‘race to the bottom’ in wage rates and labour standards. Can also foster a ‘brain drain’ of skilled workers/
-Indigenous and national culture and languages can be eroded by the modern globalised culture.

Question 23

Identify and explain the four economic links between countries.

Answer 23

MIGRATION
Movement of people between countries. Increases aggregate demand (via increased consumption). Increase in the supply of labour. Skilled migration -> e.g during the mining boom Australia relied heavily on skilled migration. Increase in the quantity of resources, particularly labour. Allows for an expansion of the PPC.

FOREIGN INVESTMENT
Insufficient domestic savings relative to high capital requirements due to the commodity driven economy. 20% of investment in Australia is foreign investment.

TRADE
Goods and services.

TOURISM

Question 24

How is trade openness measured?

Answer 24

‘Trade openness’ is measured using the ration of a country’s trade to GDP. It measures a country’s level of integration with the rest of the world.

Question 25

Identify the three factors influencing globalisation.

Answer 25

Trade liberalisation.
Technology.
Multinational corporation.

Question 26

Explain how trade liberalisation influences globalisation.

Answer 26

Establishment of international organisations (e.g. WTO, IMF, WB) which are aimed at increasing living standards, promoting trade and full employment.
The government promoting free trade policies to increase efficiency and productivity within the economy.
Trade blocs to promote trade within regional areas (ASEAN, EU) -> area of countries that agree to trade with each other without barriers such as tariffs and subsidies.

Explanation:
By reducing barriers to trade (tariffs and subsidies) it increased the volume/quantity/value of imports and exports, which is by definition globalisation.

Question 27

Explain how technology influences globalisation.

Answer 27

Transport
Decreased costs of resources due to decreased travel time. Therefore, increased volume of trade.
Plus, increase in tourism i.e. flow of funds between nations.

Increase in IT and technology
Increased communication, decreased costs, growth of services e.g. education, marketing.
e.g. India now global leader in service exports.

Explanation:
Increase in technology leads to decreased costs of production resulting in an increase in the capacity/willingness/incentive to trade. Hence, there is an increase in trade and therefore globalisation.

Question 28

Explain how multinational corporations influence globalisation.

Answer 28

Definition: Multinational corporations are very large firms with headquarters in one country and subsidiaries in one or more other countries.
MNC’s make up 25% of global GDP.
They seek to take advantage of comparative advantage and economies of scale.
(i.e. as the quantity of production increases, average per unit cost of production decreases.)

Explanation:
MNC’s expand to other countries. Why?- increase in sales, attract foreign direct investment (two way, long-term economic ties). The increase in sales is by definition globalisation.
E.g. Apple, Nike, McDonalds.

Question 29

Identify the five factors that influence economic transactions between countries.

(Elves wash dinos in india.)

Answer 29

Exchange rates.
Worlds economic growth.
Domestic economic growth.
Relative inflation rates.
Relative interest rates.

Question 30

Discuss how exchange rates influence the level of economic transactions between countries.

Answer 30

EXCHANGE RATES
Definition: movement in the prices of imports and exports due to changes in supply and demand.

e.g. If the AUD depreciates
Aus exports= cheaper for overseas buyers to purchase Australian g+s when the AUD depreciated. We become more internationally competitive.
Aus imports= more expensive for Australian buyers.

Question 31

Discuss how world economic growth influences the level of economic transactions between countries.

Answer 31

WORLD ECONOMIC GROWTH
Australia is reliant on international trade. Therefore- an increase in worlds economic activity causes an increase in the demand for Australian exports.
E.g. urbanisation of China-> increased Australian exports.
Influences the volume of transactions.

Question 32

Discuss how domestic economic growth influences the level of economic transactions between countries.

Answer 32

DOMESTIC ECONOMIC GROWTH
An increase in domestic economic activity occurs (increased income, and aggregate expenditure) leads to an increase in the demand for imports from the rest of the world.
-Consumers increase consumption (durables)
-Producers increase capital requirements (manufacturers, ETM’s- elaborately transformed materials, STM’s- simplistically transformed materials.)

Question 33

Discuss how relative inflation rates influence the level of economic transactions between countries.

Answer 33

RELATIVE INFLATION RATES
If Australian inflation is greater then the rest of the world (i.e. the price increase in Australia is greater than the price increase in the rest of the world.)
This will decrease the demand for Australian exports as they are more expensive relative to our overseas competitors. This will decrease Australia’s international competitiveness.

Question 34

Discuss how relative interest rates influence the level of economic transactions between countries.

Answer 34

RELATIVE INTEREST RATES
If Australian interest rates increase more then rest of world interest rates, then this will increase the rate of reture in Australia. Therefore, the flow of financial capital/money/investment into Australia will increase.
AKA- the interest rate differential- comparing interest rates between countries.

Question 35

Define international competitiveness.

Answer 35

International competitiveness is the degree to which a country can produce goods and services which meet the tests of international markets, while simultaneously maintaining and expanding the real income of its people over the long term.

Question 36

What are the four drivers of international competitiveness? Explain.
(i.e. long term or ‘fixed’ characteristics/features of an economy.)

Answer 36

ECONOMIC PERFORMANCE
Domestic economy-> inflation, unemployment.
International trade.
GOVERNMENT EFFICIENCY
Public finance, business legislation, industrial framework (how things are set up to operate efficiently).
Fiscal policy.
BUSINESS EFFICIENCY
Productivity, labour market productivity, management practices (how things are run/organised, think developed vs undeveloped countries), finance.
INFRASTRUCTURE
Basic infrastructure (e.g. reads, ports, communication), technological infrastructure, health, education.

Question 37

What are the four determinants of international competitiveness? Explain.
(i.e. structural or cyclical aspects that when they change will also change/effect international competitiveness.)

Answer 37

LABOUR MARKET PRODUCTIVITY
Increase in output per worker by increasing education and training -> increases the countries international competitiveness.
INFLATION
Increase in price(i.e. inflation) relative to trading partners/competitors -> decrease country’s international competitiveness as higher prices are less attractive.
RELATIVE WAGES
Increase in wages causes an increase in the cost of production, therefore prices increase (cost push inflation) -> decreased international competitiveness.
EXCHANGE RATES
Appreciation in AUD causes an increase in the price of Australian g+s relative to the rest of the world -> decreased international competitiveness.

Question 38

Why is international competitiveness important?

Answer 38

Australia’s international competitiveness affects our international trade and hence our national production, employment and income. A fall in our competitiveness implies that g+s produced in Australia have difficulty finding buyers in both foreign and domestic markets.
Competitiveness matters because it can effect a country’s standard of living.