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Year 2 Edexcel A economics Globilisation Notes
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- Year 2 Edexcel A economics Globilisation Notes - covering all the key points in Edexcel specification
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Globalisation NotesGlobalisation refers to the integration of markets in the global economy. Markets where
globalisation is particularly common include financial markets, such as capital
markets, money and credit markets, and insurance markets, commodity markets, such
as markets for oil, coffee, tin, and gold, and product markets.
Why has globalisation increased?
The pace of globalisation has increased for a number of reasons:
1. Developments in ICT, transport and communications have accelerated the pace
of globalisation over the past 30 years. The internet has enabled fast and 24/7
global communication, and the use of containerisation has enabled vast
quantities of goods and commodities to be shipped across the world at extremely
low cost.
2. Increasing capital mobility has also acted as a stimulus to globalisation. When
capital can move freely from country to country, it is relatively straightforward for
firms to locate and invest abroad, and repatriate profits.
3. The development of complex financial products, such asderivatives, has
enabled global credit markets to grow rapidly.
4. Trade has become increasingly free, following the collapse of communism, which
has opened up many former communist countries to inward investment and
global trade. Over the last 30 years, trade openness, which is defined as the
ratio of exports and imports to national income, has risen from 25% to around
40% for industrialised economies, and from 15% to 60% for emerging
economies.[1].
5. The growth of multinational companies (MNCs) and the rise in the significance of
global brands like Microsoft, Sony, and McDonalds, has been central to the
emergence of globalisation.
The advantages of globalisation
Globalisation brings a number of potential benefits to international producers and
national economies, including:
1. Providing an incentive for countries to specialise and benefit from the application
of the principle ofcomparative advantage.
2. Access to larger markets means that firms may experience higher demand for
their products, as well as benefit from economies of scale, which leads to a
reduction in average production costs.
3. Globalisation enables worldwide access to sources of cheap raw materials, and
this enables firms to be cost competitive in their own markets and in overseas
markets. Seeking out the cheapest materials from around the world is
called global sourcing. Because of cost reductions and increased revenue,
globalisation can generate increased profits for shareholders.
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