Theme 4: Global perspectives
4. 1. International economics
4. 1. 1. Globalisation
a. Characteristics of globalisation
Definition: growing interdependence and integration of countries and their economies, plus
the rapid changes it brings
OECD definition: geographic dispersion of industrial and service activities, for example,
research and development, sourcing of inputs, production and distribution and the cross
border networking of companies, for example through joint ventures and the sharing of assets
- Most economies are not closed but open to trade in goods, services, labour, capital,
technology and information
Most globalised countries (KOF Index):
, 1. Ireland 91
2. Netherlands 91
3. Belgium 91
4. Austria 90
5. Singapore 87
6. Sweden 86
Key aspects:
- Trade: % of GDP are increasing
- Increasing financial/capital flows
- FDI and international mergers and acquisitions
- Increasing number of TNCs
- More specialisation of labour
- Global supply chains and new trade/I routes
- Increasing international labour and migration
- Increasing connectivity through the Internet
As a result of globalisation, the world economy is changing. There has been a shift towards
Asia: % as a share of world GDP: 1980 - EU 25%, Asia-Pacific 20%, 2015 - EU 22%, Asia-Pacific
31%
b. Factors contributing to globalisation in the last 50 years
Drivers of globalisation:
- Containerisation: costs of transportation decrease, bulk-shipping
- Technological changes: lower costs of communicating, reduces friction of distance
- Economies of scales: increase minimum efficient scale
- Differences in tax systems: adjusted tax systems to attract FDI
- Lower protectionism: borders have opened, import tariffs have reduced
E.g. Nike stores worldwide: 2009 - 674, 2016: 1045
Advantages Disadvantages
Benefits from division of labour and e.o.s. Higher inequality and relative poverty
Higher competition and lower monopoly Threats to global commons
profits + incentive for innovation
Higher per capita incomes Macroeconomic fragility
Lower extreme poverty Trade imbalances
Higher dynamic efficiency Higher structural unemployment
Higher awareness of global problems Dominant global brands
,Better governance and labour protection Poor behaviour by some TNCs
Better movement of labour Developing countries may get debts
c. Impacts of globalisation and global companies on individual countries, governments,
producers and consumers, workers and the environment
- Consumers:
- Higher consumer choice
- Lower prices
- Higher incomes
- Workers:
- employment/unemployment
- Migration
- Higher wages
- TNCs
- Poor conditions ins sweatshops
- Producers:
- Specialisation
- Reduced risks from more markets
- Footloose industries
- Tax avoidance
- Governments:
- prosperity/problems
- receive higher taxes, since TNCs pay tax and so do the people they employ.
However, they could lose out through tax avoidance.
- TNCs also have the power to bribe and lobby governments, which could lead to
corruption.
- If the government uses the correct policies, they can maximise the gains and
minimise the losses
- Environment:
- The increase in world production has led to increased demand for raw
materials, which is bad for the environment.
- Increased trade and production has also led to more emissions.
- However, globalisation means the world can work together to tackle climate
change and share ideas and technology.
- Economic growth
- Globalisation increases investment within countries; the investment of TNCs
represents an injection into the economy, and which will have a larger impact
due to the multiplier. It creates an incentive for countries to make supply-side
improvements to encourage TNCs to operate in their countries.
, - TNCs may bring world class management techniques and technology which can
have knock-on benefits to all industries as these techniques and technologies
are available for them too.
- Trade will increase output since it allows exploitation of comparative
advantage.
- However, the power of TNCs can cause political instability as they may support
regimes which are unpopular and undemocratic but that benefit them or could
hinder regimes which don’t support them
- Comparative cost advantages will change over time and so companies may
leave the country when it no longer offers an advantage which will cause
structural unemployment and reduce growth.
d. De-globalisation and reasons
Definition: slow down in global trade since the GFC
- Globalisation isn’t inevitable
E.g. volume of merchandise (annual percentage change):
2006: trade - 8.7, global GDP - 4.1
2009: trade - 12.2, global GDP - -2.1
2014: trade - 2.5, global GDP - 2.5
Reasons:
1. Weak economic growth in many of the world’s richest countries – indeed some
economists believe that Western nations are suffering from secular stagnation
2. Slowing pace of trade liberalisation. The big gains to trade from cutting import
tariffs may have already happened.
3. Non-tariff barriers (NTBs) have grown and regional trade blocs such as ASEAN have
become more common in place of a new global trade agreement which remains a
long way from being achieved
4. Rising prosperity itself. As people become richer they spend a higher proportion of
their income on services, such as education, leisure and health – global trade in
services is actually lower as a share of GDP than manufactured products
5. Technological change – e.g. 3D printers are being used to manufacture a set of
orders e.g. for aircraft equipment or artificial joints used in medicine – they no longer
have to be shipped around the world
4. 1. 2. Specialisation and trade
Trade:
4. 1. International economics
4. 1. 1. Globalisation
a. Characteristics of globalisation
Definition: growing interdependence and integration of countries and their economies, plus
the rapid changes it brings
OECD definition: geographic dispersion of industrial and service activities, for example,
research and development, sourcing of inputs, production and distribution and the cross
border networking of companies, for example through joint ventures and the sharing of assets
- Most economies are not closed but open to trade in goods, services, labour, capital,
technology and information
Most globalised countries (KOF Index):
, 1. Ireland 91
2. Netherlands 91
3. Belgium 91
4. Austria 90
5. Singapore 87
6. Sweden 86
Key aspects:
- Trade: % of GDP are increasing
- Increasing financial/capital flows
- FDI and international mergers and acquisitions
- Increasing number of TNCs
- More specialisation of labour
- Global supply chains and new trade/I routes
- Increasing international labour and migration
- Increasing connectivity through the Internet
As a result of globalisation, the world economy is changing. There has been a shift towards
Asia: % as a share of world GDP: 1980 - EU 25%, Asia-Pacific 20%, 2015 - EU 22%, Asia-Pacific
31%
b. Factors contributing to globalisation in the last 50 years
Drivers of globalisation:
- Containerisation: costs of transportation decrease, bulk-shipping
- Technological changes: lower costs of communicating, reduces friction of distance
- Economies of scales: increase minimum efficient scale
- Differences in tax systems: adjusted tax systems to attract FDI
- Lower protectionism: borders have opened, import tariffs have reduced
E.g. Nike stores worldwide: 2009 - 674, 2016: 1045
Advantages Disadvantages
Benefits from division of labour and e.o.s. Higher inequality and relative poverty
Higher competition and lower monopoly Threats to global commons
profits + incentive for innovation
Higher per capita incomes Macroeconomic fragility
Lower extreme poverty Trade imbalances
Higher dynamic efficiency Higher structural unemployment
Higher awareness of global problems Dominant global brands
,Better governance and labour protection Poor behaviour by some TNCs
Better movement of labour Developing countries may get debts
c. Impacts of globalisation and global companies on individual countries, governments,
producers and consumers, workers and the environment
- Consumers:
- Higher consumer choice
- Lower prices
- Higher incomes
- Workers:
- employment/unemployment
- Migration
- Higher wages
- TNCs
- Poor conditions ins sweatshops
- Producers:
- Specialisation
- Reduced risks from more markets
- Footloose industries
- Tax avoidance
- Governments:
- prosperity/problems
- receive higher taxes, since TNCs pay tax and so do the people they employ.
However, they could lose out through tax avoidance.
- TNCs also have the power to bribe and lobby governments, which could lead to
corruption.
- If the government uses the correct policies, they can maximise the gains and
minimise the losses
- Environment:
- The increase in world production has led to increased demand for raw
materials, which is bad for the environment.
- Increased trade and production has also led to more emissions.
- However, globalisation means the world can work together to tackle climate
change and share ideas and technology.
- Economic growth
- Globalisation increases investment within countries; the investment of TNCs
represents an injection into the economy, and which will have a larger impact
due to the multiplier. It creates an incentive for countries to make supply-side
improvements to encourage TNCs to operate in their countries.
, - TNCs may bring world class management techniques and technology which can
have knock-on benefits to all industries as these techniques and technologies
are available for them too.
- Trade will increase output since it allows exploitation of comparative
advantage.
- However, the power of TNCs can cause political instability as they may support
regimes which are unpopular and undemocratic but that benefit them or could
hinder regimes which don’t support them
- Comparative cost advantages will change over time and so companies may
leave the country when it no longer offers an advantage which will cause
structural unemployment and reduce growth.
d. De-globalisation and reasons
Definition: slow down in global trade since the GFC
- Globalisation isn’t inevitable
E.g. volume of merchandise (annual percentage change):
2006: trade - 8.7, global GDP - 4.1
2009: trade - 12.2, global GDP - -2.1
2014: trade - 2.5, global GDP - 2.5
Reasons:
1. Weak economic growth in many of the world’s richest countries – indeed some
economists believe that Western nations are suffering from secular stagnation
2. Slowing pace of trade liberalisation. The big gains to trade from cutting import
tariffs may have already happened.
3. Non-tariff barriers (NTBs) have grown and regional trade blocs such as ASEAN have
become more common in place of a new global trade agreement which remains a
long way from being achieved
4. Rising prosperity itself. As people become richer they spend a higher proportion of
their income on services, such as education, leisure and health – global trade in
services is actually lower as a share of GDP than manufactured products
5. Technological change – e.g. 3D printers are being used to manufacture a set of
orders e.g. for aircraft equipment or artificial joints used in medicine – they no longer
have to be shipped around the world
4. 1. 2. Specialisation and trade
Trade:
