LS1- Globalisation

Question 1

Globalisation

Answer 1

The process in which national economies have become increasingly integrated and interdependent.

Question 2

Causes of globalisation

Answer 2

• trade liberalisation
• growth of MNCs
• growth of trading blocs

Question 3

Causes of globalisation - trade liberalisation

Answer 3

• Barriers to trade such as tariff barriers have decreased as countries have realised the benefits of free trade in promoting growth by exploiting their comparative advantages
• Also through the work of the WTO whose main role is to reduce trade barriers between nations.

Question 4

Causes of globalisation- growth of trading blocs

Answer 4

When trading blocs such as the EU and ASEAN have either deepened their integration or have formed, promoting free trade -> more trade and labour migration, FDI is likely to increase leading to the greater integration of these economies.

Question 5

Causes of globalisation- growth of MNCs

Answer 5

• As tech improves, mobility of capital is easier and access to work markets is easier.
• MNCs realise the potential and expand further to tap into international markets, leading to greater interdependence of nations in the form of increased FDI.

Question 6

Pros of globalisation

Answer 6

• lower prices + increased efficiency due to increased competition
• trade blocs + WTO -> better international relations
• greater employment as firms grow
• benefits from large EoS (e.g. purchasing and managerial)
• free movement of labour & capital (FDI)

Question 7

Cons of globalisation

Answer 7

• growing income inequality - corrupt governments may not re-distribute tax revenues effectively, production from one dominant sector can all widen this gap-> a key macro objective is not met in developed nations
• rise in structural unemployment - major industries go into decline when trying to compete internationally where other countries have comparative advantage
• trade imbalances - trade dominated by a few exporting nations-> trade deficits-> international debt-> less to invest in public welfare + may lead to protectionism
• environmental costs - with FDI increasing, negative externalities rise (dumping waste and expanding in natural areas)
• greater risk of external shocks e.g. 2008 due to interdependence

Question 8

External shocks definition

Answer 8

• an unexpected event originating outside a country’s economy that can have a significant impact on its performance