Globalisation (AQA A Level Economics)

• Globalisation refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies
• In 2000, the value of global trade was approximately $6.45 trillion. By 2020, this figure was at $19 trillion
• Numerous factors have contributed to the rapid increase in the pace of globalisation but perhaps two of the most significant are the improvements in containerised shipping and the innovation in communication technology

Causes of Globalisation

Cause	Explanation
Economies of scale	Economies of scale generated by containerisation in the shipping industry
Technology	The improved ability for firms to easily connect and promote themselves internationally as a result of the internet and improvements to communications technology e.g Skype, WhatsApp, WeChat etc
The growth of the WTO	The Increased effectiveness of the World Trade Organisation (WTO) in negotiating new trade agreements and in helping countries to open up to free trade (trade liberalisation), thus increasing international specialisation and the volume of trade
Multinational corporations	A rapid growth in the number and influence of transnational corporations
Geopolitical changes	The end of the cold war between Russia and the West in 1990 opened up former communist countries around the world enlarging the global supply of labour e.g. more than 800,000 people migrated from East Germany to West Germany between 1990 and 1991
Deregulation	In the 1990's there was deregulation of many financial markets which resulted in the expansion of global financial services & provided more access to capital

• Globalisation has been increasing for thousands of years - it is not a new phenomenon
• • Improvements in technology and the speed of global connections have exponentially increased the level of interdependence between nations in the past 50 years
    
    
• Consumers now source products globally, recognising global brands wherever they travel
  
  

The Four Main Characteristics of Globalisation

Increasing foreign ownership of companies	Increasing movement of labour & technology across borders
Free trade in goods/services	Easy flows of capital (finance) across borders

• Both less-developed and more-developed economies have benefited from globalisation
  • As firms grow in size, they benefit from economies of scale, causing costs to fall and consumers benefit in the form of lower prices 
• However, tax avoidance has become easier for global firms as they often exploit loopholes across different countries 

Consequences of globalisation for less-economically developed countries

1. Reduction in absolute poverty: Globalisation facilitates the flow of taxes from multinational corporations (MNC's) to host countries, enabling investment in vital public services such as healthcare, education, and infrastructure. This improves economic development

2. Employment opportunities: Increased involvement in global markets can generate jobs and higher incomes, potentially triggering a multiplier effect that stimulates overall economic growth. However, concerns arise regarding MNCs' exploitation of low-wage labour and poor working conditions in some instances, such as sweatshops

3. Depletion of natural resources: Some MNC's may exploit legal loopholes like transfer pricing and engage in corrupt practices, leading to the depletion of natural resources in developing countries. This phenomenon has been likened to a form of 'new colonialism'

4. Increased power of monopolies: Large firms can dictate prices and production levels across various regions. They may manipulate governments and gain access to raw materials through bribery and corruption

Consequences of globalisation for more-economically developed countries

1. Increased trade: Trade favours more economically developed countries. They export more manufactured goods at much higher prices and import cheaper raw materials from poorer countries
2. Increased capital flow: The profits earned by MNCs are often repatriated to their home country

• Multinational Corporation (MNCs) is a company that has business operations in at least one country other than its home country
  • E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries
    

The Role of Multinational Corporations in Globalisation

Factor	Explanation
Cross-border trade	MNCs has facilitated increased trade and a greater choice of goods on the global market They have also increased cultural globalisation, as western values replace local cultures and goods with global brands such as Coca-Cola, Nike, and Apple
Technology Flow	MNCs often bring a rapid spread of technologies and production methods to the countries where they operate Containerised shipping and the innovation in communication technology by MNCs has enabled quick and efficient trade and spread of goods across borders
Labour Mobility	Increased opportunities from large MNCs has influenced the movement of labour It also impacts the structure of employment in a country. Deindustrialisation has meant that entire productions have been outsourced to less economically developed economies due to cheaper resources and labour. This may cause structural unemployment in more economically developed countries
Capital Flow	There is a increased flow of international capital through FDI across borders  Better roads, transportation and access to electricity improve international connections, increasing global networks