Globalisation

What is Globalisation? Definition: The increasing integration and interdependence of the world economies.

Characteristics of Globalisation An increase in imports and exports as % of GDP. Growing importance of MNC’s. Increased foreign investment. Increased movement of labour Increased movement of capital. Increase in tourism.

Causes of Globalisation. Trade Liberalisation: In the last 50 years there has been a reduction in barriers. There are more FTA’s and Customs Unions and more multilateral agreements such as the WTO / World Economic Forum. Growth of MNC’s: Firms have been under pressure to innovate and up-grade. Rising costs / greater competition / desire for more profit has increased the need to look for new markets. Increase in Capital Mobility: Eg. Removal of exchange controls.

Causes of Globalisation Political Change: Collapse of Communism opened up new areas to international competition. Many capitalist economies have opened up and liberalised their economies. Cultural Change: Countries have become more international in their thinking and lifestyle. Technological Change: Reduced transport costs and the Internet has had a major impact.

Effects of Globalisation Structure of Economies: Globalisation has accelerated this change, in the UK, for example, the decline of the manufacturing sector. Economic Efficiency. Increased competition has meant resources need to be allocated more efficiently, however, in some sectors, monopoly power has been rising. Increased economies of scale will lead to increased productive efficiency as costs are reduced. Government Accountability: Can governments stand up to MNC’s?

Effects of Globalisation Effects on Fiscal Policy: Govt’s use of fiscal policy is weaker than. Internet shopping as reduced Govt ability to collect tax. Countries with high income tax may lose skilled labour and countries with high corporation tax may lose business. Monetary Policy: Control over monetary policy is weaker, if interest rates are lower than elsewhere, funds will flow out and if they are higher than elsewhere, funds will be attracted causing currency to rise in value. Environmental: Increased negative externalities.

Effects of Globalisation Interdependence as a Problem? Effects of war or strikes in other countries? Domestic effects if an MNC closes down? Equality. It is argued globalisation leads to increases in inequality (see BBC article)