EDEXCEL ECONOMICS (A) KNOWLEDGE ORGANISER: THEME 4 Globalisation
Globalisation Causes of globalisation
Globalisation: The deepening of relationships between countries, reflected • Containerisation and falling transport, freight and travel c
in an increasing level of cross-border trade and investment and migration • Increasing influence of powerful corporations (MNCs/TNC
De-globalisation: a reversal of the process of globalisation • Lower trade barriers/trade liberalisation
Slower globalisation ('slowbalisation'): slowdown in the speed of • Increasing size and number of trading blocs
globalisation • More FDI flows between countries
Characteristics of globalisation • Greater labour migration and the emergence of a global la
• Rapid spread of technologies, manufacturing systems and
• Increased trade in goods and services (more WTO members, China & techniques (knowledge transfers)
India, Russia); higher trade to GDP ratios • Faster communication and information flows and the eme
• More capital transfers and capital liberalisation (MNCs/TNCs, FDI, markets, especially global media presence
foreign ownership of companies etc) • Improvements in infrastructure
• Global branding • Geopolitical change
• Greater specialisation and division of global labour force • New emerging markets
(outsourcing, offshoring….global sourcing and global supply chains)
• Labour migration (within and between countries) Benefits of globalisation
• Shifting balance of economic and financial power from developed Economies of scale: Globalisation encourages both producers
world to emerging markets to reap benefits from division of labour; greater productive e
• De-industrialisation and structural unemployment in developed More cost-reducing innovation: more competitive markets re
economies of monopoly profits and can incentivise businesses to innovat
• Increased global media presence (internet); greater connectivity Lower consumer prices/better quality: greater competition c
• Greater investment spending on infrastructure & innovation; more prices for consumers and may increase range and quality of go
integrated global supply chains (increased consumer surplus)
• Increasing interdependency of economic agents (producers, Faster economic growth: leads to higher per capita incomes a
consumers, governments and enterprises) extreme poverty in many lower income countries.
Multi or trans-national corporations (MNCs/TNCs) Freer movement of labour: helps to relieve skilled labour sho
Multi- or trans- national companies (MNCs or TNCs): companies that diversifies the workforce, promoting knowledge, technology &
operate in more than one country. The head office might be in the USA, but practice transfers boosting innovation
the manufacturing factories in SE Asia, using raw materials from Africa, while Increased awareness: of the long-term global economic challe
final products are sold in markets across the world. climate change and the impact of wealth & income inequality
,EDEXCEL ECONOMICS (A) KNOWLEDGE ORGANISER: THEME 4 Globalisation
Costs of globalisation Causes of de-globalisation
Rising inequality: the gains from globalisation are unequal leading to Protectionism: measures such as tariffs, quotas, and trade bar
growing political and social tensions when inequality of income and used to shield domestic industries from foreign competition.
wealth increases; relative poverty may increase Economic Shocks: Economic downturns/recessions can lead co
Environmental costs: threats to the global commons including to reduce their reliance on global trade, supply chains and inv
irreversible damage to ecosystems, land degradation, deforestation, Changing Trade Agreements: countries might renegotiate or w
loss of bio-diversity and water scarcity trade agreements that were previously promoting globalisatio
Macroeconomic fragility: in an inter-connected world, external shocks Environmental Concerns: concerns about climate change migh
in one region can rapidly spread to other centres (this is known as prioritisation of local production to reduce the carbon footprin
systemic risk) with long-distance trade.
Trade imbalances: increasing trade imbalances (both surpluses and Health Crises: global health crises, such as pandemics, disrupt
deficits) lead to protectionist tensions, more import tariffs and quotas and supply chains.
and a move towards managed exchange rates – this can then lead to Economic Nationalism: governments might adopt policies to p
de-globalisation and slower growth domestic industries and jobs, even if it means reducing interna
Jobs: Workers may suffer structural unemployment from out-sourcing Impact of globalisation on developed countrie
of manufacturing to lower-cost countries and a rise in the share of
imports in GDP Benefits Costs
Tax avoidance: many large MNCs can find ways of avoiding corporation • Increased access to foreign • Job displacemen
tax and other taxes; the rich can also avoid tac using tax havens, markets unemployment
reducing the tax revenue of governments • Attraction of foreign investment • Rise in income in
Brain drains: a more mobile global workforce means some countries • Improved productivity and • Environmental d
suffer from emigration, losing their most productive workers. innovation
Systemic risk of negative global shocks Impact of globalisation on developing countrie
A more interconnected world is at greater risk from negative economic shocks Benefits Costs
such as: • Increased access to global • Economic depende
• pandemics • geo-political shocks primary product de
markets
• financial crises, • risks from terrorism, • Exploitation of labo
• Increase in foreign investment
• currency crises commodity price volatility with emigration
• Increased access to knowledge
• natural disasters • unexpected changes in • Enironmental degra
and technology
• extreme weather global interest rates
, EDEXCEL ECONOMICS (A) KNOWLEDGE ORGANISER: THEME 4 Specialisation and trade
Why countries trade Comparative Advantage
• To increase the availability of resources, goods and services Comparative advantage: when one country can produce a g
• To increase choice for consumers/more product differentiation at a lower opportunity cost than another country. It conside
• To increase efficiency/reduce costs/reduce prices country is relatively more efficient or relatively less ineffic
Good X G
International specialisation
Country A 60
International specialisation: where countries/regions focus on producing &
exporting specific goods or services in which they have a comparative Country B 120
advantage, while importing other goods or services that they can acquire Before specialisation and trade, the countries can produce 180
more efficiently from trading partners. This specialisation allows countries to of Y. This assumes the labour input and other inputs are initial
allocate their scarce factor resources more efficiently, improve overall equally between the two countries.
productivity, and hopefully benefit from the gains of trade across borders Opportunity cost ratios
In country A, to get 60 more of X means giving up 45 of Y. The
Absolute advantage cost of 1X = 45/60 of Y = 0.75; the opportunity cost of 1Y = 60
Absolute advantage: a country produces a good at a lower direct costs In country B, to get 120 more X means giving up 60 of Y. The o
i.e. if a country using the same factors of production can produce more of of 1X = 60/120 = 0.5; the opportunity cost of 1Y = 120/60 = 2
a product Country A has a lower opportunity cost than country B in the
Good X Good Y Y (1.34 compared to 2) while country B has a lower opportun
production of X (0.5 compared to 0.75).
Country A 20 10 Country A has a comparative advantage in Y and country B h
Country B 5 15 comparative advantage in X.
The gains in output after specialisation
Together Countries A & B can produce 25 of good X and 25 of good Y
before specialisation. Good X G
• Country A has an absolute advantage in the production of good X, Country A 0
while Country B has an absolute advantage in production of good Y.
Country B 200
• If they specialise where their absolute advantage lies, then A
produces 40 of X (but no Y) and B produces 30 of Y (but no X). By specialising in where their comparative advantages lie, th
They have produced 15 more of X and 5 more of Y by specialising. They goes up from 180 to 200 of X and from 105 to 110 of Y. They
can trade and potentially share the gains made. potentially share these gains.
