Theme 4

• Multi or trans-national corporations (MNCs/TNCs)


  Companies that operate in more than one country
• Globalisation


  The deepening of relationships between countries, reflected in an increasing level of cross-border trade and investment and migration
• De-globalisation


  A reversal of the process of globalisation
• Slowbalisation


  Slowdown in the speed of globalisation
• Causes of globalisation


  • Containerisation and falling transport, freight and travel costs
  • Increasing influence of powerful corporations (MNCs/TNCs)
  • Lower trade barriers/trade liberalisation
  • Increasing size and number of trading blocs
  • More FDI flows between countries
  • Greater labour migration and the emergence of a global labour force
  • Rapid spread of technologies, manufacturing systems and management techniques (knowledge transfers)
  • Faster communication and information flows and the emergence of new markets, especially global media presence
  • Improvements in infrastructure
  • Geopolitical change
  • New emerging markets
• Characteristics of globalisation


  • Increased trade in goods and services (more WTO members, China & India, Russia); higher trade to GDP ratios
  • More capital transfers and capital liberalisation (MNCs/TNCs, FDI, foreign ownership of companies etc)
  • Global branding
  • Greater specialisation and division of global labour force (outsourcing, offshoring….global sourcing and global supply chains)
  • Labour migration (within and between countries)
  • Shifting balance of economic and financial power from developed world to emerging markets
  • De-industrialisation and structural unemployment in developed economies
  • Increased global media presence (internet); greater connectivity
  • Greater investment spending on infrastructure & innovation; more integrated global supply chains
  • Increasing interdependency of economic agents (producers, consumers, governments and enterprises)
• Multi- or trans- national companies (MNCs or TNCs)


  Companies that operate in more than one country. The head office might be in the USA, but the manufacturing factories in SE Asia, using raw materials from Africa, while final products are sold in markets across the world.
• Benefits of globalisation


  • Economies of scale: Globalisation encourages both producers and consumers to reap benefits from division of labour; greater productive efficiency
  • More cost-reducing innovation: more competitive markets reduces the level of monopoly profits and can incentivise businesses to innovate
  • Lower consumer prices/better quality: greater competition can drive down prices for consumers and may increase range and quality of goods available (increased consumer surplus)
  • Faster economic growth: leads to higher per capita incomes and reduced extreme poverty in many lower income countries
  • Freer movement of labour: helps to relieve skilled labour shortages & diversifies the workforce, promoting knowledge, technology & management practice transfers boosting innovation
  • Increased awareness: of the long-term global economic challenges from climate change and the impact of wealth & income inequality
• Costs of globalisation


  • Rising inequality: the gains from globalisation are unequal leading to growing political and social tensions when inequality of income and wealth increases; relative poverty may increase
  • Environmental costs: threats to the global commons including irreversible damage to ecosystems, land degradation, deforestation, loss of bio-diversity and water scarcity
  • Macroeconomic fragility: in an inter-connected world, external shocks in one region can rapidly spread to other centres (this is known as systemic risk)
  • Trade imbalances: increasing trade imbalances (both surpluses and deficits) lead to protectionist tensions, more import tariffs and quotas and a move towards managed exchange rates – this can then lead to de-globalisation and slower growth
  • Jobs: Workers may suffer structural unemployment from out-sourcing of manufacturing to lower-cost countries and a rise in the share of imports in GDP
  • Tax avoidance: many large MNCs can find ways of avoiding corporation tax and other taxes; the rich can also avoid tac using tax havens, reducing the tax revenue of governments
  • Brain drains: a more mobile global workforce means some countries suffer from emigration, losing their most productive workers
• Causes of de-globalisation


  • Protectionism: measures such as tariffs, quotas, and trade barriers may be used to shield domestic industries from foreign competition
  • Economic Shocks: Economic downturns/recessions can lead countries to reduce their reliance on global trade, supply chains and investment
  • Changing Trade Agreements: countries might renegotiate or withdraw from trade agreements that were previously promoting globalisation e.g. Brexit
  • Environmental Concerns: concerns about climate change might lead to prioritisation of local production to reduce the carbon footprint associated with long-distance trade
  • Health Crises: global health crises, such as pandemics, disrupt travel, trade, and supply chains
  • Economic Nationalism: governments might adopt policies to protect domestic industries and jobs, even if it means reducing international trade
• Systemic risk of negative global shocks


  • pandemics
  • financial crises
  • currency crises
  • natural disasters
  • extreme weather
  • geo-political shocks
  • risks from terrorism
  • commodity price volatility
  • unexpected changes in global interest rates
• Impact of globalisation on developed countries

  • Benefits: Increased access to foreign markets, Attraction of foreign investment, Improved productivity and innovation
  • Costs: Job displacement/structural unemployment, Rise in income inequality, Environmental degradation
• Impact of globalisation on developing countries

  • Benefits: Increased access to global markets, Increase in foreign investment, Increased access to knowledge and technology
  • Costs: Economic dependence such as primary product dependency, Exploitation of labour and issues with emigration, Environmental degradation
• Absolute advantage


  A country produces a good at a lower direct costs i.e. if a country using the same factors of production can produce more of a product
• Comparative advantage


  When one country can produce a good or service at a lower opportunity cost than another country. It considers where a country is relatively more efficient or relatively less inefficient at producing
• Comparative advantage underlying assumptions


  • No transport costs
  • No barriers to trade
  • Homogenous goods
  • No economies of scale
  • No environmental costs
  • Perfect knowledge
  • Factor mobility between uses
  • All resources fully employed and all goods and services sold
• Many of these assumptions do not hold in the real world, so the gains from trade may be less or more than the theory predicts
• Competitive advantage


  When your country/business has access to technology or innovations that allow cheaper and/or more efficient production of goods. This gives a cost advantage and, therefore, a price/quality advantage over competitors.
• David Ricardo was one of the founding fathers of classical economics. He developed the idea of comparative advantage. His basic rule: Specialise a country's scarce factor resources in goods and services that they are relatively best at. This opens potential gains from specialisation and trade which leads to improved economic welfare
• Geographical pattern of trade


  • Despite Brexit, 46 per cent of UK exports go to the European Union and 53 per cent of UK imports come from the European Union
  • 3.6 per cent of UK exports go to China and 13% of UK imports come from China
  • USA is largest single export market for UK with Germany 2nd
  • Germany is biggest source of imports (12%), USA on 11% and Netherlands on 7.3%. (2023 data)
• Commodity pattern of trade


  • The UK trades most in petroleum products; road vehicles; pharmaceutical products; industrial machinery; business services; financial services (including insurance); telecommunications; cultural and creative services.
• Intra-regional trade


  Trade between countries in the same region
• Gravity theory of trade


  Countries tend to trade most with other nations in closest proximity
• Factors influencing the pattern of trade


  • Absolute and comparative advantages
  • Factor endowments - the quantity and quality of the resources a country has or has not got
  • Trading bloc and trade agreements
  • Globalisation, trade liberalisation, protectionism & FDI flows
  • Changes in world incomes and growth rates
  • Exchange rate movements
  • De-industrialisation & the pace of economic development
• Primary product dependency


  Where a country's economy heavily relies on the export of raw materials or primary products, such as agricultural goods, minerals, or energy resources.
• Emerging Market


  An economy that cannot yet be classified as 'developed' and is investing heavily in its productive capacity.
• Trading bloc


  Regional economic groupings/regional trade agreements RTAs i.e. groups of countries that trade more freely amongst themselves but may set barriers against non-members
• Bilateral trade agreement


  Trade agreement between two countries
• Multilateral trade agreement


  Trade agreements between many countries or between a trading bloc and another country/trading bloc
• Free trade area


  Eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.
• Single or common market


  A free-trade area where members have eliminated tariffs, quotas and preferences on most goods and services, and have a common external tariff on imports from non-members.
• Trading bloc


  Regional economic groupings/regional trade agreements
• RTAs


  Groups of countries that trade more freely amongst themselves but may set barriers against non-members
• Free trade area


  • Eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them
  • Each member can set its own tariff on imports from outside the FTA
  • May be undermined by re-exporting so this is prevented by imposing tariffs on re-exports and enforce a 'country of origin rule' (i.e. a certain % of goods traded must originate from a member state to qualify for tariff-free internal trade)
• Free trade areas


  • ASEAN, USMCA, EFTA, ACFTA
• Rules of Origin


  Negotiating and establishing the rules of origin is complex and adds to the costs of firms that trade
• Customs union


  Free trade between members and the common external tariff (CET)
• Trade creation


  Removal of tariffs between members increases trade between businesses within the bloc; more gains from specialisation and trade; greater exploitation of the bloc's countries' comparative advantages
• Trade diversion


  The CET means trade may pivot away from the global lowest-cost producers to the lowest cost producer within the bloc; trade is diverted from outside to inside the bloc
• Customs unions


  • the EU, Turkey & the EU