4.1.1 Globalisation

Question 1

define globalisation

Answer 1

• refers to the growing interdependence of countries and economic agents and the rapid rate of change it brings about
• increasing integration of the world’s local, regional and national economies into a single international market

Question 2

what are the characteristics of globalisation

Answer 2

• increased trade as a proportion of global GDP
• increased movements of financial capital and people between countries
• increased international specialisation and division of labour
• growing importance of MNC’s
• increase in FDI

Question 3

define a multinational company (MNC)

Answer 3

• a business that has its headquarters in any one country, but has operations in a range of other countries
• the creators of global branding and implementers of global sourcing

Question 4

what are global brands

Answer 4

• most visible part of integration
• standardised brands in national markets

Question 5

what is global sourcing

Answer 5

• global companies using world wide production
• replacing domestic production with global production

Question 6

what factors have contributed to globalisation

Answer 6

• trade liberalisation
• IT and communication improvements
• improvements in transport infrastructure and operations
• international financial markets
• TNCs (large companies operating worldwide)

Question 7

how has trade liberalisation contribute towards globalisation

Answer 7

reduced protectionism - cheaper to trade

Question 8

how have IT and communication improvements contributed towards globalisation

Answer 8

allows companies to operate globally (ev are they available in developing countries)

Question 9

how have improvements in transport infrastructure and operations contributed towards globalisation

Answer 9

quick, reliable and cheaper production methods and low-cost transportation eg containerisation

Question 10

how have international financial markets contributed towards globalisation

Answer 10

availability of capital and to move capital worldwide

Question 11

how have TNCs contributed towards globalisation

Answer 11

act to increase profits as take advantage of lower labour costs

Question 12

what are the pros of globalisation for workers

Answer 12

• MNCs create new jobs and training (improve human capital)
• more migrant workers can increase AD in country
• greater geographical mobility and increased opportunities

Question 13

what are the cons of globalisation for workers

Answer 13

• increased migration = lower wages due to greater supply of workers and pressure on public services and remittances sent back home
• may be exploited by MNCs - poor working conditions
• rising inequalities - wages for high skilled workers appear to be increasing
• possible structural unemployment if uncompetitive industries

Question 14

what are the pros of globalisation for consumers

Answer 14

• greater choice (increased trade)
• lower prices (comparative advantage/lower production costs)
• specialisation may result in better quality products

Question 15

what are the cons of globalisation for consumers

Answer 15

• rising global incomes leads to higher demand leading to higher prices
• worry about loss of local cultures as MNC’s force out local businesses

Question 16

what are the pros of globalisation for producers

Answer 16

• access to more markets (increased revenue and profits)
• lower risk for firms of insolvency as in global market
• lower production costs eg cheaper labour and imports

Question 17

what are the cons of globalisation for producers

Answer 17

• some producers less price competitive so will lose out
• lack of non-price competition (eg shein)
• ethical issues eg child labour

Question 18

what are the pros of globalisation for the government

Answer 18

• higher tax revenues
• may help achieve macro objectives such as growth/employment/trade balance

Question 19

what are the cons of globalisation for the government

Answer 19

• greater tax avoidance eg amazon and google set up in countries with low corp tax
• pressure on public services
• possible corruption - MNCs have power to bribe and lobby Gov

Question 20

what are the pros of globalisation for the environment

Answer 20

the world can work together to tackle climate change and share green ideas/tech

Question 21

what are the cons of globalisation for the environment

Answer 21

• higher trade and production = more emissions
• increased world production = increased demand for raw materials

Question 22

how does globalisation impact economic growth

Answer 22

• increased investment - injection into economy, positive multiplier, acts as incentive to make SSPs to attract MNCs
• MNCs can bring world class management techniques and technology - transferrable to different industries in an economy (LRAS)
• increased output - countries can exploit comparative advantage (increased average incomes)

Question 23

what can be used to evaluate impact of globalisation on growth

Answer 23

comparative cost advantages can change over time - companies may leave a country when it no longer offers an advantage - can cause structural unemployment and reduce growth

Question 24

define FDI

Answer 24

• investment flowing from one economy into another
• recorded as a credit item in the financial account of the BoP

Question 25

give two examples of FDI

Answer 25

- establishing production processes abroad (MNC) - purchase of a foreign firm

Question 26

give the pros of FDI

Answer 26

- an injection into the circular flow of income - positive effects on the BoP - tax revenue - increased productivity - technology transfer (widespread benefits)

Question 27

give the cons of FDI

Answer 27

- only short term employment (MNC may move to another country) - MNCs use labour saving technology - net effects on BoP=less than expected - tax revenue is less than expected (tax avoidance) - productivity is less than expected - environmental costs

Question 28

give the positive effects of globalisation on developing economies

Answer 28

- consumers surplus increases as lower prices - increased FDI - MNCs - investment into productive potential/tech transfer/human capital - specialisation/comparative advantage - employment opportunities - foreign aid -growth

Question 29

give the negative effects of globalisation on developing economies

Answer 29

- corruption/piracy - brain drain - loss of culture - domestic firms/infant industries may close - low value exports - formation of monopolies - environmental issues - exploitation of workers

Question 30

give the positive effects of globalisation on developed economies

Answer 30

- low prices/increased choice - MNCs - growth and integration - profitability (transfer pricing) - greater tax revenue - low wage costs - greater labour supply/skilled workers - export-led growth - CA may improve - larger market for firms to sell to - boosts revenue and profit

Question 31

give the negative effects of globalisation on developed economies

Answer 31

- increased migration - pressure on public services - MNCs relocate abroad to benefit from cost advantages - protectionist measures/retaliation - some firms may be unable to compete - (specialisation/comparative advantage - greater competition) - inefficient firms - dependency on other economies - supply side shocks