Using the data and your economic knowledge, to what extent do you agree with the view
that globalisation has been of benefit to UK macroeconomic performance?
Globalisation, defined as the process through which an increasingly free flow of ideas, people, goods,
services and capital leads to the integration of economies and societies, has had a very significant
impact on the world economy, particularly in the last century. Whilst many organisations such as the
WTO claim that globalisation is the way forward, there are important risks which accompany the
process. In order to assess the impact of globalisation on UK macroeconomic performance, one must
study the impact on key indicators of economic performance. The main macroeconomic objectives
of most governments, including the UK government, are stable prices (the UK aims for a 2% target
inflation), low unemployment and rising economic growth. Therefore, in assessing the impact that
globalisation has had on these performance indicators, one can gather a more accurate view of the
costs and benefits associated with the process.
Perhaps the most heated area of debate surrounding globalisation is its effect on the UK’s economic
growth. Basic economic theory suggests that globalisation should certainly benefit long-term
economic growth. Increased interconnectedness allows for the exploitation of comparative
advantage, as every country has a comparative advantage in some type of economic activity. This
allows for global specialisation which should increase the productive efficiency of the world
economy. The reallocation of scarce resources to those countries who have the comparative
advantage should, in theory, create ‘free’ gains in economic welfare, with no economic losers.
Another way in which globalisation should impact economic growth is through the effects of
increased competitiveness. The increasingly free flow of ideas, people, goods, services and capital
should introduce new competition in to most sectors. Increased competitiveness, in theory, reduces
monopoly profits and incentivises firms to come up with cost-reducing innovation and
improvements. Thus increased competition is likely lead to higher long-term economic growth due
increased productive efficiency of an economy. Moreover, the freer flow of capital should also allow
for increased cross-border investment. Again, this should help improve the quality, quantity and
organisation of the factors of production, and as a result lead to long-term economic growth.
A third way in which globalisation is likely to impact economic growth is through the fact that it
enables firms to take better advantage of economies of scale across borders. Again, this is likely to
lead to improvements in the productive efficiency of the economy. Thus, the theory suggests that
globalisation will lead to increased economic growth in the UK economy, one of the key
macroeconomic performance indicators. Indeed, a 2014 paper by Von Reenan & Bloom from the LSE
concluded that ‘firms have responded to the threat of Chinese imports by increasing their
productivity – adopting better IT, boosting R&D spending, and increasing patenting’ and that the
annual benefit was almost €10bn to European economies.
that globalisation has been of benefit to UK macroeconomic performance?
Globalisation, defined as the process through which an increasingly free flow of ideas, people, goods,
services and capital leads to the integration of economies and societies, has had a very significant
impact on the world economy, particularly in the last century. Whilst many organisations such as the
WTO claim that globalisation is the way forward, there are important risks which accompany the
process. In order to assess the impact of globalisation on UK macroeconomic performance, one must
study the impact on key indicators of economic performance. The main macroeconomic objectives
of most governments, including the UK government, are stable prices (the UK aims for a 2% target
inflation), low unemployment and rising economic growth. Therefore, in assessing the impact that
globalisation has had on these performance indicators, one can gather a more accurate view of the
costs and benefits associated with the process.
Perhaps the most heated area of debate surrounding globalisation is its effect on the UK’s economic
growth. Basic economic theory suggests that globalisation should certainly benefit long-term
economic growth. Increased interconnectedness allows for the exploitation of comparative
advantage, as every country has a comparative advantage in some type of economic activity. This
allows for global specialisation which should increase the productive efficiency of the world
economy. The reallocation of scarce resources to those countries who have the comparative
advantage should, in theory, create ‘free’ gains in economic welfare, with no economic losers.
Another way in which globalisation should impact economic growth is through the effects of
increased competitiveness. The increasingly free flow of ideas, people, goods, services and capital
should introduce new competition in to most sectors. Increased competitiveness, in theory, reduces
monopoly profits and incentivises firms to come up with cost-reducing innovation and
improvements. Thus increased competition is likely lead to higher long-term economic growth due
increased productive efficiency of an economy. Moreover, the freer flow of capital should also allow
for increased cross-border investment. Again, this should help improve the quality, quantity and
organisation of the factors of production, and as a result lead to long-term economic growth.
A third way in which globalisation is likely to impact economic growth is through the fact that it
enables firms to take better advantage of economies of scale across borders. Again, this is likely to
lead to improvements in the productive efficiency of the economy. Thus, the theory suggests that
globalisation will lead to increased economic growth in the UK economy, one of the key
macroeconomic performance indicators. Indeed, a 2014 paper by Von Reenan & Bloom from the LSE
concluded that ‘firms have responded to the threat of Chinese imports by increasing their
productivity – adopting better IT, boosting R&D spending, and increasing patenting’ and that the
annual benefit was almost €10bn to European economies.
