Globalisation : Growing interdependence and interconnectedness in trade,
travel and technology, or increased integration of countries economically,
socially and culturally.
Trump, due to protectionism and covid 19 put a halt to rate of globalisation
due to disrupting global trade
Characteristics of globalisation :
- Increased trade, and movements of capital flows and people between
countries.
- Increased FDI ( When one company in a country establishes operations
eg:factory in another country, OR when it acquires physical assets or
stake in an overseas company )
Factors contributing to globalisation :
- Improvements in transport infrastructure (EG : Containerisation) meant
transport is quick and cheap (Fall in LRAC) - economies of scale.
- Trade liberalisation = Less barriers in Global trade ( WTO ) and reduced
protectionism and more Trade Blocs.
- Decrease in costs of communication and improvements in IT (EG :
Internet) allows companies to operate around the globe.
- China’s open door policy and fall of communism and USSR
- TNCs engaged in FDI and offshoring and outsourcing on a global scale.
,Impacts of globalisation :
- CONSUMERS = Lower prices so goods are more affordable so more
consumer surplus due to lower costs such as labour costs as firms take
advantage of comparative advantage,
wider range of products so more choice,
BUT rising prices (Demand-pull inflation) due to rising incomes and
higher demand (AD increase)
Loss of culture
- Workers = More job opportunities and less unemployment
Can be exploited with long shifts and bad working conditions and low
salaries in countries like India
More unemployment domestically in Western World in the
manufacturing sector and work transferred abroad to China. Dereliction
such as in Leicester or Detroit.
- Firms/Producers = Lower production costs, transportation and labour
costs = Higher profit. → Economies of scale.
Less regulations = Able to produce more due to less pollution permits
and more freedom.
Lower trade barriers = can export and import more
Bigger workforce such as in China can mean they can produce more
goods with lower costs. (Higher productive potential)
If one country collapses, companies could sell their products in more
countries so there’s less risk.
- Government = More tax revenue (VAT, corporation tax) so could invest
in public services. BUT could lose out on tax avoidances. TRANSFER
PRICING (which allows TNCs to declare profits in countries where
corporation tax is the lowest) so the government loses tax revenue.
Can fuel economic growth in LICs through FDI and salaries. Can have a
multiplier effect on the country. However, country may be corrupt.
- Environment = Increased external costs of pollution and waste through
factories and transport. Exploitation of raw materials. Less regulations
allow companies to take advantage. EG : Indonesia citarum river.
,Specialisation of trade
- Absolute advantage : A country can produce a good more cheaply than
another country, or can produce more
Comparative advantage : A country can produce goods at a lower opportunity
cost than another country.
ASSUMPTIONS
- No transport costs
- No trade barriers
- Constant returns to scale = LRAC is constant
- Consumers have perfect knowledge
Limitations of law of comparative advantage = Trade barriers may distort
comparative advantage, and are based on unrealistic assumptions.
Diseconomies of scale may occur so LRAC may rise
Advantage of specialisation of trade
- Comparative advantage means higher world output would mean Living
standards would improve, and economic growth.
- Lower prices and increased choice for consumers
- Economies of scale = Lower costs for businesses
- More competition so lower prices and higher quality and provides
incentive for firms to innovate, and be more efficient allocation of
resources based on comparative advantage.
Disadvantage of specialisation of trade
- Based on unrealistic assumptions
- Can cause over-dependence on countries for trade. Can be a problem if
political problems, tariffs or rapid price fluctuations
- Can cause structural unemployment if jobs are lost to foreign workers
who are more efficient and competitive.
- Sectoral imbalance (Imbalance between primary,secondary and tertiary
sector). Other industries/sectors may be vulnerable.
- Danger of Dumping ( surpluses of goods dumped and sold in foreign
countries for a price smaller than its cost ) = Can lead to producers
(Infant and normal) to go bankrupt as they would be unable to compete.
- Monopsony power of firms in developed countries might force
producers in developing countries to accept low prices.
- TNCs may become global monopolies and exploit consumers.
, Patterns of trade
Factors influencing patterns of trade
- Change in comparative advantage. For example, emerging countries
have comparative advantages due to lower labour costs and increasing
productivity. This led to western and developing countries to shift their
labour abroad due to it being more profitable so many western countries
deindustrialised such as UK.
- Growth of emerging and developing economies such as China. China’s
open door policy allowed businesses to settle there with cheap labour
so many outsourced and offshored there. China is a major
manufacturer.
- Trading blocs and bilateral trading agreements = Since WW2, there has
been an increase in trading blocs which allow free trade, allowing more
trade to take place. EG : Uk traded more with Europe when it was in
EU, but since it left, it trades less. WTO monitors it.
- Changes in relative exchange rates = Change in exchange rates can
affect relative competitiveness and trading patterns. EG : China kept its
currency weak in order to export more.
Terms of Trade = Measures price of country’s export relative to the price
of imports.
Terms of Trade= ( Index of export prices / Index of import prices ) x 100
- If terms of trade improves, for every unit of export sold, the more
imports can be purchased.
travel and technology, or increased integration of countries economically,
socially and culturally.
Trump, due to protectionism and covid 19 put a halt to rate of globalisation
due to disrupting global trade
Characteristics of globalisation :
- Increased trade, and movements of capital flows and people between
countries.
- Increased FDI ( When one company in a country establishes operations
eg:factory in another country, OR when it acquires physical assets or
stake in an overseas company )
Factors contributing to globalisation :
- Improvements in transport infrastructure (EG : Containerisation) meant
transport is quick and cheap (Fall in LRAC) - economies of scale.
- Trade liberalisation = Less barriers in Global trade ( WTO ) and reduced
protectionism and more Trade Blocs.
- Decrease in costs of communication and improvements in IT (EG :
Internet) allows companies to operate around the globe.
- China’s open door policy and fall of communism and USSR
- TNCs engaged in FDI and offshoring and outsourcing on a global scale.
,Impacts of globalisation :
- CONSUMERS = Lower prices so goods are more affordable so more
consumer surplus due to lower costs such as labour costs as firms take
advantage of comparative advantage,
wider range of products so more choice,
BUT rising prices (Demand-pull inflation) due to rising incomes and
higher demand (AD increase)
Loss of culture
- Workers = More job opportunities and less unemployment
Can be exploited with long shifts and bad working conditions and low
salaries in countries like India
More unemployment domestically in Western World in the
manufacturing sector and work transferred abroad to China. Dereliction
such as in Leicester or Detroit.
- Firms/Producers = Lower production costs, transportation and labour
costs = Higher profit. → Economies of scale.
Less regulations = Able to produce more due to less pollution permits
and more freedom.
Lower trade barriers = can export and import more
Bigger workforce such as in China can mean they can produce more
goods with lower costs. (Higher productive potential)
If one country collapses, companies could sell their products in more
countries so there’s less risk.
- Government = More tax revenue (VAT, corporation tax) so could invest
in public services. BUT could lose out on tax avoidances. TRANSFER
PRICING (which allows TNCs to declare profits in countries where
corporation tax is the lowest) so the government loses tax revenue.
Can fuel economic growth in LICs through FDI and salaries. Can have a
multiplier effect on the country. However, country may be corrupt.
- Environment = Increased external costs of pollution and waste through
factories and transport. Exploitation of raw materials. Less regulations
allow companies to take advantage. EG : Indonesia citarum river.
,Specialisation of trade
- Absolute advantage : A country can produce a good more cheaply than
another country, or can produce more
Comparative advantage : A country can produce goods at a lower opportunity
cost than another country.
ASSUMPTIONS
- No transport costs
- No trade barriers
- Constant returns to scale = LRAC is constant
- Consumers have perfect knowledge
Limitations of law of comparative advantage = Trade barriers may distort
comparative advantage, and are based on unrealistic assumptions.
Diseconomies of scale may occur so LRAC may rise
Advantage of specialisation of trade
- Comparative advantage means higher world output would mean Living
standards would improve, and economic growth.
- Lower prices and increased choice for consumers
- Economies of scale = Lower costs for businesses
- More competition so lower prices and higher quality and provides
incentive for firms to innovate, and be more efficient allocation of
resources based on comparative advantage.
Disadvantage of specialisation of trade
- Based on unrealistic assumptions
- Can cause over-dependence on countries for trade. Can be a problem if
political problems, tariffs or rapid price fluctuations
- Can cause structural unemployment if jobs are lost to foreign workers
who are more efficient and competitive.
- Sectoral imbalance (Imbalance between primary,secondary and tertiary
sector). Other industries/sectors may be vulnerable.
- Danger of Dumping ( surpluses of goods dumped and sold in foreign
countries for a price smaller than its cost ) = Can lead to producers
(Infant and normal) to go bankrupt as they would be unable to compete.
- Monopsony power of firms in developed countries might force
producers in developing countries to accept low prices.
- TNCs may become global monopolies and exploit consumers.
, Patterns of trade
Factors influencing patterns of trade
- Change in comparative advantage. For example, emerging countries
have comparative advantages due to lower labour costs and increasing
productivity. This led to western and developing countries to shift their
labour abroad due to it being more profitable so many western countries
deindustrialised such as UK.
- Growth of emerging and developing economies such as China. China’s
open door policy allowed businesses to settle there with cheap labour
so many outsourced and offshored there. China is a major
manufacturer.
- Trading blocs and bilateral trading agreements = Since WW2, there has
been an increase in trading blocs which allow free trade, allowing more
trade to take place. EG : Uk traded more with Europe when it was in
EU, but since it left, it trades less. WTO monitors it.
- Changes in relative exchange rates = Change in exchange rates can
affect relative competitiveness and trading patterns. EG : China kept its
currency weak in order to export more.
Terms of Trade = Measures price of country’s export relative to the price
of imports.
Terms of Trade= ( Index of export prices / Index of import prices ) x 100
- If terms of trade improves, for every unit of export sold, the more
imports can be purchased.
