4.1 Globalisation

• The Economy

  the state of a country in terms of:

  • value of goods and services the country is producing and consuming
• Economy determined using GDP

  • the value of all the goods and services produced in A country
• Emerging Economy - A country that is growing rapidly and is expected to become a major economic power in the future
• Emerging Economy characteristics

  • skilled, low-cost labour
  • currencies make exports cheaper
  • growing consumer income
• Key Indicators of Growth

  • PPP Purchasing Power Parity: a measure of growth, uses price of a basket of goods and services to compare prices across countries
  • GDP per capita: total GDP/ number of residents
  • HDI Human Development Index: combined literacy, health, GDP per capita stats into 1 single value
• International Trade : The exchange of goods and services between countries across the world
• Benefits from International Trade:

  • Revenues from exports helps reduce poverty since jobs are being created
  • lower consumer prices creative competitive markets
  • Technology spreading around the world which raises productivity
  • economies of scale - lower unit costs and prices
  • better use of earths resources
• Drawbacks of International Trade

  • Transport costs
  • cost to the planet from production and consumption
  • pressure on wages and working conditions
  • risks of global external shocks
  • rising inequality - uneven gains from trade
• Imports: goods And services brought into one country from another
• Exports : goods and services produced in one country and sold in another country.
• Specialisation

  some countries are better at producing certain goods and services than other countries
• Importance of specialisation for trade

  • A country is more productively efficient than another
  • cost of production lower in one country than another
• If every country specialises, total economic output increases across the global economy. e.g Bangladesh (textiles), Vietnam ( light manufacturing )
• Why Emerging Economies will continue to grow

  • population growth
  • Technological Innovation in emerging markets
  • workforce continuing to develop skills and be more productive
  • urbanisation continuing
  • industrialisation in East Asia and South Africa
• Foreign Direct Investment (FDI)

  • Investment from one country to another.
  • normally by companies rather than governments
  • involves establishing operations or acquiring tangible assets like stakes in other businesses
• Inwards FDI -

  • Business deciding to build a manufacturing factory overseas.
  • A foreign retail firm invests to open new UK stores
• Outward FDI

  • A business from the UK expands into overseas market by opening a new production facility
  • e.g a UK business completes a takeover of a business based in another country
• Why Businesses Engage in FDIs

  • Take advantage of lower costs in other countries
  • operate closer to raw materials and other supplies rather than transporting over long distance
  • avoid protectionist measures (e.g tariffs and import quotas)
  • supports market development e.g expansion by local brands
  • earn target returns on investment by buying valuable assets
• Globalisation

  • involves businesses buying and selling around the world, often due to the cost or availability of products or cheap labour.
  • the spread of the flow of financial products, goods, technology, information, and jobs across national borders and cultures
• Key Features of Globalisation

  • rising number of global brands
  • specialisation of Labour
  • increasing connectivity of people and businesses through mobile and WiFi networks
  • world economy more connected
  • greater use of outsourcing and offshoring of production
  • greater trade across borders
  • increased spending on capital
  • new nations joining trading system
• Factors contributing to increased Globalisation

  • Containerisation
  • Technological advancement: consumers have more choice, transport costs cheaper, business sells into more markets
  • economies of scale
  • differences in tax systems
  • less protectionism
  • growth of TNCs and MNCs
• Benefits of Globalisation

  • Freer movement of labour between countries
  • sharing ideas/skills/technologies across national borders
  • increased awareness among consumers
  • helps poorer countries to achieve faster economic growth
  • opening of capital markets
• Drawbacks of Globalisation

  • Inequality
  • inflation
  • External Shocks
  • Trade Imbalances
  • Unemployment
  • Dominant global brands
  • lose global diversity
• Free Trade

  An economic policy where you cannot discriminate against imports and exports to other countries

  Buyers may trade without government applying tariffs, subsidies
• Benefits of Free Trade

  • Countries benefit from comparative advantage
  • business achieve economies of scale
  • encourages competition and economic efficiency
  • encourages businesses to grow beyond borders
• World Trade Organisation (WTO)

  sets rules for international trade
• Protectionism: the theory or practice of shielding a country's domestic industries from foreign competition by imposing restrictions on trade
• Three Main Kinds of Protectionism

  1. Tariff - a charge/fee that raises price of imported products, causes reduction in domestic demand and increases supply (tax on imports/exports between countries)
  2. Import Quotas - volume limits on the level of inputs allowed in a given time period. Reduces import volume to help domestic suppliers in raising their prices
  3. subsidies - a payment to encourage domestic production by lowering their costs. Increases production and leads to a fall in price
• Other Methods of Protectionism

  • import licensing - grants license to import
  • exchange controls -limiting currencies
  • intellectual property laws - patents, copyright protection protecting ideas
  • technical barriers to trade - product labelling rules and sanitary standards. Increases product compliance costs and impose monitoring costs
• Reasons in favour of Protectionism

  • Infant Industry Protection
  • Protection of strategic industries: protects jobs, skills in key industries
  • Protection against import Dumping: dumping is a form of predatory pricing which can seriously domestic industries
• Arguments against Protectionism

  • higher prices for consumers: comes from import tariffs or import quotas raising prices due to restricted market supply
  • Retaliation from other countries: protectionism causes price wars
  • extra costs for exporters: increases costs facing domestic firms exporting
• Trading Blocs

  groups of countries in specific regions who manage and promote trade activity

  if you are in a trading bloc you are able to trade freely
• Main Benefits of Trading Blocs

  • Foreign Direct Investment
  • Economies of Scale
  • Competition
  • Greater trade
  • Market efficiency
  • Avoid protectionism
• Advantages of EU (Trading Blocs)

  • Free trade of goods
  • Mobility of labour - people move around for work and study and leisure
  • free movement of capital
  • free trade in services e.g pensions