4.1.3 Factors contributing to increased globalisation

• Factors contributing to globalisation

  Reduction of international trade barriers

  Political Change

  Reduced transport costs and communication

  Increased significance of global companies

  Increased investment flows FDI

  Migration & Growth of the global labour force

  Structural change
• Globalisation has benefited people mainly in places such as China,India,Indonesia and Brazil along with the world's top one percent.But people at the very bottom of the income ladder as well as lower-middle class of rich countries lost out.

  Globalisation is likely to be undesirable if monopoly power occurs where only one firm dominates a market and there are no other competitors as this would be bad for the economy.It is desirable as it creates employment opportunities.
• How has FDI benefited the UK economy?

  FDI has benefited the UK economy by creating jobs,for example when the government gave grants to Nissan,Toyota and Honda to attract them to the UK this created many jobs,meaning less people on benefits and they start paying taxes.
• FDI is when a firm invests and sets up in another country

  Foreign Direct Investment (FDI) is investment by foreign firms which results in more than 10% share of ownership of domestic firms
• Multiplier effect

  When there is an initial new investment into an economy it will create new spending and jobs.

  Workers will be taken on directly at the factory(and temp jobs in construction)

  Contracts given to suppliers creating more jobs in supply chain

  Extra spending by workers at Toyota and supply chain will create more jobs in local,national economy

  gov will receive extra tax revenues from both the businesses,direct from workers and from spending allowing them to increase their spending e.g. on health creating more jobs

  So,initial spending is multiplied creating more spending/jobs.
• Negative Multiplier

  This is exactly the same, but in reverse. This is where a decrease in spending (e.g. a business closing down), will result in a much

  larger decrease in spending and loss of jobs across the economy.
• What are drawbacks to UK economy of FDI?

  Local competition,e.g when Toyota came local business (rover) closed down.
• What type of FDI is seen as undesirable?

  One that causes long term environmental damage for short term jobs e.g logging in the Amazon.

  Where workers are exploited
• Evaluating FDI

  It may create high skilled and high paid jobs

  Provides work for local suppliers as they may be given contracts

  Senior managerial roles may be given to people from firms original country.
• Advantages to the host country

  • Transfer of Skills and technology
  • Jobs created
  • More corporation tax
  • More choice for consumers
  • More business for suppliers
  • Reduces unemployment
  • Positive multiplier efrect
  • Economic growin
  • Improves the balance of payment (if they manufacture products and sell abroad)
• Disadvantages to the host country

  • causes localbusinesses to close down - less money in tax - job losses
  • May take profits back to their own country
  • May give the skilled jobs to people from their own country
  • Hosting country may lose their identity
  • Possible exploitation of workers (mainly underdeveloped countries)
  • possible exploitation of natural resources (cutting down trees)
  • Large political influence
  • The government will get less money in import taxes.
  • May be there to avoid tax
  • May politically infuence the govemment
• Advantages to the multinational(firm who dies FDI)

  • Reap economies of scale
  • Larger target market
  • More sales and revenue
  • Take advantage of countries with a comparative advantage
  • Bulid a brand Known internationally
  • More competitive
  • Higher bargaining power of suppliers
  • less risk more security
  • can avoid tax
  • Avoid tariffs and exchange rate fluctuations
  • some counties offer grants to more there
  • Access to trading blocs
• Disadvantages to the multinational

  • Harder to maintain a good reputation
  • Higher cost
  • Varying exchange rates
  • causes local businesses to close down people mink its unethical
  • communication issues-language barriers
  • different tastes and preferences
  • cultural differences
  • Diseconomes of scale.
• Evaluation depends on investment type

  Desirable - Toyato moving to uk-large positive multiplier.

  Less Desirable. where workers are being exploited or degradation of natural resources.
• Reduction of international trade barriers

  more countries join free trade blocs,all encouraging free trade

  when countries sign free trade agreements with each other
• Political change

  When politics change in a country

  e.g China becoming more open to trade,Brexit
• Reduced cost of transport and communication

  Internet,google meet,more flights all make international trade easier
• Increased significance of global companies

  World trade becoming dominated by large multinational brands e.g Amazon,Apple

  Certain few firms dominate each market
• Increased investment flows (FDI)

  World dominated by large international brands means more FDI as businesses spread throughout the world.
• Migration (within and between economies)

  more people working in other countries
• Structural change

  An economy changes structurally

  e.g China was an agricultural economy but now is technology economy