4.1.1 Globalisation

Question 1

Explain the key benefit of globalisation

Answer 1

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

Question 2

What is globalisation?

Answer 2

Globalisation is a process by which economies and cultures have been drawn deeper together and have become more
inter-connected through global networks of trade, capital flows, and the rapid spread of technology and global media.

Question 3

What are the characteristics of globalisation?

Answer 3

Question 4

Explain the factors contributing to globalisation in the last 50 years

Answer 4

1. Containerisation – the real prices & costs of ocean and air shipping have come down due to the widespread
   use of standardised containers & reaping of economies of scale in freight industries alongside huge container
   ports built to contain them. This reduces the unit cost of transporting products across the world.
2. Technological advances – which cuts the cost of transmitting and communicating information – this is a key
   factor behind trade in knowledge-intensive products using the latest digital technology
3. Differences in tax systems - Some nations have cut corporate taxes to attract inflows of foreign direct
   investment (FDI) as a deliberate strategy to drive growth
4. Less protectionism – average import tariffs have fallen – but in recent years we have seen a rise in non-tariff
   barriers such as import quotas, domestic subsidies and tougher regulations hinting at a phase of deglobalisation.

Question 5

What are TNCs?

Answer 5

Transnational corporations (TNCs) base their manufacturing, assembly, research and retail operations in a number of
countries e.g Nike, Apple and Netflix

Question 6

Why are TNCs a driver of globalisation and give an example?

Answer 6

TNCs are a key driver of globalisation because they have been re-locating manufacturing to countries with relatively
lower unit labour costs to increase profits and returns for shareholders. For example, Volkswagen, Toyota, Nissan and
General Motors all have plants in Mexico which has helped Mexico to build a comparative advantage in assembling,
manufacturing and then exporting vehicles to other countries including the United States and Canada

Question 7

What is a key feature of globalisation involving TNCs?

Answer 7

A key recent feature of globalisation has been a surge in the number of transnational businesses from emerging countries. e.g The Tata Group conglomerate from India has made significant investments in Western economies e.g. buying Jaguar Land Rover.

Question 8

Explain 6 main advantages of globalisation?

Answer 8

1. Globalisation encourages both producers and consumers to reap benefits from the deeper division of labour
   in global supply chains and harnessing economies of scale – leading to gains in economic welfare
2. More competitive markets through trade reduces the level of monopoly supernormal profits and can also
   incentivize businesses to seek cost-reducing innovations
3. Trade can help drive faster economic growth which leads to higher per capita incomes. This has reduced the
   extent of extreme poverty in the world economy.
4. Freer movement of labour between countries means relieving labour shortages and promoting the sharing of ideas from diverse workforces
5. Opening up of capital markets such as bond and stock markets increases the opportunities for developing countries to borrow money to help overcome a domestic savings gap
6. Competitive pressures of globalisation may prompt improved standards of government and better labour protection through improved monitoring by international organisations

Question 9

Explain 6 drawbacks of globalisation?

Answer 9

1. Rising inequality / relative poverty – the gains from globalisation will be unequal leading to growing political
   and social tensions if inequality of income and wealth increases
2. Threats to the global commons e.g. irreversible damage to ecosystems, land degradation, deforestation, loss
   of bio-diversity and severe water scarcity from a growing world economy
3. Globalisation can lead to greater exploitation of the environment, e.g. increased production of raw materials,
   and the impact of trading toxic waste to countries with weaker environmental laws
4. Macroeconomic fragility – in an inter-connected world economy, external shocks in one region can rapidly
   spread to other centres (this is known as systemic risk)
5. Trade imbalances: Increasing trade imbalances (both surpluses and deficits) lead to protectionist tensions,
   wider use of tariffs and quotas and also a move towards managed exchange rates
6. Dominant global brands – businesses with dominant brands and superior technologies may squeeze out
   smaller local producers leading to a reduction in choice for consumers and some job losses

Question 10

What does the overall impact of globalisation depend on?

Answer 10

The overall impact depends on the
effectiveness of policies such as environmental interventions & labour market policies designed to help compensate those affected in a harmful way and give people and communities the skills and opportunities required to adjust to a fast-changing world economy.

Question 11

What are external shocks?

Answer 11

External shocks are events that come from outside a domestic economic system. The biggest external shock in recent times was the Global Financial Crisis (GFC) from 2007 onwards, the consequences of which are still being felt today.

Question 12

What are negative external shocks?

Answer 12

Negative external shocks create instability and can lead to persistent periods of weaker economic growth,
higher unemployment, falling real incomes and rising poverty.

Question 13

What are examples of external shocks in a globalised world?

Answer 13

Question 14

Give an example of how external shocks can be positive

Answer 14

The emergence of and widespread adoption of technologies used by
businesses and households in many countries.