Globalisation
Transport and communication costs
Rapid advances in the technology of transportation and communication
Improvements in technology has allowed firms to fragment their production process costs
It is now possible to site labour-intensive parts of production process in parts of the world were labour is plentiful and cheap.
Multinational companies have benefited from this, where they operate their labour in all parts of the world
Communications have developed with the growth of the internet and other forms of online conferencing
Globalisation in communications has allowed meetings to take place all over the world
Reduction of trade barriers
There has been a large amount of reduction in trade barriers since the end of the second world war
The first institution that was made to promote free trade was GATT General Agreement on Tariffs and Trade.
After that was WTO world trade organisation
New trade blocs have been established
Deregulation of financial markets
Movements in removing restrictions of financial capital between countries
Countries remove capital controls to make it easier for firms to operate more globally
Financial transaction can take place more quickly
Globalisation and sustainability
This has a impact on the climate change of the world and the environment
Sustainable development refers to the effect that economic growth and increased trade may have on future generations
Increased trade means increase emission of green house gasses due to the transport of goods over long distances
The World Trade Organisation
When first established agreement made on exchange rate system where price of currency was set pegged to the US dollar
Made to peruse the reduction of trade barriers
Makes sure that trade is not anti-competitive
Is notified and has to agree to the creation of new trading blocs
Foreign direct investment
The three main reason for such activity is market seeking, resource seeking and efficiency seeking
Market seeking as MNC's engage in FDI so that they can sell their products within a market and produce in the market rather than elsewhere. Is important for some countries as it allows them to be opened up into the global market for example china gain a lot from FDI
Resource seeking may undertake investment in a country so that they can take advantage of some key resource, such as natural oils or raw materials
efficiency seeking; they have decided that they can produce more efficiently in a different location
Positives of FDI is that it brings potential gains in employment, tax revenue, capital and technology with consistent impact on economic growth. Developing countries will benefit from this if they are lacking the capital needed and need tax revenues to be raised
Negatives are that benefits may not be as strong as hoped to be. Profits may be retained by stakeholders else where in the world. Long term FDI may be diluted rather than feeding back into economic growth. For less developed countries tax concessions negotiated may reduce the benefits and technology may not be appropriate or not disseminated
Globalisation and external shocks
Oil prices- changes in oil prices can cause wide spread disruption. In the 1970 there was a sudden price increase in oil prices many were dependant on this and demand in the short term was highly elastic, countries faced sudden current account deficits from oil importing . The world began to find ways to adapt to find new ways of finding fuel and this caused the price of oil to fall. 2007 WTO discussed as way to bring back up the price oil, this was done by restricting supply. Impact on countries was not as band due to them now being prepared
Financial crisis- given increasing interrogation of financial markets, there is a concern that globalisation increases the chances of financial crisis spreading more quickly. 1997 Asian financial crisis is an example
China and the USA- USA has a current account deficit arisen from heavy public expenditure on the bush program. This grew when countries began to peg their currency to the US. US interest rate relatively low allowing Americans of borrow financing their high consumer spending .
The credit crunch- another example of the danger of close interdependence. This is where commercial banks found themselves in a financial crisis. This led to a period of where the were low interest rates allowing a borrowing bubble. When house prices began to slide found out that they had lent out too much and began to cut back. 2009 UK was in a recession and the central bank began QE to make banks begin to lend again
The emerging economies- Industrialisation and economic growth in the UK and other western countries began in the 1960s. NICs which have made the transition mostly Asian countries although progress was slowed down by hyperinflation. More recently there have been more emerging economies which include BRIC
Globalisation evaluation - arguments in favour of globalisation are strong in the sense that there are potential gains for countries specialising in goods and services that they have the comparative advantage in. Some are against it as they feel that there are costs to the environment. There is increased vulnerability to external shock being more wide spread. Some politicians may impose protectionism policies due to transitional structural change for individuals in the economy