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Advantages
- Encourages countries to specialise in the goods and services they provide
- Economies of scale! Lower production costs, as markets become bigger with trade. Global sourcing has led to lower raw material costs.
- Allows countries to have comparative advantage, leading to productive and allocative efficiency
- Lower production costs may be passed onto consumers in the form of lower prices, and they also have greater choice of products
- World GDP has risen, (e.g. increased efficiency leads to increased output). Countries who have restricted trade have not seen this increase in growth.
- Since the increase in globalisation, levels of absolute poverty have decreased. World employment levels have increased, as there have been more jobs created. New skills and wealth, leading to an increase in living standards.
- International competitiveness has brought about lower prices for consumers (more competitive)
- There is an increased awareness of international disasters and consequences.
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Disadvantages
- The price of some goods/services are actually rising. Increasing world income has resulted in an increase of demand; when supply is unable to meet demand, prices rise.
- Countries are economically dependent on each other. This can lead to instability (e.g. if US reduces imports due to recession, Europe will most likely to into recession too)
- Global imbalance on the balance of payments current accounts. Some economies are running large deficits, which is unsustainable.
- Specialisation leads to over reliance on a few industries.
- MNC's (multi-national corporations) exploit LDC's (less developed countries) by paying them lower wages
- MNC's can force local firms out of business . Can't benefit from economies of scale, so are less competitive
- MNC's relocate quickly, and cause massive unemployment.
- Use power to decrease choice and increase price
- Influence government policies in their favour, unfair and unhelpful for domestic companies (e.g. starbucks don't pay tax). Withdraw profit from one country and put them in another with lower tax rates.
- Goes may be forced to reduce corporation tax to attract businesses.
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