4.1.1 Globalisation

Question 1

What is Globalisation

Answer 1

is a process by which economies and cultures have been drawn deeper together and have become more interconnected through a global network of:

Trade, capital flows, rapid spread of tech + media

Question 2

What are the key benefits of globalisation

Answer 2

allows businesses and countries to specialise in producing goods/services where they have a comparative advantage (i.e. able to produce at a lower opportunity cost)

Question 3

Specialisation and trade enables what

Answer 3

gain in economic welfare

i.e. lower prices can increase consumers real income + greater range of good/serivces

Question 4

Characteristics of Globalisation

Answer 4

• Trade to GDP ratios are increasing for many countries
• Expansion of financial capital flows across international borders
• Increasing FDI + cross border acquisitions
• More Global brands
• Deeper specialisation of labour
• Global supply chains and new trade + investment routes
• Higher levels of cross-border labour migration
• Increasing connectivity of people + businesses through networks

Question 5

What are the factors contributing to globalisation in the last 50 yrs

Answer 5

Containerisation - reduced unit cost of transporting products across the world. Real prices of ocean/air shipping have come down due to widespread use of standardised container reaping economies of scale

Technological advances - cuts cost of transmitting and communicating information

Differences in tax systems - some nations have cut corporate taxes to attract FDI as a strategy to drive growth

Less protectionism - average import tariffs have fallen (however in more recent years import quotas/domestic subsides/regulations have hit)

Question 6

What is a transnational corporation

Answer 6

base their manufacturing, assembly, research and retail operations in a number of countries

Examples include: Nike, Facebook, Apple, Netflix

Question 7

How do TNC effect globalisation

Answer 7

They are a key driver of globalisation due to re-locating manufacturing to countries with relatively lower unit labour costs to increase profits and returns to shareholders

Some countries will have a comparative advantage at producing some types of good, therefore it makes sense to produce them there

Question 8

Advantages from globalisation

Answer 8

• encorages produces/consumers to reap benefits from division of labour and economies of scale = gains in economic welfare
• More competitive markets reduces monopoly supernormal profits and incentives innovation
• drive faster economies growth = higher per capita incomes, reducing poverty in world economy
• freer movement of labour = stoping labour shortages
• Increases opportunities for LIC’s to borrow money to overcome savings gaps
• awareness of modern issues, like climate changes and income gaps
• May prompt governments to improve standards of labour protection etc

Question 9

Disadvantages from globalisation

Answer 9

• Rising inequality leading to social/political tensions
• Environmental damage and exploitation of natural resources
• Macroeconomic fragility due to interdependency
• Trade imbalances
• Importing nations may suffer from structural unemployment
• Domination of global brands affecting smaller retailers

Question 10

Impact of globalisation on the UK economy

Answer 10

• Expanded choice and higher consumer surplus
• Effects retail prices and rate of inflation
• Impact of UK firms relocating to lower-wage economies
• Impact on net migration on real wage and on UK gov revenue
• Impact of inward investment into UK on employment
• Impact on share prices and profits of UK companies

Question 11

What would be examples of external shocks in a globalised world

Answer 11

• Global financial crisis
• Euro-zone economic crisis
• Volatile world commodity price
• Growth slowdowns in emerging nations
• International & Regional trade & investment deals
• Currency volatility and policy changes e.g. devaluations
• Extreme weather events
• Geo-political uncertainty from terrorism

Question 12

What are external shcoks

Answer 12

are events that come outside a domestic economic system

Biggest, most recent examples: 2008 global financial crisis

External shocks could be bother negative and positive - like emergence of widespread adoption of technologies used by businesses and households in many countries