The international economy
Globalisation
The ever increasing integration of local, regional and national economies into
a single, international market. It involves the free trade, movement of
capital and labour + the interchange of technology and intellectual capital.
Globalisation has brought more trade e.g. FDI. Additionally, countries have
become interdependent.
Factors contributing to globalisation
Trade in goods:
● Developing countries have acquired the capital and knowledge to
manufacture goods
● The efficient forms of transport make it easier and cheaper to transfer
goods across international borders
● MNCs move to developing countries where labour is cheaper
Trade in services:
● E.g. tourism, call centres + software production has increased from
developing countries to developed countries
Trade liberalisation:
● The growing strength and influence of organisations e.g. WTO, which
advocates free trade, contributed to the decline in trade barriers
Multinational Corporations (MNCs):
● They have used marketing to become global + have taken advantage of
economies of scale
International financial flows:
● FDI + foreign ownership of firms has increased
● The removal of capital controls has facilitated this increase
Communications and IT:
● Easier + cheaper to communicate. There are better transport links and
transfers of info - ‘death of distance’
Containerisation:
● Cheaper to ship goods which helps make the market more competitive
The consequences of globalisation
Individual countries
There could be trade imbalances between countries + consumers e.g.
access to health, education + markets.
There could be income and wealth inequalities if the benefits and costs of
globalisation are not evenly spread. This is evident in China’s rural vs urban
areas.
Globalisation has weakened culture + diversity due to global brands.
,Governments
Some governments might lose their sovereignty due to international
treaties. They will have to abide by their rules.
Producers and consumers
Specialisation + economies of scale improves competitiveness +
efficiency.
Automation + outsourcing can also lower their average costs. Globalisation
leads to a general increase in world GDP but it is hard to calculate the
proportion of growth which was due to globalisation.
Workers
There are global job opportunities but also structural unemployment from
relocating overseas. There is job creation in these lower cost nations. MNCs
could exploit labour or provide a higher, stable income.
The environment
More travel + industrialisation leads to pollution. Others include
deforestation, water scarcity + land degradation.
Trade
Absolute advantage
When a country can produce a good or service using fewer resources + at a
lower cost than another country.
Comparative advantage
When a country can produce a good or service at a lower opportunity cost
than another country. Countries can specialise in a comparative advantage.
The benefits of free trade
● Countries can exploit their comparative advantage - increases world
GDP
● More competitive markets - lowers the cost of production
● Trade creation means there is more consumption + economic welfare
● More exports - higher rates of economic growth
● Specialising means - economies of scale - lower costs
The following costs could be considered:
● Free trade results in some job losses
● Free trade contributes to pollution
Impact of emerging economies
The collapse of communism has meant that more countries are
participating in world trade. International trade contributes towards 20% of
LDC economies compared to 8% of the US economy. China + India are
, important for the Euro area, with trade and financial relations. China is a main
import source, whilst both are important for capital.
Growth of trading blocs and bilateral trading agreements
Trade creation occurs when a country consumes more imports from a low
cost producer + fewer from a high cost producer. Trade diversion occurs
when trade shifts to a less efficient producer. Protectionist barriers are
often imposed on non members.
The EU Common Agricultural Policy (CAP) means domestic farmers receive
subsidies to encourage production and lower costs.
For a long time, China has been running a trade surplus with the US. China
has planned this change from export-led growth to growth fuelled by
domestic consumption. When running the trade surplus, China kept their
currency’s value low to make their exports relatively cheap.
Protectionism
The act of guarding a country’s industries from foreign competition.
Methods:
Tariffs
Tax on imports. It could lead to retaliation, so exports might decrease. The
quantity demanded of domestic goods increases, whilst the demand for
imports decreases.
Globalisation
The ever increasing integration of local, regional and national economies into
a single, international market. It involves the free trade, movement of
capital and labour + the interchange of technology and intellectual capital.
Globalisation has brought more trade e.g. FDI. Additionally, countries have
become interdependent.
Factors contributing to globalisation
Trade in goods:
● Developing countries have acquired the capital and knowledge to
manufacture goods
● The efficient forms of transport make it easier and cheaper to transfer
goods across international borders
● MNCs move to developing countries where labour is cheaper
Trade in services:
● E.g. tourism, call centres + software production has increased from
developing countries to developed countries
Trade liberalisation:
● The growing strength and influence of organisations e.g. WTO, which
advocates free trade, contributed to the decline in trade barriers
Multinational Corporations (MNCs):
● They have used marketing to become global + have taken advantage of
economies of scale
International financial flows:
● FDI + foreign ownership of firms has increased
● The removal of capital controls has facilitated this increase
Communications and IT:
● Easier + cheaper to communicate. There are better transport links and
transfers of info - ‘death of distance’
Containerisation:
● Cheaper to ship goods which helps make the market more competitive
The consequences of globalisation
Individual countries
There could be trade imbalances between countries + consumers e.g.
access to health, education + markets.
There could be income and wealth inequalities if the benefits and costs of
globalisation are not evenly spread. This is evident in China’s rural vs urban
areas.
Globalisation has weakened culture + diversity due to global brands.
,Governments
Some governments might lose their sovereignty due to international
treaties. They will have to abide by their rules.
Producers and consumers
Specialisation + economies of scale improves competitiveness +
efficiency.
Automation + outsourcing can also lower their average costs. Globalisation
leads to a general increase in world GDP but it is hard to calculate the
proportion of growth which was due to globalisation.
Workers
There are global job opportunities but also structural unemployment from
relocating overseas. There is job creation in these lower cost nations. MNCs
could exploit labour or provide a higher, stable income.
The environment
More travel + industrialisation leads to pollution. Others include
deforestation, water scarcity + land degradation.
Trade
Absolute advantage
When a country can produce a good or service using fewer resources + at a
lower cost than another country.
Comparative advantage
When a country can produce a good or service at a lower opportunity cost
than another country. Countries can specialise in a comparative advantage.
The benefits of free trade
● Countries can exploit their comparative advantage - increases world
GDP
● More competitive markets - lowers the cost of production
● Trade creation means there is more consumption + economic welfare
● More exports - higher rates of economic growth
● Specialising means - economies of scale - lower costs
The following costs could be considered:
● Free trade results in some job losses
● Free trade contributes to pollution
Impact of emerging economies
The collapse of communism has meant that more countries are
participating in world trade. International trade contributes towards 20% of
LDC economies compared to 8% of the US economy. China + India are
, important for the Euro area, with trade and financial relations. China is a main
import source, whilst both are important for capital.
Growth of trading blocs and bilateral trading agreements
Trade creation occurs when a country consumes more imports from a low
cost producer + fewer from a high cost producer. Trade diversion occurs
when trade shifts to a less efficient producer. Protectionist barriers are
often imposed on non members.
The EU Common Agricultural Policy (CAP) means domestic farmers receive
subsidies to encourage production and lower costs.
For a long time, China has been running a trade surplus with the US. China
has planned this change from export-led growth to growth fuelled by
domestic consumption. When running the trade surplus, China kept their
currency’s value low to make their exports relatively cheap.
Protectionism
The act of guarding a country’s industries from foreign competition.
Methods:
Tariffs
Tax on imports. It could lead to retaliation, so exports might decrease. The
quantity demanded of domestic goods increases, whilst the demand for
imports decreases.
