1- Globalisation

Question 1

Globalisation definition

Answer 1

The ever-increasing integration of the world’s local, regional and national economies into a single international market.

Question 2

4 areas economic integration can be broken into

Answer 2

• Free trade across national boundaries of goods and services
• Free movement of labour between countries
• Free movement of capital between countries
• Free interchange of technology and intellectual capital

Question 3

Causes of globalisation

Answer 3

• Trade in goods (for rich, developed countries increasingly being manufactured abroad).
• Trade in services (growing e.g. tourism)
• Trade liberalisation (growth of trading blocs, reduced tariff barriers)
• Improved transport
• Containerisation
• Improved technology
• Growth of MNCs
• Firms exploiting economies of scale (increased specialisation - essential feature of new trade theory
• Internet
• Increased mobility of capital and labour
• Growth of world media
• Financial systems growing in global nature
• Specialisation (comparative advantages)
• Capital availability
• Cooperate activity

Question 4

Benefits of globalisation

Answer 4

• Lower prices/ greater choice
• Economies of scale/ lower prices
• Increased global investment
• Free movement of labour
• May reduce global inequality

Question 5

Costs of globalisation

Answer 5

• Structural unemployment
• Environmental costs
• Tax competition and avoidance
• Brain drain from some countries
• Less cultural diversity

Question 6

Globalisation impact on governments

Answer 6

• Tax revenues will increase, which may be used for public services but MNCS could avoid tax

Question 7

Globalisation impact on producers

Answer 7

• Firms will be producing on a larger scale and so will benefit from economies of scale and higher profits
• TNCs are likely to introduce modern managerial techniques designed to increase productivity
• Local producers who aren’t competitive may be forced out of the market.

Question 8

Globalisation impact on consumers

Answer 8

• Lower prices

- Greater choice

Question 9

Globalisation impact on workers

Answer 9

• Increased employment opportunities

- TNCs may exploit workers in developing countries by paying lower wages for long working hours

Question 10

Globalisation impact on the environment

Answer 10

• Increased external costs
• Increased trade will increase road and air transport and associated noise and air pollution
• FDI by countries in search of raw materials may result in exploitation and depletion of resources

Question 11

Foreign Direct Investment (FDI) definition

Answer 11

Occurs when a company in one country established operations e.g. a factory in another country or when it acquires physical assets or a stake in an overseas country.

Question 12

Capital flows definition

Answer 12

Refers to all the money moving between countries as a consequence of investment flows into and out of countries around the world.

Question 13

Offshoring definition

Answer 13

Refers to falling in long-run average costs when output increases.

Question 14

Globalisation impact on indivudual countries

Answer 14

• With lower trade barriers and increased trade, countries can specialise in producing goods in which they have a comparative advantage (leading to higher world output and living standards).
• Countries without a comparative advantage, could rely on imports, which could deteriorate its current account of the balance of payments.
• Increased inequality (demand for unskilled workers has decreased in developed countries- increasing pay gap between the rich and the poor.
• Risk of contagion

Question 15

Transfer pricing definition

Answer 15

Refers to the price that has been charged by one part of a country for products and services it provides to another part of the same company. It enables TNCs to declare profits in which cooperation tax is lowest.

Question 16

Globalisation effect on AD

Answer 16

• Could increase due to increased economic activity

- Could decrease as it causes a trade deficit like in UK

Question 17

Globalisation effect on AS

Answer 17

Increased supply due to increased specialisation, greater output and more access to more resources.

Question 18

MNC definition

Answer 18

An organisation that owns or controls production of goods and services in one or more countries other than their home country.

Question 19

Advantages of MNCs

Answer 19

• Economies of scale
• FDI
• Knowledge sharing
• Job creation
• Economic growth
• Product choice

Question 20

Disadvantages of MNCs

Answer 20

• Tax avoidance
• Cultural dilution
• Resource depletion
• Environmental damage
• Worker exploitation
• Influence
• Income distribution

Question 21

Evaluation points of globalisation?

Answer 21

• Where are benefits distributed?- Developing countries normally don’t have access to markets which are the most efficient and large scope for growth like financial market. Most developing countries specialise in agriculture (lack of scope for growth).
• How are resources being handled? Is quick short term growth using resources at too much of a fast rate.
• MNCs could cause less growth for smaller firms who find it harder to compete.
• Specialisation could expose certain countries as they become too dependant on trade and could cause structural unemployment.