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Economics - Section D: The Global Economy (Globalisation (Losers of…
Economics - Section D: The Global Economy
Globalisation
Globalisation is the growing integration of the world's economies
Improvement of technology: easier for firms to operate all over the world, for people to communicate with each other in different places
Deregulation has encouraged privatisation, stimulating more competition in many industries. Many countries have simplified monetary and legal systems, as well as stopped protecting domestic industries to make international trading easier
Winners of Globalisation
Benefits to Developed Countries
Higher Profits to MNC's
Higher Income, output and employment
Lower Prices
Increase in labor quantity
More consumer choice
Less conflict
Benefits to Developing Countries
Increase in income
Increase in tax revenue
Increase in exports
Increase in employment
Transfer of technology
Improvement of labor quality
Enterprise development
Losers of Globalisation
Impacts on the environment
Exploitation of less developed countries
Low wages may be paid
Resources are taken with little money given to host nation
Taxes paid by MNC's are often minimal
Higher commodity prices
Multinational Companies
Economies of Scale
Multinationals can exploit economies of scale because they are so large. They sell to global markets and are able to produce more than smaller firms who sell to domestic markets. As a result they have lower costs. They also have access to cheap resources, like labor and capital.
Marketing
Some multinationals, such as McDonalds and Starbucks have been successful due to being able to establish a brand, patents, and advertising. They use highly effective branding and marketing for global success despite being low-tech
Technical and Financial Superiority
Multinationals have developed over long periods of time, as a result they have invested into research and development, meaning they have access to better and more efficient technologies. They also are capable of hiring more talented and productive labor and can take risks small firms are unable to.
Multinationals are large and powerful firms that sells goods and services into global markets. They own production plants and operating facilities in more than one country
Development Aid
Bilateral
This is aid given by one country to another. There are often ties attached to this type of aid
Multilateral
Similar to bilateral aid, but multilateral aid is where governments give money to an international agency such as as the World Bank. The agency then distributes the money without ties
Grants
This is where a government gives a less developed country a cash sum
Loans
A lot of aid is in the form of low interest or interest free loans. The money given is expected to be repaid at some point.
Tied aid
This type of assistance is usually bilateral and means that assistance is given in return for something
Foreign Direct Investment
Foreign Direct Investment (FDI) is when company invests in a foreign country. They may build a factory, a shop, or a mine
To encourage FDI
-Offer tax breaks, subsidies, grants, low interest loans
-Deregulation
-Invest in infrastructure
-Invest in education and training
Protectionism
When a government restricts trade using trade barriers
Methods of protectionism
Tariffs
Quotas
Subsidies
Administrative Barriers
Reasons for Protectionism
Protecting infant industries
Protecting Jobs
Preventing Dumping
Raising Revenue
Preventing entry of harmful or undesirable goods
Improving current balance