Globalisation The growing interdependence of countries and the changes associated with it. Growing international division of labour Growth of trading blocs Development of international transport – movement of goods & people (consumers & workers) around the world Improvements in IT allowing rapid communication of info & ideas Increasing role of multinational companies (MNC’s)

Two Schools of Thought Adam Smith (The Wealth of Nations – 1776): wealth depends on the extent of markets, matching higher efficiency with increased customers, and the search for customers drives firms from national to international markets Karl Marx (Communist Manifesto – 1848): globalisation involves differentiation of people and countries, as well as rapid change and sweeping away of traditions; “all that is solid melts into air” under the forces of capitalism

Growing Economic Interdependence of Countries Rapid Capital Mobility: speculative “hot money” flows very quickly between countries Multinational Investment: investors are quick to move “where the action is” – countries have to compete to attract foreign direct investment Reductions in Protectionism Communication Technology

Key Characteristics of MNC’s Networking between companies: ‘hubs’ of network of satellite companies tends to be based in US, EU, or Japan Decentralisation of production: many MNC’s produce very close to final market (↓ transport costs & respond to local tastes, etc) Concentration: the top 500 MNC’s are responsible for 90% of the world’s foreign direct investments ‘wild geese’: MNC’s tend to base their location on subsidies, gov’t investives, etc. – when these run out, they move somewhere else

Impact of MNC’s on Developed Countries ↑ investment: may be of particular benefit to previously undeveloped regions ↑ tax revenues Incentives for countries to make ‘supply-side’ improvements to attract FDI ↑ capital acc’t in short-run (longer run ↓ current acc’t) MNC may bring management expertise & technology with spill over effects May bring instability if economy becomes largely influenced by movement of FDI and MNC’s

Impact of MNC’s on Developing Countries To be explored through studies in development economics…