4.4 Globalisation

• Globalisation

  ''The expansion of world trade in goods and services, together with capital flows, leading to greater international independence.''
• Development


  The process of increasing people's standard of living and wellbeing over time.
• Developed country

  A country with high GDP per capita and established industry and service sectors
• Less developed country

  A country with a developing economy that has lower GDP per capita, lower levels of industrialisation and weaker indicators of wellbeing
• Causes/ Driving factors of Globalisation:

  • Improvements in transportation
  • Advances in technology & communications
  • Growth in worldwide foreign investment
  • The increase in international trade
• The factors used to measure whether development has occurred or not are:

  • GDP per capita -> It is said that higher growth contributes to development. GDP per capita measures the level of income per person in an economy, so higher growth, reflected in GDP, can lead to greater employment and incomes. Higher incomes mean that more goods + services can now be afforded.
  • Life expectancy -> This indicates the overall health of the population and how 'safe' a country is in terms of whether there is conflict, and whether there are health and safety regulations in place.
• The factors used to measure whether development has occurred or not are:

  • Access to healthcare
  • Access to technology -> Greater access to the internet enables improved communications. This may also include the levels of investment by a country in research and development, as this can forecast future development.
  • Access to education -> This enables better skilled workers in an economy.
• Benefits of globalisation for producers in developed countries:

  • Cheaper raw materials -> Better access to to resources from other countries, potentially lower AC's
  • Possible advances in technology -> greater sharing of scientific education
  • The potential of much larger Economies of Scale -> as firms can sell their product in much greater international markets, they have greater scope for EofS, resulting in lower AC's.
• Cost of globalisation for producers in developed countries:

  • Possible loss of demand leading to industry decline -> If firms in other countries are able to produce goods more cheaply, UK firms will be less competitive.
  • Greater interdependence -> If there is a decline in another economy which buys a lot of UK exports, then demand will be reduced for UK firms' goods.
• The benefits of globalisation for producers in developed countries will depend upon:

  • Whether the increased demand from new markets in other countries outweighs the potential loss of UK markets to international competitors
  • The scale of any potential rise in market production
  • Exactly which industry/market the firm is in.
• Benefits of globalisation for consumers in developed countries:

  • Lower prices -> *see diagram* More firms competing leads to an increase in supply, resulting in a fall in price.
  • Higher 'real' incomes for consumers -> Greater purchasing power, resulting in better standards of living
  • Much wider range of goods + services
  • Better quality and more innovative goods
  • Greater opportunity to travel -> The opening up of borders potentially provides opportunity for travel & tourism
• Costs of globalisation for consumers in developed countries:

  • Possible reduction in choice? -> If large MNC's grow and dominate international markets, then this could reduce choice.
  • Possibility of greater volatility of prices -> As a result of Increased interdependence
• The benefits of globalisation for consumers in developed countries will depend upon:

  • The scale of the increase in competition
  • The impact on overall prices will depend upon whether or not the increase in supply is greater than the increase in demand in global markets. As long as the increase in supply > the increase in demand, then equilibrium price will fall.
• The benefits of globalisation for workers in developed countries:

  • Greater output in the larger global market so there will be increased employment
  • Greater foreign direct investment (FDI) can lead to increased growth and employment. Overseas firms may want to invest in the UK in order to supply the UK market easily, creating more employment opportunities.
  • Workers will be able to move all around the world -> Globalisation has resulted in greater freedom of movement for workers. Therefore, workers will be able to work and live in many more countries around the world.
• The costs of globalisation for workers in developed countries:

  • Possibility of increased unemployment -> If UK manufacturing has higher labour costs than other firms in the world it becomes uncompetitive. Workers who have high but specific skills lose their jobs, which is difficult to solve.
  • Greater use of machinery/ 'mechanisation' -> With increased trade firms may find new machinery is now available from elsewhere in the world to buy and use in the production process. This 'mechanisation' can see people lose their jobs.
• Another cost of globalisation for workers in developed countries:

  • Greater dependence upon overseas (export) markets -> If there is an economic downturn in these countries then the demand for goods made in the UK will also fall. As a result, there will be lower AD, reduced growth and possibly higher unemployment. *see diagram in notes* Loss of export sales -> lower (X-M) -> lower AD.
• The benefits of globalisation for workers in developed countries will depend upon the type of industry a worker is employed by.
• The benefits of globalisation for consumers in less developed countries:

  • Increased choice -> Increased supply due to a rise in competition -> lower prices -> higher material standards of living.
  • Consumers benefit from greater investment in infrastructure by MNC's (a rise in FDI) - A rise in spending on railways/roads -> consumers gain better access to markets. This new investment may take the form of better water provision/ schools/ healthcare etc.
  • New products now available to consumers may include new healthcare products.
• The costs of globalisation for consumers in less developed countries:

  • Possibility of rising prices -> Globally there will be higher demand for goods + services (from consumers all over the world). As a result, prices may rise due to greater demand for products consumers in less-developed countries wish to buy *see diagram*
  • There may be poorer quality services -> If workers have the option to move overseas for work, then the quality of some services in less developed countries may suffer. e.g. healthcare may decline if skilled workers in this industry move overseas
• A cost of globalisation for consumers in less developed countries:

  • Possible dominance of markets by MNC's -> MNC's bring benefits as well as costs to countries. If they come to dominate markets & smaller firms are knocked out of business, then consumers will have less choice.
• The benefits of globalisation for consumers in less developed countries will depend upon:

  • Whether any rise in incomes is greater than the possible rise in prices due to globalisation.
  • Whether globalisation results in the importing of more capital goods which could lead to consumers losing their jobs or whether these capital goods lead to new, highly skilled jobs (to operate machines and increase productivity)
• The benefits of globalisation for workers in less developed countries:

  • Increased employment - If firms benefit from higher demand for their products then they may wish to expand, leading to a rise in 'derived' demand for labour. Any rise in spending in the economy could lead to a positive multiplier effect, increasing more growth and the potential of higher employment.
  • Greater FDI - If there is new investment then the resulting rise in AD can lead to increased employment too.
  • Greater global mobility for labour - New opportunities for workers to move to other countries to look for jobs.
• The costs of globalisation for workers in less developed countries:

  • Possible greater income inequality -> not every worker will benefit equally from globalisation.
  • Possible unemployment -> If new investment results in workers being replaced with new capital equipment then this mechanisation could lead to increased unemployment. In addition as economies develop and shift their focus from primary to secondary to tertiary industry then there may well be structural unemployment.
  • Possibility of poor working conditions.
• The benefits of globalisation for workers in less developed countries will depend upon:

  • The industry the workers are in
  • Whether firms choose to employ more workers or invest in greater capital equipment.
• A benefit of globalisation for producers in less developed countries:

  • There is a much larger market to sell to -> With such a large global population, there is the potential for a huge increase in sales and export-led growth. This means the rise in (X-M) will lead to increase AD. Individual producers will be able to specialise and focus on what they are best at producing, exporting any surplus of goods.
• More benefits of globalisation for producers in less developed countries:

  • Producers may gain greater Economies of scale -> With increased output, firms will gain greater benefits from bulk buying, financial and managerial economies of scale. This will allow firms to benefit from lower average costs, which, in turn, will allow them to lower their prices and become more competitive.
  • Greater FDI could benefit existing producers -> If foreign investors decide to improve infrastructure then other companies will benefit from new roads, better docks and transportation facilities etc.
• Another benefit of globalisation for producers in less developed countries:

  • Possible advances in technology -> With joint initiatives with other countries, there could be new technology introduced which reduced firm's costs.
• The costs of globalisation for producers in less developed countries:

  • Possible loss of skilled workers -> If workers see better opportunities overseas then they might leave the country, resulting in a loss of skilled & unskilled labour, reducing the country's potential output.
  • Possible lack of competitiveness ->Smaller countries which have firms who have much smaller economies of scale will find it harder to compete in international markets against large firms. In turn, such firms may find that the competition is too great & lose business in international markets, risking their survival.
• Another cost of globalisation for producers in less developed countries:

  • A greater openness to economic shocks in the rest of the world -> If a less developed country sells a huge amount of exports to a country which goes into recession then the loss of export revenues (X-M) could have a massive impact on the less developed economy.
• The benefits of globalisation for producers in less developed countries will depend upon:

  • Exactly what industry the producers are involved with
  • Do firms/ producers find it easier or harder to recruit workers.