Globalisation (AQA A Level Economics)

The Causes of Globalisation

• Globalisation refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies

• In 2000, the value of global trade was approximately $6.45 trillion. By 2020, this figure was at $19 trillion

• Numerous factors have contributed to the rapid increase in the pace of globalisation but perhaps two of the most significant are the improvements in containerised shipping and the innovation in communication technology

Causes of Globalisation

The Main Characteristics of Globalisation

• Globalisation has been increasing for thousands of years - it is not a new phenomenon

  • Improvements in technology and the speed of global connections have exponentially increased the level of interdependence between nations in the past 50 years
    

• Consumers now source products globally, recognising global brands wherever they travel
  

The Four Main Characteristics of Globalisation

The Consequences of Globalisation

• Both less-developed and more-developed economies have benefited from globalisation

  • As firms grow in size, they benefit from economies of scale, causing costs to fall and consumers benefit in the form of lower prices 

• However, tax avoidance has become easier for global firms as they often exploit loopholes across different countries 

Consequences of globalisation for less-economically developed countries

1. Reduction in absolute poverty: Globalisation facilitates the flow of taxes from multinational corporations (MNC's) to host countries, enabling investment in vital public services such as healthcare, education, and infrastructure. This improves economic development

2. Employment opportunities: Increased involvement in global markets can generate jobs and higher incomes, potentially triggering a multiplier effect that stimulates overall economic growth. However, concerns arise regarding MNCs' exploitation of low-wage labour and poor working conditions in some instances, such as sweatshops

3. Depletion of natural resources: Some MNC's may exploit legal loopholes like transfer pricing and engage in corrupt practices, leading to the depletion of natural resources in developing countries. This phenomenon has been likened to a form of 'new colonialism'

4. Increased power of monopolies: Large firms can dictate prices and production levels across various regions. They may manipulate governments and gain access to raw materials through bribery and corruption

Consequences of globalisation for more-economically developed countries

1. Increased trade: Trade favours more economically developed countries. They export more manufactured goods at much higher prices and import cheaper raw materials from poorer countries

2. Increased capital flow: The profits earned by MNCs are often repatriated to their home country

The Role of Multinational Corporations in Globalisation

• Multinational Corporation (MNCs) is a company that has business operations in at least one country other than its home country

  • E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries
    

The Role of Multinational Corporations in Globalisation