Pearson Edexcel International AS/A-Level Economics
Pearson Edexcel International AS/A-Level Economics
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Complete Notes for Economics Unit 4 "Developments in the Global Economy"| IAL Edexcel Economics
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Pearson Edexcel International AS/A-Level Economics
All notes for Unit 4 (Developments in the Global Economy) of the Pearson Edexcel International AS/A-Level Economics course. These notes are full and comprehensive, including all relevant information from the student book, in addition to extra information and case studies needed for those A02 marks!...
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Unit 4 Econ
Globalisation
…is the growing integration of the world’s economies through increasing freedoms in the cross-border movement of
people, goods/ services, capital and finance
It has contributed to:
- An impact on national cultures
- The spread of ideas
- The speed of industrialisation in developing nations and the de-industrialisation of developed nations
- The increased interdependence between nations
The four main characteristics of globalisation include
Increasing in importance and
occurrence of TNCS and FDI Increasing movement of labour &
technology across borders
Increase in trade as a proportion
of GDP (increased free trade)
- For rich, developed nation, goods
are increasingly being
manufactured abroad = goods are
then exported to other countries
Easy flows of capital (finance)
- For countries with rapid economic across borders
growth, new markets for goods are
produced in advanced economies
- Trade in services (tourism) also
occurring) FARHAAN: REAL1CH1D -
rishi
Factors contributing to Globalisation (Real-life app value of globalisation over time)
In 2000, the value of global trade was approximately $6.45 trillion. By 2020, this figure was at $19 trillion
The most significant factors contributing to globalisation in the last 50 years:
- Improvements in containerized shipping
In 2020, the total volume of loaded containers handled by ports worldwide reached roughly 800 million TEUS. In 2010, that
figure was 555 million
In 1956, the first container ship could carry around 58 containers, whilst modern container ships can now carry over 24,000
TEU (twenty-foot equivalent units)
These developments in the shipping industry have generated economies of scale through reducing shipping
costs per unit
, The standardization of containers made it easier for cargo to move between ports, whilst fuel efficiency helped
reduce fuel costs
It has also had a significant impact on supply chains, facilitating improved efficiency and faster delivery times of
goods and services
It has also allowed companies to access larger markets and engage in global sourcing and production networks,
opening them up to cheaper materials
- Innovation in communication technology
As of 2023, there were 5.18 billion internet users worldwide, up from 361 million in 2000
This has improved the ability for firms to easily connect and promote themselves internationally (use of Skype,
WhatsApp, Instagram)
This is because, improved internet access and digital infrastructure have made it easier for businesses to
connect with customers, suppliers, and partners worldwide
Worldwide e-commerce sales have increased by nearly 800% since 2010
E-commerce has also enabled businesses to sell their products and services globally. They have expanded
market access for small and medium sized enterprise and facilitated cross-border trade
Logistics and supply chain efficiency
Communication technologies have greatly improved logistics and supply chain management: real time tracking
and monitoring systems of packages, GPS technologies, have enhanced visibility and reduced transit times
The digitization of supply chains have allowed for smoother coordination among suppliers, manufacturers,
distributers and retailers – all leading to EOS. This has shrunk the time needed for economic agents to
communicate with each other
- Increased effectiveness of the World Trade Organisation (WTO) and Trade Liberalisation
Have helped in negotiating new trade agreements and in helping countries open up to free trade (trade
liberalization) – thus increasing international specialization and the volume of trade
It emerged as a response to the GD of the 1930s which resulted in collapsed world trade, lost jobs in export
industries and reduced consumer welfare who were forced to pay higher prices to inefficient domestic
producers
According to the WTO, developed countries’ tariff cuts resulted in a 40% cut on industrial products since 1995
– its inception after becoming a successor to the GATT
Through negotiations and agreements, the WTO lowers tariffs, eliminated non-tariff barriers and addressed
trade-distorting practices
By 2018, it had 164 members
It also makes sure member countries follow the trading rules
Any member country can file a complaint with the WTO against the competitive practices of another country
Trade distorting practices: the WTO’s Anti-Dumping Agreement regulates the use of Anti-Dumping measures
*which are imposed when a country believes imported goods are being sold at unfairly low prices, causing
injuries to domestic industries*
The Technical Barriers to Trade (TBT) agreement under the WTO aims to ensure that technical regulations do
not create unnecessary barriers to trade
It also provides technical assistance and capacity-building programs to help developing countries participate
effectively in global trade – includes training, workshops, knowledge-sharing activities
HOWEVER, its influence has been limited as any single country can stop any trade deal. The recent Doha round, for
example, failed to progress because at any point in time, at least one country has refused to accept the outcome of
negotiations. Decisions then become politically motivated.
Trade Liberalisation has also been on the rise post the Great Depression (when individual countries misguidedly
tried to boost domestic demand by adopting fierce protectionist policies)
o Since 1945, these barriers have gradually fallen
, In the 1980s, America’s economy opened up to cheap imports – accelerated in 1993 when President Clinton
signed the NAFTA with Mexico & Canada – which eliminated most tariffs in trade between these 3 economies
IMPACT ON GLOBALISATION: By reducing trade barriers and promoting universality and stability, the WTO has
facilitated the expansion of global chains and increased trade flows. It has also enabled countries to specialize in areas of
comparative advantage.
- Growth in the number and influence of transnational corporations
Although they account for only 2% of the World’s jobs, TNCs own, or are involved in supply chains that account
for over 50% of World trade
These firms have production facilities in two or more countries, and therefore, depend on international trade to
carry out their production processes
They invest heavily in foreign countries, transferring capital, technology and expertise between nations, leading
to economic development and growth. Indeed, FDI flows surged by 88% in 2021, reaching $1.8 trillion
They also engage in extensive cross-border trade, sourcing raw materials, components and finished products
from different countries to meet global demand. According to the WTO, merchandise exports worldwide
reached almost $20 trillion in 2019
TNC’s also promote cultural exchange and diversity through operating in various countries and hiring a diverse
workforce.
- Political Change
End of the cold war and breakdown of the Soviet system
In the mid 1980s, the USSR began to move away from a centrally planned economic system with gradual
reforms:
o Allowing competition in business (perestroika)
o More freedom in society (glasnost)
The breakdown of the Berlin Wall in 1989, and the collapse of the USSR in 1991…
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
With the end of the ideological divide, countries became more open to economic cooperation and trade
liberalization: the early 1990s witnessed acceleration in regional trade and economic blocs
o Goods and services from the West, previously banned, could be imported
o E.g., the creation of the EU in 1993
o In 2012, Russia joined the WTO
o According to WTO, the average applied tariff for all products decreased from 7.8% to 4.6% in 2019,
indicating increased trade openness
Significant increase in number of free trade agreements (FTAs) between countries – aimed to reduce trade
barriers. As of 2020, there were more than 300 regional trade agreements in force globally, according to the
WTO.
The opening up of China
Deng Xiaoping’s reforms from 1978 moved China away from a closed, centrally planned system towards a more
market-based economy
o It opened up to foreign trade and investment
o Entrepreneurs allowed to set up and many state-owned businesses were pirvatised
o In 2001, China joined the WTO manufacturing jobs shifted towards China because of its cheap
labour increased consumption and production of the world’s goods and materials
o Globalisation has enabled China to achieve exponential economic growth through an export-led
strategy
, - Deregulation
In the 1990s, large-scale deregulation of many financial markets took place
This resulted in the expansion of global financial services and provided more access to capital as deregulation of
financial markets encouraged FDI by MNC.
o As capital controls were relaxed, it became easier to invest internationally
o According to the UNCTAD, global FDI inflows increased from $221 billion in 1990 to $1.47 trillion in
1999
Deregulation of foreign exchange markets allowed for more flexible exchange rate regimes, reducing currency
restrictions and promoting currency convertibility – thus reducing currency restrictions and promoting currency
convertibility
o This facilitated investment and international trade by providing more stable and transparent
exchange rate mechanisms
o E.g., % of countries with free-floating exchange rates increased from 45% in 1990 to 85% in 2000
NEGATIVE: the increased interconnectedness of financial markets made them more vulnerable to financial
crises: the 1997 Asian Financial Crisis and the 1998 Russian Financial Crisis were key examples of how financial
deregulation could lead to systemic risks that could spread across borders.
- Increasing movement of labour
Trade organizations, like the EU, have encouraged freedom of movement in labour. With an increase in its size
and influence, migration has increased between countries
This has partly occurred due to:
o Lower transport costs
o Rising quality of education = improvements in human capital mean migrants can often fill skill haps
in other countries
o Incomes have risen = individuals in developing countries have the resources to make a geographical
move and meet the costs involved in settling in a new country
FDI and its impacts
Reasons for FDI
For TNCs: FDI presents an opportunity to earn higher profits, gain higher market shares, remain competitive in a highly
competitive business environment through:
Exploiting cheaper labour costs in overseas economies
Reduce overall costs through setting up in countries that offer low corporation taxes, tax relief, low regulation
costs on the business
Avoid tariff barriers: (REAL-LIFE APP) – setting up a factory in the EU means transnationals can export goods to
other member countries without paying any tariffs or dealing with barriers
Can seek access to needed commodities
The Impact of FDI on Recipient Countries
Positive:
- GREENFIELD FDI’s are particularly helpful:
Create jobs, setting off a positive multiplier effect which generates economic growth in the recipient
country
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