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 and 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