LS1- Globalisation

Question 1

Globalisation

Answer 1

The process in which national economies have become increasingly integrated and interdependent.

Question 2

Causes of globalisation - trade liberalisation

Answer 2

• Barriers to trade such as tariff barriers have decreased as countries have realised the benefits of free trade in promoting growth by exploiting their comparative advantages
• Also through the work of the WTO whose main role is to reduce trade barriers between nations.

Question 3

Causes of globalisation- growth of trading blocs

Answer 3

When trading blocs such as the EU and ASEAN have either deepened their integration or have formed, promoting free trade -> more trade and labour migration, FDI is likely to increase leading to the greater integration of these economies.

Question 4

Causes of globalisation- growth of MNCs

Answer 4

• As tech improves, mobility of capital is easier and access to work markets is easier.
• MNCs realise the potential and expand further to tap into international markets, leading to greater interdependence of nations in the form of increased FDI.

Question 5

Other causes of globalisation

Answer 5

• technological advancement
• increased mobility of labour and capital
• fall in transport costs

Question 6

Pros of globalisation

Answer 6

• increase in world efficiency- greater free trade and specialisation-> resources allocated where countries have their comparative advantage-> allocative efficiency is attained (basic economic problem solved)
• large economies of scale- larger international market to access-> larger potential to grow-> greater benefits from purchasing and technical economies of scale-> lower average costs-> higher profitability and potentially lower consumer prices
• higher GDP growth- greater market size and specialisation so greater export potential for countries with larger comparative advantages-> (X-M) rises-> unemployment drops as labour is a derived demand-> rise in living standards
• increased competition and lower prices- due to larger market so better quality and prices
• increased choice for consumers and businesses

Question 7

Cons of globalisation

Answer 7

• growing income inequality- corrupt governments may not re-distribute tax revenues effectively, capital intensive sector production or production from one dominant sector can all widen this gap-> a key macro objective is not met in developed nations-> increasing relative poverty and deteriorating government finances-> many still in poverty
• rise in structural employment- major industries go into decline when trying to compete internationally where other countries have comparative advantage
• trade imbalances- trade dominated by a few exporting nations-> trade deficits-> international debt-> less to invest in public welfare
• environmental costs- with FDI increasing, negative externalities rise