4.1.1

• What is globalisation?

  Globalisation is a process by which economies and cultures have drawn deeper together and have become more inter-connected through global networks of trade, capital flows, and the rapid spread of technology and global media.

  The share of global GDP accounted for by exports of goods and services has risen from 12% in 1960 to almost 30% now.
• What is the key benefit of globalisation?

  Globalisation allows businesses and countries to specialise in producing goods and services where they have a comparative advantage (i.e. able to produce at a lower opportunity cost)

  Specialisation and trade enable a gain in economic welfare
• Factors contributing to globalisation in the last 50 years

  Containerisation

  Technological advances

  Differences in tax systems

  Less protectionism
• Transnational corporations (TNCs)

  Transnational corporations (TNCs) base their manufacturing, assembly, research and retail operations in a number of countries. Many TNCs have become synonymous with globalisation such as Nike, Facebook, Apple, Netflix, Uber, Amazon, Google and Samsung. The biggest 500 TNCs together account for nearly 70% of the value of world trade.
• TNCs as a key driver of globalisation

  This is because they have been re-locating manufacturing to countries with relatively lower unit labour costs to increase profits and returns for shareholders.

  E.g. Volkswagen, Toyota, Nissan and General Motors all have plants in Mexico which has helped Mexico to build a comparative advantage in assembling, manufacturing and then exporting vehicles to other countries including the US and Canada.
• Advantages of globalisation

  Some of the main advantages are:

  • More competitive markets
  • Freer movement of labour
  • Higher income per head
  • Deeper division of labour
• Drawbacks from globalisation

  Growing political and social tensions

  Threats to the global commons

  Greater exploitation of the environment

  Macroeconomic fragility

  Trade imbalances

  Workers may suffer structural unemployment
• Impact of globalisation on the UK economy

  Many macro and micro aspects can be considered:

  • Expanded choice of and higher surplus
  • Effect on retail prices and the rate of inflation
  • Impact of the UK firms relocating to lower-wage economies
  • Impact of net inward migration on real wages and on UK government spending / tax revenues
  • Impact on share prices and profits of UK companies
• External shocks

  External shocks are events that came from outside a domestic economic system

  • Negative external shocks create instability and can lead to persistent periods of weaker economic growth, higher unemployment, falling real incomes and rising poverty
  • External shocks can also be positive e.g. the emergence of and widespread adoption of technologies used by businesses and households in many countries.