Globalisation

Question 1

Causes of globalisation 1

Answer 1

• Growth of free trade - Trade is increasingly important. Economies rely on importing raw materials and exporting goods to foreign markets. Increased trade has made countries more closely integrated.
• Multinational companies - There has been a growth in the number of multinational companies who have an influential cross border presence.
• Technology - The development of technology, such as the internet has helped improve communication and made it easier to connect to all corners of the world.

Question 2

Causes of globalisation 2

Answer 2

• Transport - Improved transport has helped to make trade cheaper and also made it easier for labour to move between different countries.
• WTO / Trading Blocks like EU - Institutions like the WTO have helped reduce barriers to trade. Trading areas like the EU have considerably reduced barriers to trade within Europe and also raised the profile of international co-operation.
• Opening up of China and Eastern Block - Since 1980s, China and Russia have become much more open. China has been a key player in the development of the global economy.

Question 3

Benefits (impact) of globalisation

Answer 3

• Global trade cycles - Because economies are more closely linked, a recession in a major economy like the US or Eurozone is likely to push many economies into recession. On the other hand, exports will rise as growth in other countries improves.
• Competition - Arguably, markets are becoming more competitive as domestic monopolies face greater competition from global multinationals leading to lower prices.
• Economies of scale - Global scale production has enabled greater economies of scale, and lower costs. This is significant for industries with high fixed costs like cars and aeroplanes.

Question 4

Costs of Globalisation

Answer 4

• Domestic firms uncompetitive - Some local firms may be pushed out of business by large multinationals that can use economies of scale and monopsony buying power.
• Impact on developing world - Arguably, some developing countries have benefited less from globalisation; e.g. their comparative advantage has been in producing raw materials, but relying on primary products leads to an unbalanced economy.
• Environmental costs - Globalisation has meant goods are increasingly imported from across the planet, rather than using local produce. This increases the carbon and pollution impact of food and trade.
• Dominance of global brands pushing aside local customs and businesses, (e.g. local coffee shops losing trade to Costa and Starbucks)

Question 5

Multinationals (MNCs)

Answer 5

Globalisation has seen a growth in the prominence of large, globally based multinational companies. (also known as transnational companies)

Question 6

Benefits of Multinationals

Answer 6

• Economies of Scale. Many industries have substantial scope of economies of scale. Global production enables greater efficiency and lower prices for consumers.
• Foreign Direct Investment. Multinationals have invested in developing countries creating jobs and providing foreign capital
• Consumers have preference for global brands that maintain minimum standards of service / quality.

Question 7

Costs of Multinationals

Answer 7

• Their financial power has squeezed out many local firms.
• Though they invest in developing countries they repatriate profit and have been accused of exploiting low wages.
• Take benefit of weaker environmental laws in developing countries.

Question 8

world trade organisation (WTO)

Answer 8

The World Trade Organisation is responsible for trying to promote and regulate free trade and trade agreements between countries.
It is argued that promoting free trade can lead to economic advantages of lower prices, greater choice and greater competition.
However, the WTO has been criticised. This is because some argue free trade benefits developed countries more than developing countries. For example, arguably, some developing countries need tariff protection to develop their infant, new industries.

Question 9

International Monetary Fund (IMF)

Answer 9

The International Monetary Fund plays a role in offering credit to countries that run into difficulties making debt payments. The IMF can arrange a loan to bailout countries in difficulty.
However, the IMF usually insists on certain criteria to accompany the loan. This may involve devaluation, control of inflation, tightening of fiscal policy and structural reforms such as privatisation.
Some criticise the IMF for placing too much pressure on economies to reduce inflation, reduce budget deficits and introduce free market policies which increase inequality.

Question 10

types of Trading Blocks

Answer 10

• Free Trade Areas – Free trade areas concentrate on free trade and removing tariff barriers, e.g. NAFTA. – US, Canada and Mexico
• Customs Union – Areas of free trade with common external tariff. The EEC in the beginning was a customs union.
• Single Market. A trading block with free trade and free movement of labour and capital.
• Economic Union – Single market plus common external tariff and harmonisation of laws and regulations, e.g. common tax rates.
• Monetary Union – Economic Union plus common currency and common monetary policy. (e.g. Eurozone)