Globalisation 4.1.1
Created @October 30, 2023 6:13 PM
Tags
Globalisation is a process in which national economics have become increasingly
integrated and inter-dependent
KOF’s index of Globalisation ranks countries based on three key dimensions:
1. Economic
2. Social
3. Political
Key Drivers of Globalisation:
1. Less protectionist policies and Free Trade
a. Borders are more open and average import tariff has fallen
2. Containerisation
a. Cost of ocean shipping has come down, due to the invention of
containers, bulk shipping and other efficiencies
3. Technological change
a. Cost reduction of transmitting and communicating information
4. Economies of Scale
a. Increase in minimum efficient scale (MES) associated with some industries
5. Differences in tax systems
a. Countries have adjusted their tax systems to attract foreign direct
investment (FDI)
Positive Impacts of Globalisation:
Increased international trade flows
Globalisation 4.1.1 1
, Increased economic growth
Increased FDI
Rising number of global brands
Increased specialisation and division of labour
Global supply chains and new trade investment routes
Increased international migration
Increased connectivity between firms and people
Disadvantages of Globalisation:
Rising inequality/Relative poverty
Threats to global commons (ecosystems, oceans etc.)
Macroeconomic fragility due to inter-connectedness
Trade imbalances create inequality between countries
Higher structural employment
Dominant global brands
MNCs may conduct poor behaviour
Impacts of Globalisation:
Consumers:
Consumer choices increase
Lower prices from global markets —> More disposable income to spend on
other goods —> Standard of living gets better
Globalisation 4.1.1 2
, Domestic industries (small/infant) cannot compete with low prices
Leads to greater unemployment
Firms:
Market size increases so sales increase
Specialisation (due to comparative advantage) lets firms exploit economies of
scale so opportunity cost decreases
Supplier network increases, access to lower prices, COP decreases, profit
increases
Access to modern technologies, COP decreases as productivity increases
Risk diversification by operating and selling in different countries
Tax avoidance
Transfer pricing - setting prices for goods and services that are
transferred between different parts of a multinational company
However, economic dependency increases, so risk increases if trade links
break down
Workers:
Globalisation 4.1.1 3
, Employment opportunities increase
Migration increases
Skill gaps decrease so productivity increases
Workers standard of living increases
More jobs created in host country
However:
Structural unemployment in traditional manufacturing (due to mismatch of
skills) increases
Migration increases so there is more pressure on housing, education and
healthcare
Wages decrease due to increase in supply of labour
Governments:
More government co-operation
FDI increases
However:
Possible tax evasion/aversion by MNCs
Inequality increases
Negative externalities increase
Individual Countries:
Specialisation in their comparative advantage
Total output increases leading to economic growth
National income increase leading to increase in Standard of Living
FDI increases
MNCs invest in developing countries improving their infrastructure
However:
Globalisation 4.1.1 4
Created @October 30, 2023 6:13 PM
Tags
Globalisation is a process in which national economics have become increasingly
integrated and inter-dependent
KOF’s index of Globalisation ranks countries based on three key dimensions:
1. Economic
2. Social
3. Political
Key Drivers of Globalisation:
1. Less protectionist policies and Free Trade
a. Borders are more open and average import tariff has fallen
2. Containerisation
a. Cost of ocean shipping has come down, due to the invention of
containers, bulk shipping and other efficiencies
3. Technological change
a. Cost reduction of transmitting and communicating information
4. Economies of Scale
a. Increase in minimum efficient scale (MES) associated with some industries
5. Differences in tax systems
a. Countries have adjusted their tax systems to attract foreign direct
investment (FDI)
Positive Impacts of Globalisation:
Increased international trade flows
Globalisation 4.1.1 1
, Increased economic growth
Increased FDI
Rising number of global brands
Increased specialisation and division of labour
Global supply chains and new trade investment routes
Increased international migration
Increased connectivity between firms and people
Disadvantages of Globalisation:
Rising inequality/Relative poverty
Threats to global commons (ecosystems, oceans etc.)
Macroeconomic fragility due to inter-connectedness
Trade imbalances create inequality between countries
Higher structural employment
Dominant global brands
MNCs may conduct poor behaviour
Impacts of Globalisation:
Consumers:
Consumer choices increase
Lower prices from global markets —> More disposable income to spend on
other goods —> Standard of living gets better
Globalisation 4.1.1 2
, Domestic industries (small/infant) cannot compete with low prices
Leads to greater unemployment
Firms:
Market size increases so sales increase
Specialisation (due to comparative advantage) lets firms exploit economies of
scale so opportunity cost decreases
Supplier network increases, access to lower prices, COP decreases, profit
increases
Access to modern technologies, COP decreases as productivity increases
Risk diversification by operating and selling in different countries
Tax avoidance
Transfer pricing - setting prices for goods and services that are
transferred between different parts of a multinational company
However, economic dependency increases, so risk increases if trade links
break down
Workers:
Globalisation 4.1.1 3
, Employment opportunities increase
Migration increases
Skill gaps decrease so productivity increases
Workers standard of living increases
More jobs created in host country
However:
Structural unemployment in traditional manufacturing (due to mismatch of
skills) increases
Migration increases so there is more pressure on housing, education and
healthcare
Wages decrease due to increase in supply of labour
Governments:
More government co-operation
FDI increases
However:
Possible tax evasion/aversion by MNCs
Inequality increases
Negative externalities increase
Individual Countries:
Specialisation in their comparative advantage
Total output increases leading to economic growth
National income increase leading to increase in Standard of Living
FDI increases
MNCs invest in developing countries improving their infrastructure
However:
Globalisation 4.1.1 4
