Rise of the Global Economy (Edexcel IGCSE Geography): Revision Note

Causes of globalisation

• Globalisation is where the world has become or is becoming interconnected through the processes of:

  • economics

  • culture

  • politics

  • trade

  • tourism

• It also includes environmental globalisation through the impacts of global warming

• Modern transport and communications have made trade almost instantaneous 

• Globalisation reduces the effect of political borders of countries

  • It makes them more interdependent

• More powerful countries and businesses affect decisions in other parts of the world 

  • This has led to a rise in global inequality

• Global cities have developed, which are the focus of the world economy

• The improvements and developments in communication and transport have made globalisation what it is today—a shrinking world

• The network flows to places and populations are the result of four significant developments:

  • Appearance of large transnational corporations (TNCs)

  • Growth of regional economics and trading blocs 

  • Development of modern transport networks

  • Advances in IT and communications, particularly the WWW and the internet

The production chain

• The developments in globalisation have led to the formation of a global economy

• There are very few countries in the world that haven't 'networked' in one way or another

• There are five different network flows:

  • Trade

  • Aid

  • Foreign investment

  • Labour

  • Information

Trade

• Trade is the import and export of raw materials, food goods and services

• Global trade is unequal

  • Developed countries benefit more from trade than developing and emerging countries

  • Many developing countries are paid low rates for materials and products

• There are fewer barriers to trade than there were previously

  • Tariffs and quotas are much lower

• Trade blocs have developed to make trade easier, including:

  • European Union (EU)

  • North American Free Trade Agreement (NAFTA)

Aid

• Aid is the transfer of resources from one country to another to help with development or after a disaster

  • Most aid is economic, either through receiving or donating

• This allows developing countries to invest in education, health, infrastructure and trade

Foreign investment

• Investment can either be direct or indirect

Labour

• This is important to the working of the global economy and labour migration fuels this market either with a specialist or cheap labour

• The availability of lower-cost labour in developing and emerging countries has led many transnational corporations (TNCs) to invest in those areas

Information

• Advances in communication mean that companies can have factories and offices around the world

• Media and advertising also increase the demand for products

Commodity chain

• The global production, supply or commodity chain pulls these flows together to produce goods or commodities

  • Before the development of global production, products tended to be manufactured in one country

  • Globalisation means that parts of different products can be made in several countries

  • At each stage of the flow, value is added to the emerging product

• Despite the miles involved and the number of countries involved, the product is still cheaper to produce in various stages

• This is known as the economies of scale: the cost per item reduces when operated on a large scale

• Transport improvements through large container ships mean that costs are reduced and moved longer distances more quickly

• Labour costs are cheaper in emerging and developing countries and there are usually reduced legal restrictions

Global investment

• Investment is not just monetary (economic), although this is a large part of it

  • Investment can be in people, research or products

• Foreign investment is when individuals or firms from abroad invest in another country

• Call centres are an example:

  • Call centres can be located anywhere, e.g. India

  • Investment is made in the country through building the call centre, paying taxes, etc.

  • Local people are employed and trained

  • Service is provided to the donor country, for example the UK

Transnational corporations

• Transnational corporations (TNC) provide most of the foreign direct investment (FDI)

  • Transnational corporations (TNCs) are companies which operate in more than one country

  • These companies invest in factories and infrastructure

Location of manufacturing

• Moving manufacturing from developed to developing or emerging countries

  • China is the main area for manufacturing goods from around the world

  • Investments are made in China to produce goods

  • Completed goods are shipped back to the original country, e.g. Germany

Labour

• Investment in people, either for cheap labour or for their expertise

  • Specialist surgeons from the USA to Australia

  • Investment in developments that attract cheap labour—the construction of Dubai attracts many Indian migrants

  • Research and development investment - motor car industry to build more fuel-efficient motoring—Elon Musk's Tesla electric cars

Aid

• Investment can come from aid for rebuilding after a disaster. Ukraine will need aid after the war with Russia ends

  • Aid can be funds sent to the government to use as necessary, although this can often lead to corruption and funds not going where they should

  • Aid can be in the form of goods and services directed to the affected area - refugee camps or after a natural hazard such as a tropical storm or earthquake