A-Level Economics A Macroeconomics Theme 4 | Exam Revision Guide | Pearson Edexcel
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The Characteristics of Globalisation
Globalisation – The ever-increasing integration of the world’s local, regional and
national economies into a single international market.
4 Main Areas:
- Free trade across national boundaries of goods and services, meaning making it
easy to sell to a country such as Germany
- Free movement of labour between countries
- Free movement of capital between countries, foreign investment to other countries
- Free interchange of technology and intellectual capital across national boundaries,
e.g UK can license technology from USA, or a USA country can use its patented
technology in the UK.
Globalisation is what allows perfect free movement of labour, capital, technology,
however the world is not at that position due to many boundaries.
The Causes of Globalisation
Trade in Goods
- Many countries develop goods because of acquisition of capital, developing
countries also usually have cheap labour costs too.
Trade in Services
- Trade in services is growing, e.g tourism, call centres.
Trade Liberalisation
- This is when countries begin to reduce tariffs to import from their countries in order
to increase the demand for their goods and services and makes it cheaper.
Multinational Companies
- Multinational companies have grown in number and size, this is because large
companies have economies of scale and knowledge to make products that are cheap
and of high quality.
International Financial Flows
- Many countries are beginning to finance part of their economic growth from
inward flows of international capital
Foreign Ownership of Firms
- Many countries are beginning to invest in factories in places like China. Some oil
rich countries also buy stakes in foreign companies or purchase them
,Impact on Consumers
Customer Choice
- Due to globalisation the variety of goods and services has increased
Prices
- Globalisation also leads to a fall in prices of some goods and services because
production is being switched from high-cost locations to low-cost locations. E.g
some companies outsource in Vietnam like Nike in order to keep costs lower on
them. Equally, some countries also are able to have better technology which means
efficiency is higher and so economies of scale can be exploited further, reducing
costs.
Incomes
- Globalisation has caused incomes to raise, this is because consumers are able to
have incomes. However, if a company outsources then there is a chance that a
domestic worker may be worse off because they lose their jobs to a cheaper
alternative
Impact on Workers
Employment and Unemployment
- Globalisation causes both employment and unemployment. For example much of
manufacturing has been outsourced to other countries which means that someone
else is gaining a job while someone else is losing a job
Migration
- Globalisation causes migration because they are forced to move from their home
due to war. However, some move because they can live in better places. It also allows
for skill gaps to be filled. However, immigration also places strain on housing, job
security, healthcare and so on.
Wages
- Globalisation moves people around to different locations, it also shifts places of
work from one place to another. Demand for workers has also increased, pushing up
wage rates.
Multinationals
- Multinationals create jobs where they set up. E.g a French hotel chain in the UK may
,employ British workers for cleaning, but the managers may be French, however
training local workers to take on the roles of managers and above is an investment
which strengthens the company.
Impact on Producers
Specialisation and Economic Dependency
- Globalisation also created specialisation and it also means that some firms depend
on others. E.g a Russian oil company may depend on a UK firm for purchasing their
goods and may be a main customer for them, however if they stop buying it may
effect them a lot.
Costs and Markets
The wider a supplier network, the lower the prices due to competition. Lower-paid
workers are they key to this since some countries don’t have minimum wages so
companies exploit this idea.
Globalisation is leading to a shifting of production from the developed world to the
developing world, this is one way that the poor developing countries can increase
living standards.
Tax Avoidance
- Firms can operate in several countries for tax avoidance, for example a firm can
produce a good X in country A, but then it transports it to country B to make It into
good Y which it sells, country B has lower taxes so they can simply benefit from that
and send it back to country A.
Impact on Governments
- Globalisation can both bring good and bad things to the UK, one bad thing is that
if a company moves from the UK to China it is good for China but not the UK
because they lose a lot of their exports and so they receive less tax. Governments try
to avoid this by making policies and lowering taxes on profit or giving subsidies.
, - Governments also now know that companies are attempting to avoid tax and so a
way they avoid this is also by lowering tax so they do not relocate.
Impact on the Environment
- Rises in production means that the environment is heavily effected because more
finite resources are being used and more pollution is being produced. However, rich
countries like the UK and Sweden have made progress to make economic growth far
more sustainable.
Impact on Individual Countries
- If globalisation leads to rising incomes, better jobs, lower prices and more
consumer choice it means they benefit
- Globalisation and competition from the far east impacted the UK because they had
less jobs since they were taking over the industry, and it had severe effects on the
coalmining industry
Non-Economic Impact of Globalisation
- Culture, weakens native cultures. E.g US culture is seen on movies and films more.
- Politics, since national treaties are signed more often which limits countries.
4.1.2, 4.1.3 | Specialisation and Trade
Reasons for International Trade
- Many goods and services are traded across the globe, e.g oil, cars, insurance.
- This is due to the following reason:
Differences in Factor Endowments
- Some countries have different specialities or endowments which leads to them
focusing on one item since they are good at it
- For example Saudi Arabia has some of the largest oil reserves, but they don’t have a
large stock of skilled workers like the USA, therefore Saudi Arabia focuses on oil and
the USA focuses on high technology and skilled work.
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