Theme 4 CC3 - Globalisation Flashcards
Define globalisation
The ever increasing integration of the worlds local, regional and national economies into a single international market.
Give 4 characteristics of globalisation
- Increased trade in goods and services
- Expansion of FDI by MNCs
- Development of global brands that serve all markets.
- Global supply chains e.g. out-sourcing and off-shoring of production (Apple designed in Silicon Valley, manufactured by foxcon)
Give 4 factors contributing to globalisation in the last 50 years
- Trade liberalisation - reduction in trade barriers due to a global trading system.
- Reduced costs of communications - Advanced technology allows communication across the world e.g. video calls (conferences/meetings) don’t have to be in person.
- Encourages FDI as businesses can setup operations in any location with available communication. - Decreased cost of transport - containerisation/container principle meaning larger container ships can carry increasing revenue more than costs. Increased FDI as low shipping costs mean factories can be anywhere.
- Rising skill levels in developing countries - MNCs can outsource work to these countries with cheaper wages e.g. BT outsource call centre jobs in India.
Give a 1st cost of globalisation with an evaluation (benefit)
•Loss of jobs in developed economies
- Deindustrialisation as unable to compete with low-wage economies.
- ^Outward investment, outsourcing e.g. car, steel, clothing industries.
- This ^Unemployment, Imports, decrease exports, AD, rate of GDP and growth.
Also Results in trade deficit
E: Cheap imports due to production movement to low wage economies.
- Price of manufactured goods fall
- Britain can specialise in G&S where we have comparative advantage
- Real incomes and living standards increase
Give a 2nd cost of globalisation with an evaluation (benefit)
Higher inequality - e.g. in china, wage rises higher in urban areas where there is production of manufactured goods which generate more money. Whereas in rural areas incomes are much lower with production of agricultural goods.
E: Reduced absolute poverty - China has attracted FDI and become worlds largest manufacturer and exporter. Therefore this creates new Jobs, ^avg incomes, living standards and decrease poverty. This is due to better access to necessities.
Give a 3rd cost of globalisation with an evaluation (benefit)
Loss of power for governments - rise of MNCs has reduced power of national govts due to tax avoidance.
- it is difficult to impose regulations or taxes on MNCs as they can move to another country e.g. Starbucks claiming profit in Swiss subsidiaries (low corp tax).
- This prevents govts from making laws to protect workers rights, the environment or from regulating banks. Leads to exploitation of workers.
E: increased inward investment
- ^FDI therefore ^tax revenues, ^employment, ^AD, ^GDP and incomes
^value of domestic currency
^AS in LR, ^economic growth.
What is the impact of globalisation on consumers?
Consumers have more choice since there are a wider range of goods available from all around the world, not just those produced in the UK.
● It can lead to lower prices as firms take advantage of comparative advantage and
produce in countries with lower costs, for example low labour costs.
What is the impact of globalisation on workers?
In terms of employment, some people have gained whilst others have lost. There have been large scale job losses in the western world in manufacturing sectors as these jobs have been transferred to countries such as China and Poland.
● Increased migration may affect workers by lowering wages but migrants can also provide important skills and an increase in AD which increases the number of jobs.
● International competition has led to a fall in wages (or reduced growth) for low skilled workers in developed countries whilst increased those in developing countries
● Those working in sweatshops will see poor conditions and low wages, but this is
better than other alternatives.
What is the impact of globalisation on producers?
Firms are able to source products from more countries and sell them in more countries. This reduces risk since a collapse of the market in one company will have a smaller impact on the business.
● They are able to employ low skilled workers much cheaper in developing countries and can exploit comparative advantage and have larger markets, both of which can increase profits.
● Firms who are unable to compete internationally will lose out.
What is the impact of globalisation on government?
The government may be able to receive higher taxes, since TNCs pay tax and so do
the people they employ. However, they could lose out through tax avoidance.
What is the impact of globalisation on the environment?
● The increase in world production has led to increased demand for raw materials ,
which of which is bad for the environment.
● Increased trade and production has also led to more emissions.
Explain the benefits of FDI
-^AD due to ^investment which is a component. Also improve current account on BOP as X^
-^LRAS as there will be greater potential output, employment and productivity.
- Multiplier effect
-^tax revenues
Evaluation of FDI
- More than a third of foreign investment is multinationals dodging tax e.g. Starbucks send large profits to Swiss subsidiary where there is lower corporation tax.
