Topic 1: Introduction to the Global Economy

Question 1

 Types of Globalisation

Answer 1

o Economic
 Countries that trade with many others and have few trade barriers are economically globalized

o Financial
 Connections through financial markets, flows of money between countries

o Social
 A measure of how easily information and ideas pass between people in their own country and between different counties

o Political
 The amount of political co-operation there is between countries

Question 2

 Drivers of Market Globalisation

Answer 2

o Rapid advances in communications and transport (both cheaper and faster)

o Invention of internet, mobile phones and fax machines

o Liberalisation of markets to the flow of goods, services and investment
 Tariff rates has fallen from an average of 29% in 1990 to below 8%
 Regional trading groups have encouraged the expansion of free trade by reducing / eliminating trade barriers

o Technology = Transport costs are cut therefore increase in trade and tourism, internet has allowed services to be outsourced to countries with cheaper labour

o Multinational corporations = large firms with headquarters in one country and subsidiaries in one or more other countries.

Firms establish production / or retail and distribution. Expanding out allows for increase in sales, market share and profits.

Account for 10% of world gdp and be they good or bad are an inevitable development. Companies want to expand once they have reached their capacity in their own and will branch out.

Question 3

 Consequences of Globalisation

Answer 3

o Loss of national sovereignty
 Ability of a nation to govern its own affairs, one country’s laws cannot be applied or enforced in another country. Can threaten in various ways; MNE activities can interfere with the ability of governments to control own economies, social structures and political systems.
 Some corporations are bigger than the economies of many nations (BHP Walmart larger than Israel Greece) and they can exert considerable influence on governments through lobbying or campaign contributions.

o Off-shoring and the flight of jobs
 Make countries less competitive e.g. Australian motoring industry. However has also created jobs elsewhere
 The re-allocation of manufacturing and other value-chain activities to cost-effective locations abroad.
 Loss of jobs in mature economies

o Effect on poor
 Paying low wages, exploiting workers (e.g. nike sweatshop factories)
 Child labour
 However, working conditions tend to improve over time

o Effect on environment
 Promoting increased manufacturing and economic activity -> pollution, destruction of habitat and deterioration of ozone layer.

o Effect on national culture
 Leaves the door open to foreign companies, global brands and unfamiliar products and new values.
 Consumers increasingly wear similar clothing, similar cars and same music
 Advertising leads to emergence of societal values modelled on western counties

Question 4

 Describe the main causes of business cycles and economic growth

Answer 4

o	Factors determine a country’s rate of economic growth	Returns to capital
	Savings/investment rates
	Technology
	Human Capital
	Efficiency

o Why do business cycles exist?
 Volatility of economic growth and the different periods the economy goes through
 Factors such as interest rates, confidence, investment and multiplier effect causes the economy to go through cycles