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Economics Revision 4.3.1

Globalization refers to the increasing integration of countries through trade, financial flows, and cultural exchange. It has been driven by declining transportation and communication costs, as well as reductions in trade barriers. The benefits of globalization include greater consumer choice of cheaper goods, lower production costs through economies of scale, and increased specialization according to comparative advantage. However, critics argue that globalization can also exploit workers and the environment, increase inequality, and cause global economic instability.

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51 views

Economics Revision 4.3.1

Globalization refers to the increasing integration of countries through trade, financial flows, and cultural exchange. It has been driven by declining transportation and communication costs, as well as reductions in trade barriers. The benefits of globalization include greater consumer choice of cheaper goods, lower production costs through economies of scale, and increased specialization according to comparative advantage. However, critics argue that globalization can also exploit workers and the environment, increase inequality, and cause global economic instability.

Uploaded by

Akulabubu Veku
Copyright
© Attribution Non-Commercial (BY-NC)
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Economics Unit 4 Summary

4.3.1 What are the causes and effects of globalisation?

Causes of globalisation

• Globalisation: refers to a variety of ways in which countries are becoming


more and more closely integrated, not only economically, but also culturally
and politically.

• Characteristics of globalisation

o Increase in trade as a proportion of world GDP.

o Increased movements of financial capital between countries.

o Increased international specialisation and division of labour.

o Increased importance of TNCs and the foreign direct investment they


provide.

• Factors contributing to globalisation

o Fall in transport costs – Imports and exports become cheaper.

o Decline in the cost of communications – E.g. the cost of using the


internet has fallen considerably since its conception.

o Lowering of trade barriers – Impact of the WTO in negotiating lower


trade barriers.

o Countries previously not open to FDI have became more integrated


(i.e. China) allowing TNCs to take advantage of the lower trade
boundaries.

Effects of Globalisation

• Benefits

o Free trade enables the law of comparative advantage – Increasing


world output and living standards.

o For consumers, globalisation may mean a wider choice of goods at a


lower price.

o For producers, lower production costs through economies of scale


and offshoring (*Offshoring is the relocation by a company of
a business process from one country to another).
• Costs

o Exploitation of workers, children, farmers and the environment.

o External costs – Environmental degradation which results in global


warming.

 Increased trade may not be sustainable in terms of the


environment

o Increased inequality – Rich countries have greater access to the


internet than poorer countries. Wealth creation is dependent on the
ready availability of information therefore poorer countries are at a
severe disadvantage.

o Global instability- Liberalisation of financial markets has lead to


instability. i.e. global credit crunch.

o Global imbalances – for example, current account deficits which are


unsustainable.

o Deglobalisation – Which is where countries adopt protectionism


polices to protect domestics employment. This reduces
specialisation and trade. E.g. tariffs imposed by Russia on imported
cars.

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