Globalisation

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  • Created by: Clodagh
  • Created on: 02-05-14 09:33
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  • Globalisation
    • Globalisation describes the process of the world becoming more like a single economy
      • The economic barriers that divide one economy from another are reduced or removed over time, allowing economies to become more integrated
        • The main argument in favour of globalisation is the theory of comparative advantage
    • Elements
      • Free movement of goods and services
        • This implies that more trade takes place between countries, with a greater proportion of world output traded
      • Free movement of labour
        • People are increasingly free to move around the world both for leisure and for work purposes
          • Labour markets for those with high skill levels are globalised
      • Free movement of economic capital
        • Large companies are now likely to be multinational corporations (MNCs)
          • Rather than being in one country, MNCs have production facilities outside their country of origin
            • The importance of foreign direct investment is important to the economic prospect of many countries
      • Free movement of financial capital
        • Financial capital is increasingly mobile and its owners can move capital around the world in search of the highest return
      • Cultural factors
        • There is a greater degree of cultural exchange between countries
    • Measuring
      • The headline statistic for measuring globalisation is the percentage of world outpput that is traded
        • The scale of international capital flows and the international movement of labour are also important
    • Why?
      • Multilateral trade agreements: These are brokered by international organisations, notably the World Trade Organisation. They reduce tariff barriers and other protectionist measures that previously restricted trade
      • Technological advances: This makes business communication easier. For example companies can set up video conferencing and e-mail
        • The internet has also made it easier for consumers in one country to purchase goods from another
      • Cheaper transportation: Notably by air
      • Collapse of communism: Former communist countries were largely closed economies, but now there is greater economic integration
      • Increased openness: There is increased openness of some of the world's largest developing economies to trade such as India and China
        • Their plentiful labour forces and low wages have made them more competitive in international markets
      • The reduction and removal of controls on the flow of capital
      • The relaxation of visa regulations: These previously restricted international labour mobility
    • Evaluation
      • Globalisation should improve the worldwide allocation of resources
        • If globalisation results in a decline in the use of protectionist policies, the deadweight welfare loss that results from trade restrictions might be reduced
      • The activities of multinational corporations, especially in developing countries are controversial
        • Some people regard the employment of low wage labour as exploitation and believe that the lack of regulation in some developing countries is exploited by multinationals to produce low cost output
          • However it can be argued that living standards in developing countries would be lower without the investment in capital and training provided by MNCs
            • Without MNCs, some of those low waged workers in developing countries would be unemployed
      • Globalisation has made a country's competitiveness in the international economy a much more important determinant of its economic success
        • If a country is not competitive, both in terms of price and non price factors, its rate of economic growth is likely to be curtailed

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