U3 Global interdependence: Globalisation

Question 1

Define globalisation

Answer 1

The integration of the world’s economies in terms of trade, investment, ideas and people.

Question 2

What are the indicators that goods, capital and people have become more globalised?

Answer 2

• The economic performance of each country is becoming more dependent on the economic performance of other countries’ economies
• Economies and governments are becoming less independent
• Political and economic independence is given up to become part of the global system
• There is reduced economic significance of national border
• There is increased economic interdependence between countries

Question 3

What is integration of economies and what opportunities does it open?

Answer 3

• Increased reliance of economies on each other
• Allows people to buy and sell in any country in the world
• Allows for labour and capital to locate anywhere in the world
• Allows the growth of global markets

Question 4

What does free trade require the removal of?

Answer 4

Protectionism policies: tariffs, subsidies, quota and embargo

Question 5

What are the aspects of global integration?

Answer 5

International trade
- trade agreements
- global markets
- regional trade agreements (eg: Trans Pacific Partnership)
- bilateral trade agreements (eg: Australia and China Free Trade Agreement)

Foreign direct investment
- multinational corporations that own production facilities in multiple countries

Global capital and financial markets
- foreign portfolio investment
- international share markets
- government bond markets

Convertible currencies and floating exchange rate
- free exchange of currencies
- foreign exchange market determination of the value of currencies

Migration and foreign workers
- movement of workers between countries
- sources of cheap or skilled labour (increased productivity or efficiency)

Sharing of ideas, cultures and technologies
- international cooperation (space stations)
- transport technologies (airplanes, ships)
- Multiculturalism (customs, religions)
- international travel and tourism

Communication
- social media
- Skype/Facetime
- international broadcasting

Question 6

What are the factors facilitating globalisation?

Answer 6

Development of transport
- improved cargo ship and air transport allows easy mass movement of goods
- decreased costs, increased efficiency

Improved communications
- invention of internet, email, etc
- has led to spread of ideas, designs, knowledge and information
- helps multinational corporations corporate throughout the world
- the development of streaming services (Netflix, Stan) has provided worldwide markets

International financial flows
- modern communication technologies allow large amounts of money to flow instantly throughout the world, increasing financial movement

Financial integration
- integration of financial systems has created a world financial system
- has led to faster transmission of financial and real shocks between countries and regions

Reduction of trade barriers
- reduced protectionism (tariffs, subsidies, quotas, embargo) opens trade and investment flows between countries
- trade agreements reduce protectionism between countries

World Trade Organisation
- deals with the rules of trade between countries
- their goal is to help producers of goods and services, and exports and importers, conduct their business
- introduces regional free trade agreements between countries

World Bank
- is a source of financial and technical assistance to developing countries

International Monetary Fund
- provides temporary financial assistance to countries with balance of payments problems

Question 7

What are the economic effects of globalisation?

Answer 7

-

Question 8

What are the factors reducing globalisation?

Answer 8

China
- has maintained protectionist policies since globalisation started
- second largest economy in the world
- is strategically aggressive, building military forces to potentially invade Asian countries containing US forces
- it’s strategically bad for Western countries to support China’s economy

Russia/Ukraine war
- Russia has a comparative advantage in natural gas and oil, especially compared to Western Europe
- Russia invading Ukraine had led to Western countries stopping trade with Russia
- This has ed to an energy crisis and degloabisation

COVID-19
- Caused large shocks to global supply chains as borders were closed

Energy crisis in Western countries
- Western countries suddenly started trying to decarbonise their nations
- This is not happening in Asian nations; China is still building coal fired power stations
- Switching to carbon-neutral energy sources is very expensive and has not competitive in price with fossil fuels
- Almost every Western nation is undergoing an energy price crisis